Play This Quiet Shift in Housing for 7% Dividends and Upside

Demand for rental properties is skyrocketing – and we can play on the trend of a solid 7% dividend that can be obtained at a discount!

What drives this opportunity? Higher interest rates. As can be seen below, the average 30-year mortgage issued today carries an interest rate of close to 5%, a level we have not approached since the subprime mortgage crisis.

Mortgage rates are skyrocketing

The trend is so aggressive that it puts analysts and journalists in a state of complete panic, as they begin to report what I call “seller’s remorse.”

When sellers see how prices are skyrocketing and home values ​​are hurting, sellers are already lowering the asking prices and looking to lower properties as quickly as possible. Of the closet Called these sellers “concerned” in a recent article, while Q. Los Angeles Times Indicates that buyers are taking a break, and “the market is not the same” as it once was for sellers.

The hot-red rental market

When owners are in a hurry to sell, they will have to live somewhere, and so will people who are still priced outside the market because rising prices will increase the cost of owning a home. This is a boon to the rental market, where vacancy rates go down as rents go up.

Less vacancies = more income from rent

The question for Investors Is how to take advantage of this trend. The obvious way is to buy a rental property yourself. But there are a lot of drawbacks here. First, if you need to finance it, you are looking at more of the rent you charge towards mortgage interest.

In addition, you will have other headaches that homeowners have to deal with, such as complaining tenants, the need to pursue rent checks and possible legal risks – not to mention the risk of centralization of dependence on a single property.

The simplest option (much!) Is to invest through real estate investment funds (REITs) traded on a stock exchange that owns residential properties, such as Invitation Homes (NYSE: INVH). The REIT owns 80,000 detached houses in 16 markets, giving you a variety of residential real estate.

High demand for Invitation’s assets has caused its inventory to nearly double in five years.

Big profits with diversified real estate

This retreat seen on the right side of the chart above – an excessive 20% drop a year to date – now makes a great time to pick up INVH and be on the landlord’s side, as more Americans move from buying to renting.

Kick REIT dividends into overdrive

However, there is a catch: you start with a rather low return – only 2.4% – because investors have raised the price of Invitation to such an extent that it has offset the 175% increase in dividends over the past five years (because of yields and prices moving in opposite directions).

What’s more, even with the stock falling this year, it is trading at a price to equity ratio (P / AFFO) of 24. This is high for Reit, but I would say it is still fair for one with so much success behind it. (The P / AFFO ratio is similar to the P / E ratio used for stocks but is REIT specific.)

Still, INVH’s annual total return of 13.5% over the last half decade tells us that this is a strong REIT, but just not one that we can buy just for income, because of its low payment.

what are we really want is a fund that holds INVH and other similar REITs while translating some of the capital gains of the REIT in its portfolio into dividends for us.

Enter Closed Funds (CEFs) as Cohen & Steers Quality Income Realty Fund Inc. (Symbol: RQI). RQI, which holds INVH alongside many other high-quality REITs, yields 7% and has an amazing record, crushes the average REIT by a huge margin, depending on the performance of the SPDR Dow Jones REIT ETF (NYSE: RWR), In orange below.

Dividends and large profits

RQI commissioned this powerful show because it is run by a team of veteran Wall Street real estate professionals. The fund is also very diverse, buying REIT from across the economy, so you get exposure to thousands of properties in many industries. Exaggerated and TMRs special when sold specifically – this was the key to the CEF’s strong performance.

The fund then transfers these profits to us, along with the dividends generated by its portfolio, in the form of its rich dividend at a rate of 7%.

Source: Cohen and Stress.

As can be seen above, the fund’s top 10 holdings are spread across the desired REIT sectors (in addition to the residential sector), such as cellular towers, through American Tower Corp. (Symbol: AMT) And Crown Castle International Copr. (Symbol: CCI); Warehouses, which still enjoy high demand for goods, through names like Prologis Inc. (Symbol: PLD) And Duke Realty Corp. (Symbol: DRE); And data centers, through companies like Equinix Inc. (Nasdaq: EQIX).

As I write this, you can buy RQI at a 6% discount to the net asset value (NAV, or its portfolio value). So basically, you only pay 94 cents on the dollar for these great companies.

The kicker? RQI Pays dividends every month, So that his payments come exactly according to your accounts.

For more information on generating up to 8% monthly dividends, click here.

Play This Quiet Shift in Housing for 7% Dividends and Upside Source link Play This Quiet Shift in Housing for 7% Dividends and Upside

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