Grant Cardone is the author of two bestselling books: The 10x Rule, and If You’re Not First, You’re Last. He also invests in multi-family residential real estate. He recently appeared in an article in Moneywise arguing that a home is a terrible investment. While the entrepreneur didn’t provide any recommendations about what real estate stocks to buy, he made it pretty clear an excellent place to start is multi-family residential.
People have a hard time hearing that their home is a poor investment. That’s especially true, given housing affordability in many parts of the United States and Canada has gotten out of control.
For example, in Portland, Oregon—it’s a beautiful place, but it’s not exactly overrun with people like New York City—you need a salary of $147,170 to buy a home based on the median home price of $599,400.
The $120,000 required for a 20% down payment could provide you with a reasonably attractive passive income stream merely by opting to rent rather than buy.
While I’m not suggesting you run out and sell your house and reinvest in these three real estate stocks, you likely wouldn’t regret it if you did.
AvalonBay Communities (AVB)
AvalonBay Communities (NYSE:AVB) announced on Sept. 6 that its same-store residential rental revenue for the first two months of Q3 2023 increased by 5.3%, 40 basis points higher than its July 31 guidance. As of the end of August, its occupancy rate was 95.6%, with rents up 3.9% in July and 3.0% in August.
Based in Virginia, AvalonBay owns 294 apartment communities containing 88,659 apartments in 12 states and the District of Columbia.
Interestingly, it expects 2023 full-year same-store revenue growth in its East Coast communities to be 7%, 200 basis points higher than in California and the Pacific Northwest.
The five new communities it’s leasing up deliver significantly higher monthly rental revenue per home. Initially, the REIT projected an average revenue per home of $2,845. It will come in around $3,365, $520 higher than initial projections.
Between Q2 2023 and Q4 2024, it expects to deliver 3,600 new apartments, increasing its rental revenue and core funds from operations (CFFO).
Yielding 3.7%, every $100,000 poured into AVB will generate $3,700 in dividend income plus future capital appreciation. Having gone sideways the past five years, it’s AVB’s time to shine.
Mid-America Apartment Communities (MAA)
Mid-America Apartment Communities (NYSE:MAA) owns and operates 101,986 apartments in 16 states and the District of Columbia.
MAA stock is trading at its lowest level since March 2021. It sits about $1 off its 52-week low. The Tennessee-based apartment REIT deserves better. Having paid quarterly dividends since 1994, it is a consistent achiever in the REIT industry.
At the end of July, it reported Q2 2023 results that included a 12.9% increase in CFFO to $2.28 a share, an 8.1% increase in revenues, an 8.6% increase in net operating income, and a 9.3% average effective rent increase per unit.
What’s not to like?
As you can tell by its average effective rent per unit ($1,673) in the second quarter, Mid-America plays in a much different sandbox than AvalonBay. However, like AvalonBay, it’s got plenty of units in the development pipeline, which will continue to drive rents higher.
As of June 30, it had 2,310 units in six projects under development that will cost $735 million to complete. It expects to have them all done by 2025.
From a balance sheet perspective, it finished the second quarter with $4.4 billion in total debt outstanding with an average interest rate of 3.4% and 7.5 years to maturity. Its total debt to adjusted total assets is a reasonable 27.5%.
Yielding 4.1% from its $5.60 a share annual dividend rate, MAA stock would generate $400 in dividend income from a $100,000 investment.
Invitation Homes (INVH)
My first two real estate stocks to buy were apartment owners, so I thought I’d go with one of America’s leading single-family rental companies.
Invitation Homes (NYSE:INVH) finished the second quarter with 76,593 homes in its same-store portfolio. Year-to-date, its core revenue growth was 6.9%, with a 4.4% increase in net operating income. Average occupancy was excellent at 97.7%, with a bad debt of just 1.7% of its gross rental revenue. It collected 98% of its rents in the second quarter, almost back to the 99% level before the pandemic.
Given its portfolio of single-family rental homes, the typical acquisition of homes in a quarter is unremarkable. For example, in Q2 2023, it acquired 276 homes for $88 million. However, it sold 378 for $141 million, a net disposition of 102 homes.
Fortunately, in July, it acquired nearly 1,900 homes for $650 million, an average of $342,105 per home, below the June 2023 national median price of $410,200.
This is vital to its long-term success. While it doesn’t want to buy rundown properties, it can’t afford to overspend on the purchase because it will have to spend on sprucing up the homes for prospective tenants.
In Q2 2022, the average monthly rent at its homes was $2,127. It’s increased the past four quarters, ending Q2 2023 at $2,285, 7.4% higher than a year ago.
People have to live somewhere. Investing in INVH is no different than AVB or MAA. While it yields just 3.0%, the capital appreciation potential is higher. This stock and the others we mentioned are all top real estate stocks to buy.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the biedexmarkets.com.com Publishing Guidelines.