Why This REIT Could Be Worth an Investment Even As Home Sales Plummet

Home For Rent Sign in Front of Beautiful American Home .
xeni4ka / Getty Images/iStockphoto

Though housing prices are predicted to dip in 2023, mortgage rates are climbing, which makes buying a home unaffordable for many Americans. This is contributing to a slowdown in the real estate market. According to the National Association of Realtors, pending home sales dropped 4.6% in October, marking the fifth consecutive month of declines.

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But single-family home rentals, on the other hand, are flying off the lot, so to speak, which puts real estate investment trusts (REITs) in a desirable position for investors.

“A REIT is a company that owns, operates, and manages income-producing real estate,” said Robert Donnelly, CFO for Marketplace Fairness. “REITs are usually traded on stock exchanges, and they provide investors with a way to invest in real estate without having to purchase and manage property themselves.”

One of the leading REITs is American Homes 4 Rent. Launched in 2012, American Homes 4 Rent is a single-family rental REIT that owns more than 55,000 properties across 22 states and works with 200,000 residents. The company operates by buying single-family homes in metropolitan statistical areas (MSAs) that show strong population growth and high appreciation rates.

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The company is looking like a strong investment for 2023 in part because of its large scale, which gives it an advantage when it comes to efficiency and cost savings.

“The company has access to economies of scale that smaller investors simply don’t have,” said Jennifer Spinelli, founder and CEO of Niche Home Buyer. “Its team can partner with local service providers to get discounted rates on everything from repairs and maintenance to property taxes and insurance. And its management team is experienced in dealing with tenants, making it better able to manage both positive and negative factors such as rent delinquency or cash flow disruptions.”

Additionally, “its size and experience make it well-positioned to take advantage of any opportunities that may arise during a [housing] downturn while being able to mitigate potential losses,” Spinelli said. “With its dividend payments, investors can also enjoy some return on their investment even in difficult economic times.”

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More broadly, backing a REIT also gives investors a chance to make money over the long haul.

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“Another reason to consider investing in a REIT like American Homes 4 Rent is the potential for long-term capital appreciation,” said Dennis Shirshikov, strategist at Awning.com. “As the value of the real estate assets owned by the REIT increases, the value of the REIT itself may also increase, providing potential for growth over the long term.”

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About the Author

Nicole Spector is a writer, editor, and author based in Los Angeles by way of Brooklyn. Her work has appeared in Vogue, the Atlantic, Vice, and The New Yorker. She's a frequent contributor to NBC News and Publishers Weekly. Her 2013 debut novel, "Fifty Shades of Dorian Gray" received laudatory blurbs from the likes of Fred Armisen and Ken Kalfus, and was published in the US, UK, France, and Russia — though nobody knows whatever happened with the Russian edition! She has an affinity for Twitter.
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