3 Top Stock Picks to Play the Rental Market Boom
Rental home investing has increasingly become a cornerstone of major investors’ portfolios. Even as interest rates rise, investment in single-family homes rose from 12% of all real estate purchases to more than 20% in a few short months. As housing supply outpaces demand, a reversal from recent trends, rental property purchases will likely continue.
Playing the rental market boom may seem impractical for those without a ton of cash on the sidelines. However, that isn’t the case. Some investment firms acquire rental properties and trade on public stock exchanges. Investors can choose from several stocks to capitalize on the rental market boom.
The bottom line is that you don’t have to be a millionaire to capitalize on the rental market economy. Let’s take a look at three stocks that will benefit from an uptick in rental property prices.
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Invitation Homes (INVH)
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Invitation Homes (NYSE:INVH) owns more than 83,000 single-family rental (SFR) homes nationally. They generally target the “starter” segment, or those fresh out of school and beginning their first job. Invitation Homes offers a bridge between schooling and professional life as consumers settle.
Invitation Homes capitalized on that trend as more professionals left school and entered the workforce right into a remote environment. Revenue growth exploded post-2020. Revenue grew by 3% year-over-year in 2020. In the following two years, revenue grew by 9.5% in 2021 and by 12.1% in 2022.
Invitation Homes kept pace while maintaining margins (income was $195 million in 2020 but hit $437 million in the preceding 12 months).
INVH is likely the best “pure play” for investors interested in playing the rental market boom. The stock also offers a modest 3% dividend to entice investor interest further.
Mid-America Apartment Communities (MAA)
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Mid-America Apartment Communities (NYSE:MAA) is an S&P 500-listed real estate investment trust with more than 100,000 apartment home units in 16 states. Opening a position in MAA alongside INVH lets investors capture the biggest ends of the rental market: SFRs and individual apartments.
The company’s success is evident in its dividend consistency, and the REIT either maintained or increased its dividend since 1994. The biggest dividend jumps came in recent years, particularly in 2022, on the heels of a strong rental market. That trend isn’t likely to die soon, and the company just announced its next dividend increase.
A risk to keep in mind is that rent prices will decline as inflation cools. Declining rent prices will cut into MAA’s bottom line. This makes MAA a slightly riskier play than a home-based rental market stock but still one to consider for your portfolio.
Extra Space Storage (EXR)
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Moving into a rental, or bouncing between rental homes, means that space is at a premium. This means that Extra Space Storage (NYSE:EXR) is as well-positioned to take advantage of the rental market boom as any direct investment stock. Despite the strong position, EXR is down 11% this year. That drop makes EXR a cheap stock for those interested in capitalizing on rental market trends.
If you’re turned off by recent market turbulence, EXR is also a stable stock. Its beta is just 0.57, meaning it moves less dramatically than the broader market. The company also issues a 2% dividend.
Ultimately, due in part to the rental market boom, self-storage demand grew to more than 1.7 billion square feet this year. That bodes well for EXR’s core operations. As 20% of Americans currently use some form of self-storage and 15% more expect to in the near future, Extra Space Storage is ideal if you want to diversify your rental market investment portfolio.
On the date of publication, Jeremy Flint held no position in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Jeremy Flint, an MBA graduate and skilled finance writer, excels in content strategy for wealth managers and investment funds. Passionate about simplifying complex market concepts, he focuses on fixed-income investing, alternative investments, economic analysis, and the oil, gas, and utilities sectors. Jeremy’s work can also be found at www.jeremyflint.work.
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