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REIT ETFs to Play Higher Rents

tlydon@globaltrend.com (Tom Lydon)

The latest real estate trend has become residential rental housing. Slow job growth and fear of another market downturn have created a spike in the number of U.S. citizens that are renting rather than purchasing a home. Rather than directly purchasing a rental property, there are exchange traded funds to track this market.

“The current market makes a strong case for rental growth. The collapse in housing prices during the three years of the Great Recession wiped out nearly 39% of U.S. households’ net worth, according to a Federal Reserve study released last week. But people still have to live somewhere  — and that usually means multifamily apartments or rented homes,” Susan J. Aluise for InvestorPlace wrote. [ETF Chart of the Day: REITs]

There are several ETFs that invest in real estate investment trusts, or REITs.

A recent Freddie Mac story illustrated the rental rush, which found that 1.5 million families or households have moved into rentals this year. This is a 4% increase in one year, and add into this that rents rose 2%-4% over the same time period, reports Aluise. [ETF Spotlight: REITs]

REITs pay out about 90% of their annual earnings to investors, which gives this investment asset class more clout. Investors are searching for yield and diversifying funds that pay out a decent dividend. [REIT ETFs Quietly Storm the Markets]

Rental real estate ETFs:

  • iShares FTSE NAREIT Residential Plus Capped Index Fund (REZ - News) This ETF is the closest thing to a residential rental REIT pure play. The fund yields 3.7%, with an expense ratio of 0.48. REZ is up 8% year-to-date.
  • SPDR Dow Jones REIT ETF (RWR - News) This ETF invests in residential real estate and health care property. The yield is at 2.9% with an expense ratio of 0.26. RWR is up 12% year-to-date.
  • Vanguard REIT ETF (VNQ - News) This ETF invests in 100 different REIT ETFs in the U.S. A dividend yield of 3.3% and an expense ratio of 0.12 makes this fund affordable. VNQ is up 12% year-to-date.

Tisha Guerrero contributed to this article.