2 Rental Stocks to Own Today

The rental market is still hot, despite the fact that the overall real estate market hasn’t seen the boom that many thought it would following the financial crisis.
Millennials are taking their time when it comes to settling down and are getting married, having children and buying houses later in life. With that, homeownership rates have dropped to levels we haven’t seen since 1994, at around 63%. Meanwhile, the total number of renter-occupied housing (in terms of units) is approaching 44 million, versus 35 million in 1994.
What’s more is that not only are there more renters in the market, but rents are up and vacancy rates are down. In 2009, the average vacancy rate in the U.S. was 8% and the average effective rent was $964. Today, the vacancy rate has been cut nearly in half, to 4.4%, and rents are up over 20%, to $1,180.
The best way to play this trend remains apartment rental companies. The other kicker is that many of these apartment rental companies are real estate investment trusts (REITs), which offer solid yields in this low-rate environment.
With that in mind, here are the top property rental stocks to own today:

Equity Residential (NYSE: EQR)

This equity REIT owns and operates a wide portfolio of apartment properties across the country. The focus is on coastal markets, which are perhaps the most appealing rental markets. It’s paying a 3% dividend yield.
Shares of Equity Residential are down 6% over the last year, due to fears of rising rates hurting REITs. Still, higher rates could actually be a positive for the apartment rental business. Higher rates make purchasing homes less affordable and less appealing, helping drive rental demand higher.
Equity Residential paid $9 billion to buy Archstone assets in 2013, and at the same time divested non-core assets. It’s part of a nearly 10-year portfolio restructuring strategy to better position the company for the boom in the apartment rental market.
Equity Residential has a niche of sorts by catering to the coastal markets, which have supply constraints and positive demographics. The alternatives for single-family housing are nil in many of these markets, keeping multi-family demand high. Some of its key markets include Boston, New York, San Francisco, Seattle and Washington, D.C.

Avalonbay Communities (NYSE: AVB)

This real estate investment trust, formed via the merger of Bay Apartment Communities and Avalon Properties, specializes in upscale apartment communities. Avalonbay Communities still has a multi-billion-dollar development pipeline as well, which creates a solid runway for growth. It’s also offering a 3% dividend yield.
Much like Equity Residential, Avalonbay concentrates on coastal markets with strong employment, populations and structural densities that support rentals. The high cost of ownership in cities like New York and Washington, D.C. helps support renting versus buying.
Dividends are becoming an even greater necessity in this current market that’s proving increasingly volatile and fraught with low-rate investments. The S&P 500 offers a yield of just around 2%. Meanwhile, apartment rental companies are offering market-beating yields while also having serious demographic tailwinds.
For more high-quality dividend payers that continue to outperform and outyield the broader market, click here.