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A wave of pent up demand is about to hit the housing market. Do you know how to profit from this trend?
Yesterday I wrote an article explaining this trend, using two charts to suggest that a large number of people will be entering the housing market in the coming years. This wave is large enough to fuel the housing market higher. According to one of the charts, this wave of potential renters has already started to enter the market.
I believe this trend will drive the 2014 housing market and continue for the next few years.
The basic trend is this: a large number of 18-34 year olds are living with their parents right now. Since this trend seems to be the result of the weak economy, I believe this trend will reverse as the economy improves. And I believe this trend has already started to reverse.
Additionally, the number of people per household is higher than the historical average. Again, this trend appears to be the result of the weak economy. In addition to the pent up demand amongst 18-34 year olds, I expect general strength in the housing market.
So how can you position your portfolio to profit from these trends?
The simplest answer is through REITs – Real Estate Investment Trusts. This corporate structure requires companies to pass 90% of profits back to shareholders. As such, REITs often make great additions to a retirement or income portfolio.
But considering the tremendous power of compound growth over a long period of time, I think these kinds of investments are perfect for young investors as well. This is especially true if the REITs are held in an account with reinvested dividends, such as DRIPs. In fact, I own shares of Realty Income Corp (NYSE: O) in my Roth IRA. Realty is a REIT that owns, among other things, properties and storefronts used by companies like Walgreens, FedEx and many other national chains.
There are lots of REITs in the market today. Through REITs you can invest in cell towers, farmland, self-storage facilities, office buildings and much more.
I’m more interested in a certain kind of REIT.
To profit from the pent up demand for housing I’ve set my sights on residential housing REITs, specifically those focused on multi-family rental housing and apartments.
There are a number of these REITs in the market but not a lot of bargains in the space. The table below shows eleven of these REITS as well as their PE – price-to-equity – ratio and annual dividend.
As you can see from the table above, the PE ratios of these housing REITs suggest that many are trading at ridiculous valuations. When you consider that the average PE of the S&P 500 is 19.45, most of these stocks look expensive.
Housing REITs are the best way to profit from the pent up demand that will drive 2014 housing trends. Tomorrow I’ll show you which REITs offer you the best opportunity.
DISCLOSURE: I personally own shares of Realty Income Corp (NYSE: O).
Is this happening in your neighborhood?
It feels like robbery. Local governments are broke. But instead of cutting spending, they’re forcing homeowners to pay up – raising property taxes when most of us are feeling the pinch. There used to be nothing you can do about it – until now! There’s a a special Federal program that allows you to completely pay off your real estate taxes through exclusive rebates. And they are available to any American. In fact, you can collect a Real Estate Tax Rebate this month! And every 30 DAYS after that! Click here to find out how to enroll.