Investing in housing doesn’t completely entail having to purchase a property. There are other ways to invest such as real estate investment trusts or REITs – the ones that mainly focus on residential real estate. Apart from buying shares in a homebuilder, you could also invest in other housing-related businesses such as real estate outfits that supply construction materials to homebuilders.
Apart from residential REITs, there a number of other supremely profitable REITs but our main focus for this article is residential. When it comes to housing stocks, there is a very large number to choose from. Therefore, a number of parameters such as market capitalization would have to be used to narrow down the most potentially profitable. Using this parameter, we have narrowed down the top residential stocks for 2020. Let’s take a closer look.
1. Home Depot
Home Depot is about the biggest residential housing stock and it occupies this position with a very wide margin. It was founded in 1978 and has thoroughly expanded to become one of the largest home-improvement retailers in the world. In North America, Home Depot owns 2,290 stores with each averaging 105,000 square feet of indoor space.
A simple multiplication would show that Home Depot boasts of over 240 million square feet of store retail space. With a revenue generation of $108.2 billion dollars in 2018 from this space, Home Depot is no doubt a great investment option.
In addition to its consumer-facing line, Home Depot is also one of the major suppliers of lumber, hardware as well as other supplies needed for homebuilding. Thanks to the nature of its products, it is easily protected from adverse e-commerce winds.
Wise and calculated investments in e-commerce and other business areas also rake in more income for this company. With a strong track record of increasing dividends over time, Home Depot would be an excellent choice for any income-seeking investor in 2020.
2. AvalonBay Communities
AvalonBay Communities is the largest real estate investment trust or REIT that is solely concerned with residential properties. With investments primarily vested in larger apartment communities found in six core markets including New York Metro, New England, Northern California, Southern California, Mid-Atlantic, and the Pacific Northwest, AvalonBay Communities boasts of a total of 291 apartment communities in the U.S.
These buildings all range from Urban high-rise buildings to suburban garden apartments. This company has a unique business plan – although property acquisition is on its list, AvalonBay focuses more on a growth method that is the development of the buildings.
AvalonBay has actively generated 13.3% annualized total returns for its shareholders from it’s 1993 IPO to the end of the first quarter of 2019. Its dividend has risen at a 5.2% average pace and these numbers have been maintained for more than 25 years.
Given strong numbers like this in the face of untapped growth potential which they possess, investing would appear to be a great option and this is why it made our list of top residential stocks for 2020. Furthermore, the company is already investing in Southeast Florida and Detroit which are a part of the highest cap rate cities in 2020.
3. Equity Residential
Very identical in size to AvalonBay, Equity Residential is most times, rated side by side AvalonBay. Apart from a shared similarity in size, Equity’s business model is quite similar to AvalonBay – its focus is on high-cost housing markets in coastal areas.
As the third-largest owner of apartments in the US, the company owns 307 properties which total almost 80,000 apartment units and is one of the oldest real estate investment companies in the U.S. The company was founded in 1969 by Sam Zell, the legendary real estate investor. Despite having a similar business model to AvalonBay, there are some very clear differences.
Find out what you can learn from Sam Zell by reading: 6 Real Estate Moguls You Can Learn a Thing or Two From.
Equity is not as big on development as AvalonBay is and this is apparent from the fact that over a 2-year period spanning 2017 to the end of 2018, AvalonBay spent ten times more on development than Equity did. Also, Equity has properties more concentrated in urban and high-density suburban markets.
Ninety-nine percent of these properties are located in New York City, Seattle, San Francisco, Southern California Metro Areas, Boston and Washington, D.C. For the other 1%, Equity has begun to explore the Denver housing market with three properties located in the metro area already as well as one new acquisition.
4. D.R. Horton
Delivering the largest volume of new homes every year from 2002 through to 2018, D.R. Horton is unarguably America’s largest homebuilder and there is no indication that this fact would be changing anytime soon. Between April 2018 and March 2019, D.R. Horton generated $16.6 billion in revenue from sales of 53,768 newly built homes.
The company operates all over the United States but has most of its revenue coming from the Southeast and South Central (Texas, Oklahoma, and Louisiana) states. D.R. Horton is notable for building homes with various price tags ranging from entry-level homes that can be gotten for less than $200,000 to luxury homes that cost up to $500,000 and even more.
Read about the 5 Texas Real Estate Market Trends in 2020 before considering residential stocks here.
D.R Horton’s latest operation strategy is based on building more entry-level homes which are the highest in demand. Therefore, sales are guaranteed to increase tremendously over the course of 2020 and beyond.
5. Mid-America Apartments
This company was established in 1977 and became a publicly traded apartment REIT in 1994.
Figures from March 2019 show that Mid-America Apartments owns about 102,000 apartment homes in 305 communities and is located in Germantown, Tennessee. This apartment REIT stands out from among the others because it mainly deals with lower-cost markets that have higher-than-average growth rates.
Based on investment location, its top markets in terms of rental income include Dallas-Fort Worth, Atlanta, and Charlotte, North Carolina. The larger part of the residential stock portfolio is located in the Southeast and Southwestern United States generally referred to as the “Sunbelt” region. The company’s focus on this region has paid off bountifully for investors as Mid-America Apartments boasts of 15.1% annualized returns over the two-decade period through 2019.
This article has been contributed by Charlie Gray.