Real Estate Investment Trusts (REITs) have become a popular way for investors to gain exposure to real estate without directly owning property. Among the various types of REITs, residential REITs specialize in owning and operating rental housing properties—such as apartment complexes, single-family rentals, manufactured homes, and student housing. These REITs generate income primarily through rent, providing investors with consistent cash flow and potential capital appreciation.
In this guide, we’ll explore some of the best residential REITs. Whether you’re seeking passive income, diversification, or long-term growth, residential REITs offer a compelling opportunity in today’s market.
What are Residential REITs?
Residential REITs own, develop, and manage residential real estate. These properties are then rented out to tenants. These residences may include:
This type of real estate investment trust may own and manage anything from urban high rises to vacation condominiums, and everything in between. They just must be residential, not for commercial or industrial use.
Benefits of Residential REITs
- Demand: People will always need somewhere to live. If you need to live in student housing while in college, then an apartment near your work, and then a single-family home in the suburbs, Residential real estate is always needed. As long as people need a roof over their heads, the profits will keep coming in.
- Recession Resistant: Even when the economy is bad, people pay their rent first – they don’t want to be out on the streets. Other luxuries will be cut before rent. In some cases, people may move in with other family members to save money or move to a cheaper place, but most people don’t have anywhere to go and will do just about anything to save their home.
Risks of Residential REITs
- Lease Terms: With residential real estate, lease terms are generally 1-2 years, unlike commercial leases of 10+ years. This gives renters an out when their lease is up after just a short time. This leaves managers and owners constantly looking for new tenants.
- Housing Market: REITs that own residential properties make their profits from renters. Nowadays, more and more people want to own property. Mortgage companies and first-time buyer incentives try to make it easier for people to own homes as well. With more people becoming homeowners, there could be less need for rentals.
As with most types of REITs, residential and apartment REITs are a great long-term investment. If you have the money and the patience, you can reap great profits from residential REITs and set yourself up for a great retirement.
Largest Residential REITs
Listed below are 3 of the largest REIT stocks you can buy to take advantage of increasing rental rates in the residential real estate market.
AvalonBay Communities
AvalonBay Communities (NYSE: AVB) is a real estate investment trust with a long history of constructing, redeveloping, purchasing, and managing innovative apartment homes in some of the top U.S. markets. The company aims to create a better way for people to live by offering new solutions to old problems and looking for innovative concepts to implement.
AvalonBay specializes in multifamily development, acquisition, and management. The company owns apartment units throughout New England, the New York City metropolitan area, Washington, D.C., Seattle, and California. The firm is the third-largest owner of apartments in the U.S., with a portfolio size of nearly 80,000 apartment units across the states. Some notable properties owned by the firm include Avalon North Station, Avalon West Hollywood, and Avalon Glendora.
Equity Residential
Equity Residential (NYSE: EQR) is an S&P 500 firm specializing in acquiring, developing, and managing residential apartment complexes in metropolitan and high-density suburban coastal gateway regions where today’s affluent renters look for a place to live, work, and play.
One of the key aspects that sets Equity Residential apart is its commitment to sustainability and environmentally friendly practices. The company actively seeks to incorporate energy-efficient solutions, green building materials, and eco-friendly initiatives into its properties, helping to reduce its carbon footprint and create healthier living environments for residents.
Invitation Homes
Invitation Homes Inc. (NYSE: INVH) is a leading U.S. single-family home leasing company, headquartered in the Comerica Bank Tower in Dallas, Texas. The company aims to change lifestyle demands by offering access to high-end, updated residential homes with excellent features, such as close proximity to jobs and schools.
“Together with you, we make a house a home,” the company’s mission states, reflecting the Invitation Homes’ commitment to providing houses where individuals and families may thrive, as well as high-touch service that consistently improves residents’ living experiences.
Residential REIT ETFs
Another option for investing in residential REITs is to invest in an ETF that invests in residential REIT stocks. Investing in a residential REIT ETF is an easy way to invest in this industry while allowing a professional fund manager to choose which residential REITs to invest in, the right time to buy, and when to sell.
Below are 2 residential REIT ETFs worth looking at:
Industry Overview
| Number of REITs | 18 |
| Average Dividend Yield | 3.25% |
| YTD Total Return | 5.77% |
| February Total Return | 6.94% |
| 2024 Total Return | 12.83% |
Quarterly Performance Data
| Financial Metric | Q4 2024 | 2024 |
|---|---|---|
| FFO ($M) | $2,497 | $10,026 |
| NOI ($M) | $3,727 | $14,276 |
| Dividends Paid ($M) | $1,787 | $7,037 |
| Same Store NOI | 2.7% |
All Residential REITs
Investing in Residential REITs
Residential real estate is arguably the safest property type to invest in. No matter what, people will always need a place to live. On top of that, rental properties benefit from being less affected by the real estate market than other types of properties. If the housing market or the economy crashes, the demand for rentals actually increases as it becomes more difficult for people to buy a home. This makes residential REITs a solid investment that should provide consistent income for the long term.
Other Options to Invest in Residential Real Estate
REITs provide a low-cost and simple way to invest in real estate. However, they aren’t the only alternative to buying a physical property. The real estate investment companies listed below provide investors with a simple way to earn passive income through residential real estate.
Real estate crowdfunding offers investors the ability to decide which properties they want to invest in while still enjoying passive income at a fraction of the cost of traditional methods of investing in real estate. Here are some of our favorite real estate crowdfunding platforms:
Frequently Asked Questions
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Yes, real estate REITs can be a good investment for those seeking regular income, portfolio diversification, and exposure to real estate without owning property directly. However, they are sensitive to interest rates and economic cycles, so investors should assess their risk tolerance and investment goals.
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A key disadvantage of a REIT is that it must distribute at least 90% of its taxable income as dividends, which limits its ability to reinvest profits for growth. This can constrain long-term capital appreciation compared to other stocks.
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While REITs traditionally focus on commercial real estate like office buildings, shopping centers, and industrial properties, they can also invest in residential properties. Residential REITs primarily invest in apartment buildings, single-family homes, and other types of residential real estate.
