Get Your Foot Into Rental Real Estate With This ETF

Regular readers know that I am involved in several aspects of the real estate industry. As I recently stated in a national brokerage monthly real estate outlook meant for institutional investors, having personal experience with current trends, now is the best time in the last thirty years or more to appropriately purchase existing rental real estate. Actively managed real estate holdings are the best choice for income and tax advantages. Be your own little Donald.

Another way to play is through passive investment in rental real estate. From a cost efficiency standpoint, my somewhat contrary opinion is to recommend IShares’ FTSE NAREIT Residential Real Estate Fund ETF (REZ). This ETF has been battered in an unforgiving market. Fear not. The rental market is in the process of expanding in occupancy, demand, rents and quality of tenant. The mortgage (and political) meltdown has created a situation where most potential homeowners cannot get credit without excellent to superb credit and lofty stips. Spell R-E-N-T-E-R. My personal experience is that smart money is going into rental single family homes, multi-family units and apartment complexes. And brilliant money is going into foreclosed apartments for rehab and re-positioning in what is going to be a robust rental market sooner than later. Inflation with the government printing presses rolling 24/7? Advantage, rental real estate.

REZ is designed to correspond to the price and yield of the FTSE NAREIT Residential Index. The ETF is a non-diverse roster of companies that own, manage and/or invest in residential apartment properties. The two largest holdings are Equity Residential and Avalon Bay Communities at 23% and 14% of the portfolio, respectively. Other top holdings include Apartment Investment and Management, UDR Inc., Home Properties Inc., Camden Property Trust, BRE Communities, American Campus Communities, Essex Property Trust Inc. and Equity Lifestyle Properties. All of these comprise approximately 5% each of the remainder of the portfolio. Twenty-one companies are represented in total.

The ETF trades at $41.81, very close to net asset value. Sporting a dividend of 4.85% and trading a respectable ten-day average of 85g shares, the $25m ETF is your best bet for this sector of real estate.

With a new financial era forthcoming, toss out past performance. Rental real estate is poised to reward investors with a significant total return. Own rental property if you can. Buy REZ as an excellent second choice.

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