Buying versus Renting: Residential REIT’s

Real Estate Investment Trusts [REIT’s] avoid double taxation and their yields can be fairly high. REIT’s are not subject to federal income tax as long as they distribute at least 90% of the taxable income to shareholders. However, REIT’s are also quite varied in how they operate.

REITs are generally divided into two primary types: mortgage [or debt] REIT’s which own mortgages primarily on homes and equity REIT’s which own the properties themselves. Then there are sub-types; for example, the equity REIT’s invest in various types of properties, such as industrial buildings, office buildings, residential, retail, and diversified. There are even more narrow categories. Residential can include apartment buildings, manufactured housing parks (mobile home parks), and jails.

With the downturn in the housing market, many potential buyers are doing a “wait and see” and continuing to rent. The Wall Street Journal Online recently ran an article called “Renters Gloat Over the Housing Slump.” If mortgage defaults increase, debt REIT’s will suffer. However, if the number of renters increases, equity REIT’s that specialize in apartments can benefit.

The following is a list of the highest yielding residential REIT along with whether it is an equity or a debt REIT, and the type of property the REIT invests in.

Hanover Capital Mortgage Holding (HCM) 12.1% Mortgage
American Mortgage Acceptance (AMC) 9.2% Mortgage
BRT Realty Trust (BRT) 8.4% Mortgage
Sun Communities (SUI) 7.7% Equity-Manufactured housing
First RE Investment Trust of NJ (FREVS.OB) 7.7% Equity-Apartments, Commercial
UMH Properties (UMH) 6.6% Equity-Manufactured housing
Investors Real Estate Trust (IRETS) 6.5% Equity-Apartments, Commercial
Highland Hospitality (HIH) 6.2% Equity-Extended stay hotels
CentraCore Properties Trust (CPV) 5.7% Equity- Detention facilities
America 1st Apartments (APRO) 5.4% Equity-Apartments
Associated Estates Realty Corp. (AEC) 5% Equity-Apartments
American Campus Communities (ACC) 4.8% Equity-Apartments
Home Properties (HME) 4.4% Equity-Apartments
Fieldstone Investments (FICC) 4.3% Mortgage
Apartment Investment & Mgmt (AIV) 4.3% Equity-Apartments
United Dominion Realty Trust (UDR) 4.0% Equity-Apartments

Author does not own any of the above at this time.