Let’s talk about the best real estate stocks to invest in before the year ends.
If you are looking to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (firstname.lastname@example.org) or WhatsApp (+44-7393-450-837).
Table of Contents
First, what are real estate stocks?
Companies that own or manage real estate are known as real estate stocks. Real estate investment trusts (REITs) are included in this category.
A REIT is a particular class of publicly traded businesses that enables individual investors to own shares in real estate portfolios that generate income from a variety of assets. They make it simple for investors to invest in businesses that own, develop, and manage residential, commercial, and industrial properties, which is a part of the real estate industry.
REITs are obligated, among other things, to distribute at least 90% of their taxable profits as dividends. Funds from operations (FFO), a measure of earnings specific to the industry, is a crucial REIT indicator.
American Tower Corp., Crown Castle Inc. and Prologis Inc. are among well-known companies in the industry.
As more people throughout the world have gotten used to working from home, the COVID-19 pandemic’s effects have severely disturbed the commercial real estate market. Some businesses have relocated to new commercial office buildings, while others have repurposed their current offices, and still others are remodeling them.
The Federal Reserve‘s recent increases in interest rates have resulted in a substantial halt in price growth for both commercial real estate and residential real estate in recent months.
Depending on the type of investment, purchasing real estate stocks may offer your portfolio a steady stream of income as well as tax benefits.
Best Real Estate Stocks to Invest In: The Types
Real estate stocks can be broken down into sub-sectors based on their businesses, much like any other sector of the stock market. Typically, the following sub-sectors make up the real estate sector:
Residential. Companies that specialize in owning and leasing residential real estate, such as apartments, condos, and executive housing, make up residential real estate stocks.
Commercial. Stocks of commercial real estate companies typically hold, manage, or create office or retail space for a variety of enterprises to occupy.
Healthcare. Healthcare-related facilities, such as senior housing, assisted living facilities, and post-acute care facilities, are purchased, built, or managed by healthcare real estate stocks.
Specialty. In addition to REITs, which engage in fundamental property categories including residential and commercial real estate, there are other specialty stocks that invest in assets like entertainment spaces and other venues.
Equities that invest in activities unrelated to real estate are available in addition to the many kinds of real estate stocks that own, manage, or develop physical assets. Among them are businesses that invest in different mortgage-backed assets, such as mortgage REITs.
Best Real Estate Stocks to Invest In: The Pros
Diversity. Real estate stocks allow investors to purchase a single share of ownership that represents a whole portfolio of properties.
Liquidity. Investors can invest in actual properties through publicly listed real estate stocks without having to find, acquire, and maintain the assets themselves. Additionally, if shareholders require access to cash, they can sell shares much more quickly.
Competent management. In order to optimize shareholder value, real estate businesses provide shareholders with a layer of expert management that is dedicated to managing the company’s portfolio of properties.
Gains from taxes. Companies that lease real estate to generate passive revenue benefit from a number of significant tax advantages.
Earnings on a regular basis. Regular dividend payments dependent on the size of the investment are frequently made to shareholders of REIT shares.
Best Real Estate Stocks to Invest In: The Risks
Management fees. While competent management is a benefit to real estate stock holders, it has a price tag on it. The net operating income of a real estate company can be significantly reduced by manager salaries and benefits.
Sluggish growth. REITs are typically low-growth investments, in contrast to tech stocks and some other more volatile assets. Usually, they provide the most value to stockholders through consistent dividend payments.
Interest rate risk. Interest rate changes put investors at risk since real estate businesses frequently finance the buildings in their portfolios. A corporation may produce less net income that can be distributed as dividends if interest rates increase.
Possible market reversals. Periodic market downturns are common in the real estate sector, particularly during recessions. Examples from more recent history include the 2008 financial crisis and the commercial real estate market collapse during the COVID-19 pandemic in 2020 and 2021.
Best Real Estate Stocks to Invest In: How to Buy Real Estate Stocks
Investors can use a brokerage account or a tax-qualified retirement account, such as an individual retirement account (IRA), to buy real estate stocks. Investors may occasionally even be allowed to make investments through a 401(k) account provided by their employer.
Also keep in mind that investing in individual stocks carries a higher risk than purchasing a diversified fund, especially when those stocks are backed by tangible assets like real estate. Therefore, before making an investment, investors must conduct in-depth due diligence on companies and evaluate their financial situation.
Financial advisers frequently advise clients to diversify their investments by using funds like exchange-traded funds (ETFs) or index funds, albeit many investors prefer to trade in certain stocks.
Best Real Estate Stocks to Invest In: REITs With Best Value
These REITs have the lowest 12-month trailing price-to-earnings (P/E) ratio. A low P/E ratio indicates that you’re paying less for every dollar of profit made because earnings can be distributed to shareholders in the form of dividends and share repurchases.
Annaly Capital Management Inc. (NYSE: NLY)
Annaly Capital invests in real estate and related assets, such as agency mortgage-backed securities (MBS), residential and commercial real estate, and middle-market lending.
For the third quarter ended Sept. 30, 2022 (Q3), the New York-based real estate investment trust company swung to a loss attributable to Annaly of about $275.3 million from earnings of $519.2 million in the same period a year ago. The company also declared a quarterly common stock cash dividend of $0.88 per share.
According to MarketWatch, Annaly has a market cap of $10.13 billion as of the time of writing.
Rithm Capital Corp. (NYSE: RITM)
Previously known as New Residential Investment Corp., Rithm Capital is a publicly traded REIT that makes investments in the residential housing market. Residential loans, non-agency securities, and other investments of a similar nature are included in the company’s portfolio of assets related to mortgage servicing.
Rithm reported GAAP net income of $124.5 million, or $0.26 per diluted common share in Q3. Meanwhile, revenue of the company for the same period hit $912.8 million. Rithm also declared a quarterly dividend of $0.25 per share.
The company’s current market cap is at $4.27 billion, as per MarketWatch.
Medical Properties Trust Inc. (NYSE: MPW)
Investing in, owning, and leasing medical and healthcare properties is what Medical Properties Trust does. Loans for mortgages are also offered by the business.
For Q3, Medical Properties reported net income attributable to its common stockholders of $221.8 million, up from $171.1 million a year prior. Revenue for the reported period stood at $352.3 million, a drop year over year from $390.8 million.
The company declared a regular quarterly dividend of $0.29 per share.
According to MarketWatch, Medical Properties has a market cap of $7.83 billion.
Best Real Estate Stocks to Invest In: Quickest Growing REITs
Realty Income Corp. (NYSE: O)
Real estate investment trust firm Realty Income owns and oversees commercial properties across the US and Europe. Its monthly dividends are fueled by cash flow from more than 11,400 commercial real estate properties owned under long-term agreements.
Realty Income reported earnings of $219.6 million for Q3, an increase from $135 million a year ago. Meanwhile, revenue came in at $837.27 billion, a 70.9% jump year over year from $489.89 billion.
As per MarketWatch, Realty Income’s market cap stands at $40.67 billion currently.
Howard Hughes Corp. (NYSE: HHC)
Howard Hughes Corp. is a real estate development and management company that owns, operates, and develops commercial, residential, and mixed-use properties all across the US. It concentrates on master-planned neighborhoods in places like New York, Maryland, Texas, and Nevada.
For Q3, Howard Hughes reported net income of $108.1 million which surged from $4.1 million in the year prior. Revenue for the same period jumped to $639.5 million year over year from $219.2 million.
The company’s market cap is at $3.48 billion, per MarketWatch.
Starwood Property Trust Inc. (NYSE: STWD)
Real estate investment trust company Starwood Property Trust offers mortgage-backed securities (MBS) and infrastructure debt investments management services. The business also buys commercial real estate assets.
The company in Q3 reported GAAP net income of $194.6 million and revenue of $390.5 million. It has a market cap of $6.58 billion, according to MarketWatch.
Best Real Estate Stocks to Invest In: REITs With the Most Momentum
These are the REITs that had the highest total return over the past 12 months.
Omega Healthcare Investors Inc. (NYSE: OHI)
Real estate investment trust firm Omega Healthcare makes investments in the long-term healthcare sector, including facilities for assisted living, skilled nursing, and rehabilitation. A triple-net lease arrangement makes up the majority of the company’s assets.
The company reported adjusted funds from operations (AFFO) of $0.76 per share for Q3, down from $0.85 per share a year earlier. Revenue stood at $239.4 million, also down from a year ago at $281.7 million.
As per MarketWatch, the company’s market cap sits at $7.19 billion.
Iron Mountain Inc. (NYSE: IRM)
Information storage and management are Iron Mountain’s main priorities. It offers services including data centers, safe record keeping, as well as art storage.
The company reported Q3 AFFO per share of $0.98, up year over year from $0.90. Revenue stood at $1.29 billion, which increased from $1.13 billion a year ago.
Iron Mountain’s market cap is at $15.57 billion, MarketWatch says.
Host Hotels & Resorts Inc. (NASDAQ: HST)
80 upmarket and luxury hotels make up the portfolio of real estate investment trust company Host Hotels & Resorts, which also has five locations in Canada and Brazil. The company participates in joint ventures and collaborates with names like Hilton, Marriott, and Ritz-Carlton.
Host Hotels turned to net income of $116 million in Q3 from a loss of $120 million a year prior. Revenue jumped almost 50% year on year to $1.19 billion from $844 million. Meanwhile, adjusted FFO per diluted share rose to $0.38 from $0.20.
According to MarketWatch, the market cap of Host Hotels stands at $13.2 billion.
Best Real Estate Stocks to Invest In: REITS for Buy-and-Hold Investors
Agree Realty (NYSE: ADC)
With the exception of Alaska and Hawaii, Agree Realty is present in all states, and has fared better than others in this downturn in terms of holding onto its net-lease property portfolio, which has grown to over 1,600 properties.
Investment-grade tenants contribute to a share of the company’s revenue, with Walmart, Tractor Supply, Dollar General, and Best Buy.
The dividend distribution of Agree Realty is also increased on a monthly basis, and over the previous 10 years, it has increased by a compound yearly rate of 5.5%.
Additionally, despite upcoming adversity, the tenants of this retail REIT’s roster of companies that supply consumer items based on necessities should continue to pay rent and distribute dividends.
The company’s market cap is at $6.24 billion currently, per MarketWatch.
Digital Realty (NYSE: DLR)
Consumer goods are not a focus of Digital Realty; instead, it serves as a significant provider of digital storage and bandwidth to many of the biggest users of such services globally. In fact, companies like Verizon, LinkedIn, Google Cloud, and Amazon Web Services are among the top clients of this data center operator.
Also, Digital Realty is on sale as the firm’s stock price has fallen more than 40% so far this year as a result of both its connection to the tech industry and worries that significant customers may be shifting toward building their own data centers. But it should be good with a growing worldwide network of around 300 sites offering essential infrastructure to such a wide range of consumers.
Naturally, the liquidity of publicly traded REITs is a wonderful feature. You can invest in Digital Realty now and sell it at any time in the future while still benefiting from continuously increasing payouts from a firm that has increased its dividend for 17 years running.
Digital Realty has a market cap of $31.99 billion, MarketWatch says.
Prologis (NYSE: PLD)
San Francisco-based Prologis is one of the key benefactors and enablers of the rise in e-commerce that had been developing for more than a decade before skyrocketing following the pandemic. Its portfolio of logistics warehouse space totals around a billion square feet and is spread out over the globe.
Despite a record-low vacancy rate and swift rental hikes, worries about a slowdown in consumer spending and the expansion of one of its major clients’ own warehouse complex have contributed to a 38% decline in Prologis stock so far this year. The dividends paid by this industrial REIT have also increased for nine years in a row.
That momentum should continue amid the completion of Prologis’ acquisition of its next-largest competition, Duke Realty.
According to MarketWatch, the company’s market cap is at $109.92 billion.
All three are contenders for the best real estate stocks to think about purchasing due to their reliable dividends and potential for growth.
Best Real Estate Stocks to Invest In: Significant Parameters for REIT Analysis
Due to the specialized nature of their organization, REITs require investors to grasp certain measures. The funds from operations and adjusted funds from operations are two important indicators used to evaluate such securities.
FFO: This indicator adds and deducts specific factors from net income to calculate the cash flow generated by a company’s activities. Investors add depreciation and amortization expenses to net income and subtract gains from property sales to arrive at FFO.
FFO gives investors a more accurate picture of operational performance because real estate investments often increase in value over time as opposed to declining like many other assets.
AFFO: This indicator calculates the recurring/normalized FFO of a real estate corporation after capital maintenance costs have been subtracted. Since it takes into account the continuous costs of managing a real estate investment during its life, many experts believe that AFFO is a better metric than FFO.
AFFO is frequently used by investors to assess a company’s potential ability to continue paying dividends to stakeholders.
Best Real Estate Stocks to Invest In: Bottom Line
Some investments are appropriate for beginners because they are straightforward. Other investments, on the other hand, could be trickier and only appropriate for seasoned investors.
The relationship between risk and profit depends on the type of investment. Before deciding where each percentage of your money will go, you need to be informed of the benefits and drawbacks of each option in order to choose the investments that would be appropriate for your portfolio.
You should do your homework, receive financial advice, and select what kinds of real estate stocks you want to invest in before making a final investment decision. Also, creating a checklist before choosing an investment is a good idea. In order to make better investment decisions, you can also consult with me. Let’s talk!
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 669.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.