5 Best Real Estate Stocks to Buy for 2022 | Property Profits

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Find out the real estate stocks to buy for bigger property profits in 2022!

Real estate stocks are the third-best performing sector this year with a 33% return through October. Only energy stocks and the financials have beaten REITs for higher returns.

But that overall return hides some big differences in property types. The National Association of REITs tracks 154 real estate investment trusts across 12 major property types and shows returns were as high as 56% through the first nine months of the year…but also as low as just 7% for some types of real estate.

Real estate can still make you money but getting those higher returns means understanding the trends and knowing which property types will outperform…as well as the ones that will lose your money.

It was true this year and it will be true for 2022!

In this video, I’ll show you the factors affecting real estate stocks and REITs in 2022, the property types to watch and one to avoid. Then I’ll reveal five REITs to buy for outsized returns next year.

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Nation, if you’re investing in real estate in 2022, you need to be watching three market forces because these will drive the returns for the year along with which property types will benefit.

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Inflation Affecting the Real Estate Market

And by far, the biggest driver of returns, not just in real estate but across stocks is going to be inflation. Consumer prices have jumped by 5.4% over the past year, the highest rate of inflation in 30 years. Home prices have increased by 20%…another multi-year record for inflation.

Of course, the Fed is still playing naïve to the problem. Chair Powell and the central bank is grasping to the idea that increasing prices are only going to be temporary…that we’re going from historic levels of inflation back down to nothing in a matter of months.

Yeah, not going to happen.

Inflation is going to affect real estate in a few ways you want to watch. First is just the upward driver for property prices as protection against inflation…every investor needs to have some real estate exposure in their portfolio.

Also though, and this is how it affects property types and REITs differently, is how well property owners will be able to increase rents. For example, against the year-long moratorium on rents, residential landlords couldn’t increase rents for fear of not getting paid at all. In fact, Owners’ Equivalent Rents, a measure of rent prices across the U.S., increased just 2.5% over the year to January while home prices increased by 20% over the period.

So here, you need to watch for property types with shorter average lease agreements. That means landlords are going to be able to increase rents faster along with inflation instead of being locked into those contracts for years.

The worker shortage and coming higher wages will also be a big driver, especially for retail and certain residential property types. There are now 10 million job openings for just 7 million unemployed looking for jobs. More than 4 million Americans quit their jobs in August, a record high and The Great Resignation is going to be a major theme in 2022.

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Of course this is going to increase wages as employers fight for workers, especially at the lower end of the income scale. That increase of $2 an hour is a lot more for someone making $12 an hour than it is for someone making fifty-grand a year.

We’ll look at some specific property types and real estate stocks for this next but look for retailers and manufactured home owners to benefit big time!

Finally here before I reveal those five real estate stocks to watch, consumer spending could surge in 2022 and take a handful of stocks with it!

JP Morgan estimates that households saved as much as $1.7 trillion over the last 18 months with the average balance up more than two grand to over $6,000, locked down, collecting those stimulus checks but not spending it. That money could now come through in a wave of spending that benefits retailers, shopping malls and the hotel segment of the property market.

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Fundrise makes it easy to invest in a managed portfolio of real estate all with one fund and a low annual expense similar to ETFs. I can always click through to see details on every project in the portfolio but to tell the truth, it’s so stress-free that I go months without checking. I know Fundrise is managing the properties and I’m earning a solid return with no work or analysis. Use the link I’ll leave in the description below to try Fundrise risk-free for 90 days.

The first group of group of real estate stocks we’ll highlight, healthcare has lagged the rest of the market for two years as hospitals cut higher margin services to serve COVID patients but that’s set to reverse into 2022.

Our first real estate stock is one I’ve been following a while, Medical Properties Trust, ticker MPW, and it doesn’t get much bigger in healthcare properties.

MPW is the second largest owner of hospitals in the world with 442 properties and rare international exposure for a REIT, operating in 34 U.S. states and nine countries.

And I really like the company’s business model here. It buys properties owned by healthcare providers then leases it back to them on 20-year terms for triple-net payment. That frees up the healthcare provider to do what they do best…providing the service, and MPW takes care of the property and has a long-term tenant. Plus, that triple-net lease means the tenant pays all property costs…MPW just sits back and collects the checks so operational costs are extremely low.

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Ninety-nine percent of the properties have built in rent escalators based on inflation, so the company is covered on that front. Shares pay a 5.3% dividend, the highest of the five stocks we’ll cover, and trade for just 12.2-times FFO.

Remember, that price-to-FFO or funds from operations is important for real estate stocks. Because these companies take an enormous amount of depreciation off their income to tax purposes, earnings aren’t a good measure of cash flow. You can’t use that price-to-earnings ratio like you do with other stocks.

Funds from operations is a better measure because it adjusts earnings for these non-cash expenses typical of real estate companies. FFO shows the true cash generating power of the properties and is a critical measure of how expensive these stocks are as well as the safety of that dividend. Here’s the calculation for the hardcore among you but any REIT will do this for you and show it in the financial statements.

Another real estate stocks to watch here, CareTrust REIT, ticker CTRE, owns 223 properties managed by 23 operators across senior housing and acute care.

Baby boomers started turning 80 last year and with the average age of admittance into nursing homes at 79 years old, that means CareTrust is going to be right in that sweet spot for demand for more than a decade.

COVID hit this sector as hard as any pushing occupancy down from 78% to just 67% last January but its started to recover and occupancy was back up to 69% as of April. The company has the lowest debt to EBITDA ratio among 15 competitors at just 3.2-times, so plenty of flexibility here to push through to the recovery.

Shares pay a 5.1% dividend yield with a 9.3% annualized increase over the last five years even in that COVID weakness. The stock trades for 14.4-times FFO, so a little more expensive, but FFO is expected to grow by 7% this year.

Real estate stocks in the residential space could have another good year as rents rise faster, catching up with the surge in home prices.

Real Estate Stocks to Invest in 2022

Our first residential play is Apartment Income REIT, ticker AIRC, a smaller company with 99 upscale communities in 12 states and D.C., focused in the largest metro areas.

The higher rents collected on higher-income properties and in the larger cities, as well as a great management team, makes this one of the most efficient REITs out there with a 72% margin on its net operating income. That’s industry leading for more than 17 quarters.

The company reported average rents have rebounded to pre-COVID peaks by the first quarter and shares pay a 3.3% yield. That profitability means shares are a more expensive here at 24.5-times FFO but those funds are expected to grow by 12% next year.

This next real estate stock, UMH Properties, ticker UMH, is unique in residential REITs. UMH owns 127 manufactured home communities with approximately 24,000 developed homesites in 10 states. It also owns over 1,800 acres for development and a potential 7,300 more lots.

UMH stands to really benefit from the strong job market and wage increases over the next year. Collections are already up to 95% of July rent with 86% occupancy so it’s largely already moved on from that COVID impact on the business.

Shares pay a 3.1% dividend and trade for 24.1-times funds from operations but this one is seeing strong growth with FFO up more than 40% from last year.

I’m making a contrarian call here on office space for 2022, that returns could surprise higher. Nobody expects office space to come back but companies still want people back in the office. Even on a shift to some remote work, office demand will be stronger than expected next year.

Boston Properties, ticker BXP, is one of the larger office REIT stocks with 196 properties and 51.6 million square feet including 4.3 million square feet of leasable space under development.

Beyond that potential recovery in office space, BXP has a growth segment in its life sciences properties, adding diversification and growth to the portfolio.

Shares pay a 3.4% dividend yield with 7.7% annualized growth over the last five years and trade for a relatively low 16.5-times on that price-to-FFO basis.

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Those are the three property types and real estate stocks I’m watching for 2022 but just as important are which to avoid. I’ve found one property type with shaky foundations that could be ready to collapse.

The self-storage property type has been the top performing this year with a 39% return in just nine months and it hasn’t just been this year. The major REIT stocks in the space have jumped since early last year with Extra Space Storage, ticker EXR, up 87% and Public Storage, ticker PSA, up 57%.

And those returns have been great but the stocks are now terrifically expensive. Shares of EXR now trade for 29-times funds from operations. The stock price has run so fast that the dividend can’t keep up and now pays just a 2.5% yield.

Nation, real estate as an investment is extremely cyclical and it feels like self-storage has peaked out. Look to these other property types and real estate stocks to rise on those fundamentals and protect your portfolio in 2022.

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