Interest Rate Cuts Could Change The Game: These Three Real Estate ETFs Could Put Money In Your Pocket For Years To Come
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Interest rate cuts have many investors revisiting key asset classes, particularly real estate. As rates decline, real estate investments often become more attractive, driving increased demand for real estate exchange-traded funds (ETFs).
Now might be the perfect time to consider adding real estate ETFs to your portfolio.
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Lower Rates May Heat A Slow Market
Interest rate reductions can dramatically impact the real estate market. Lower rates reduce the cost of borrowing, making it more affordable for businesses and individuals to finance real estate projects. As a result, property developers and homebuyers have access to cheaper capital, driving demand for real estate. Around $1.5 trillion in commercial real estate debt is due in 2025, and there is currently an elevated level of real estate distress in the marketplace. As that gets resolved and we see more transactions, real estate development should return to its average pace.
For investors, this could mean higher asset prices and improved returns in real estate markets. Real estate ETFs, which invest in portfolios of Real Estate Investment Trusts (REITs) and real estate-focused companies, are positioned to benefit from this growth. As property values rise, so does the potential upside of real estate ETFs.
With global economies wrestling with inflationary pressures, real estate remains a reliable inflation hedge. As inflation rises, the price of real assets, like real estate, generally increases. While inflation is cooling, it isn’t disappearing. Moreover, rental income, a core revenue stream for many REITs in real estate ETFs, tends to adjust upward with inflation.
3 Real Estate ETFs To Watch
Interest rates have affected the overall housing market. Existing home sales are down 2.5% year over year and well below historical averages. This has been a positive trend for the rental market, where rents have slowed their growth from pandemic highs but are still rising consistently.
One way to invest in this trend is the iShares Residential and Multisector Real Estate ETF (REZ), which seeks to track the investment results of an index composed of U.S. residential, health care, and self-storage real estate equities. Its top residential holding is AvalonBay (NYSE:AVB), a large apartment REIT. The total return for this year is 8.41%.
A more pure-play option on residential real estate is Armada Funds Residential REIT ETF (HAUS). This actively managed ETF holds only REITs that manage or own residential properties. A top holding is UMH Properties, Inc., a company that operates manufactured home communities. Because it is actively managed, it has a higher expense ratio of 0.60%. Performance this year has been elevated, up 22.64% year to date.
The Invesco S&P 500 Equal Weight Real Estate ETF (RSPR) takes a broader approach. It invests based on the S&P 500 Equal Weight Real Estate Index and is rebalanced quarterly. Its market price performance for one year is 13.11%. It holds REITs and real estate stocks across all sectors. The current top holding is CBRE (NYSE:CBRE).
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Another Way To Play The Changing Market
A down market has been good news for companies that have acquired real estate at a discount. Fundrise has built up a $1.1 billion portfolio of assets, including multifamily developments and build-to-rent communities. It now owns 4,700 single-family homes in 29 markets, over 2,500 multifamily units, and over three million square feet of industrial real estate. Fundrise CEO Ben Miller recently told Bloomberg, “for the first time in a while, real estate has a bull market tail wind.”
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The Opportunity Ahead
There are still plenty of bumps in the road ahead for real estate, but for long-term investors, trends seem to be headed in the right direction. While multifamily real estate is currently oversupplied, that is a temporary situation. One positive sign is that Goldman Sachs analyst Julien Blouin recently initiated coverage of several multifamily REITs and single-family rental REITs.
For investors looking to diversify their portfolios, hedge against inflation, or tap into the growth potential of the real estate market, now could be the opportune moment to explore real estate ETFs. With interest rates heading lower, real estate ETFs might just be the key to unlocking sustainable growth in a shifting economic environment.
Are You Missing Out On Higher Yields?
The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.
For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offerings.
This article Interest Rate Cuts Could Change The Game: These Three Real Estate ETFs Could Put Money In Your Pocket For Years To Come originally appeared on Benzinga.com