Residential REITs own and operate various types of living spaces, and rent out the space to tenants. Residential REITs specialize in types of residences such as apartment buildings, single-family homes, manufactured homes and student housing. Oftentimes, residential REITs focus on a geographical location, type of property, or demographic of potential tenants.
Residential REITs face the risk of holding an oversupply of rental properties relative to the demand for such properties. There is an additional risk associated with the housing market, as the higher the homeownership rate rises, the less demand there is for rental properties.
Some residential REITs have done better than others throughout the pandemic, depending on the kind of residential real estate held by the REIT. The pandemic sparked multiple shifts in the real estate market. There has been a large shift from urban to suburban living, as many people are seeing the appeal of the suburbs amid the pandemic. People are seeking larger homes with more space to work from home. REITs with primarily suburban portfolios have held a competitive advantage over urban portfolios with less space. The demand for single-family rental homes has also surged as a result of the pandemic. Many Americans are realizing that they will be working and studying from home for the foreseeable future, so people want to buy nice homes in great neighborhoods.
The following residential REITs each specialize in different types of properties: Bluerock Residential Growth REIT (AMEX: BRG) focuses on apartments, Front Yard Residential Corporation (NYSE: RESI) rents out single-family homes, and Sun Communities, Inc. (NYSE: SUI) features manufactured homes.