REITs, or real estate investment trusts, own, operate, or finance income-producing real estate. They enable individuals to invest in real estate without directly owning properties. REITs pool funds from investors to purchase and manage a diversified portfolio of real estate assets, including office buildings, apartments, shopping malls, hotels, and warehouses.
While the December 2024 interest rate cut of 25 basis points may be the last for a while, it is an excellent bet that the federal funds rate will be lower than today’s effective rate of 4.23%, already below the long-term average of 4.61%. Investors looking for total return to balance the need for passive income and desire to add growth to combat inflation may consider REITs an option for 2025.
Americans have been moving to the Sun Belt states, a rising trend that has not gone unnoticed by Wall Street. Research indicates that over the past 10 years, an estimated 5 million Americans have relocated to Sun Belt states via domestic migration. This trend is primarily driven by people moving from non-Sun Belt regions, particularly the Northeast and Midwest. While migration has slowed, the Sun Belt continues to experience significant population growth.
The analysts at Goldman Sachs recently published research confirming the trend of Sun Belt strength for REITs and said this in their report:
Given trade policy actions enacted in recent weeks (and their potential implications for trade, inflation, and economic growth), our economists lowered their 2025 GDP forecast back to the previous baseline on 9th April to 0.5% and increased the odds of a recession to 45% from 15% at the start of 2025. We continue to favor Sunbelt multifamily exposures and single-family rentals on improving rent growth trajectories in 2025 as supply headwinds dissipate and demand fundamentals remain robust. Moreover, we believe these names are relatively better insulated against an increasingly uncertain macro environment; therefore, they could extend their year-to-date relative outperformance even if the macro environment continues to deteriorate.
The Goldman Sachs team highlights three top companies, which all make sense for investors looking for a hedge in uncertain times that pays dependable dividends.
Why we recommend Goldman Sachs stocks
Goldman Sachs is the acknowledged leader in the investment landscape on Wall Street and worldwide. The firm’s top-notch research department continues to provide institutional and high-net-worth clients with the best ideas across the investing spectrum and is likely to continue for years.
American Homes 4 Rent
With many investors focused on owning single-family homes, this stock is the perfect idea now. American Homes 4 Rent (NYSE: AMH | AMH Price Prediction) is an internally managed Maryland REIT. Its primary objective is to generate risk-adjusted returns for its shareholders through dividends and capital appreciation by acquiring, developing, renovating, leasing and managing single-family homes as rental properties.
The company owns 59,332 single-family properties in select submarkets of metropolitan statistical areas in 21 states. It also focuses on developing built-for-rental homes through its internal AMH Development Program.
In addition, it also acquires newly constructed homes from third-party developers through its National Builder Program.
Its operations are dependent upon its resident portal and property management platforms, which include certain automated processes that require access to telecommunications or the Internet. These platforms include:
- Marketing
- Leasing
- Vendor communications
- Finance
- Intracompany communications
- Resident portal and property management platforms
The Goldman Sachs price target for the Buy-rated shares is posted at $42.
Invitation Homes
This is another REIT that focuses on single-family homes and offers outstanding total return potential. Invitation Homes Inc. (NYSE: INVH) operates through Invitation Homes Operating Partnership L.P.
INVH owns, renovates, leases, and operates single-family residential properties. THR Property Management, a subsidiary of INVH and its wholly owned subsidiaries, provides all management and other administrative services.
The manager provides professional property and asset management services to portfolio owners of single-family homes for lease. Its vertically integrated operating platform enables the company to acquire, renovate, lease, maintain, and manage both the homes it owns and those it manages on behalf of others.
The company’s business activity includes:
- Property operations
- Marketing and leasing
- Digital marketing initiatives and branding
- Resident relations and property maintenance
- Investment and asset management.
Invitation Homes has approximately 85,138 homes for lease.
The Goldman Sachs target price for the share is set at $39.
Mid-America Apartments
With supply in the Sun Belt region coming down and people still flocking there, this is the perfect investment idea now. Mid-America Apartment Communities Inc. (NYSE: MAA) is a multifamily-focused, self-administered, self-managed REIT. It owns, operates, acquires, and selectively develops apartment communities primarily located in the Southeast, Southwest, and Mid-Atlantic regions of the United States.
Its segments include:
- Same Store
- Non-Same Store and Other
The Same Store segment represents those apartment communities owned and stabilized for at least 12 months as of the first day of the calendar year.
The Non-Same Store and Other segment includes recently acquired communities, developed or on lease-up communities, disposed of or identified for disposition, and others. These two segments include non-multifamily activities and expenses related to severe weather events.
Mid-America Apartment Communities owns apartment units, including communities in development, across 16 states and the District of Columbia.
The Goldman Sachs price target for the shares is set at $187.
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