Play Housing In The Stock Market
Joe is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of the great mantras in the housing market the last 15 years was Buy It, Fix It, Sell it. Back in the 90's everyone was doing it, so much so that even those who had never done it or bothered with real estate wanted to get into it. Of course, this is the true sign of a bubble and in my case it was my ex who wanted to invest, but I wisely resisted. We all know how that turned out out in 2008. If you're like me, you are probably not a handy man type with the resources and knowledge to fix up haunted mansions. But recently real estate investing is making a comeback thanks in part to Bernake's low interest environment. Real estate is also a good hedge against inflation by providing a tangible asset.
I frequently visit Florida since my mom lives there, and I also have thoughts of retiring there someday, so I usually take some time out while I'm down there to see how real estate is doing and ask her what she knows about current trends. Reports show that people will move to Florida in record numbers this year compared to the last few years.
So how can a stock market investor take advantage of the real estate rebound without having to buy a fixer upper? By investing in Blackstone Group (NYSE: BX). They are a private equity group that investors basically pay to manage their money. They have four asset classes under management, of which real estate is 25%, and they are one of the largest buyers of single family homes in the US, especially in Florida. Having a long track record of success, Blackstone invests for its clients and gets a good percentage of the profits if it is correct. But they also collect fees, so they win even if they are not right.
In 2014, analysts estimate earnings to be $2.85 a share. At the time of this writing the shares are $19.10, giving it a forward PE of 6.7, which is still pretty cheap. It has made a big move the last few months, probably due to the anticipation of what turned out to be a stellar earnings release Jan. 30. As of the end of their last quarter, assets under management hit a record $210 billion (remember more money under management means more fees). And all of its businesses saw net inflows and value appreciation. Plus they pay a 2.7% dividend, which I like as an income investor, and I see this increasing the coming years.
The stock has appreciated greatly, as I mentioned before, so maybe waiting for a pull back or putting in a half position would be best if investing today. However, it is still a bargain and I believe it will do well going forward.
Equity REITS are another good way to get into the real estate recovery, and one of my favorites is Government Properties (NYSE: GOV), a business that rents properties to the government and owns over 70 properties. Their 2 biggest tenants are the IRS and US Customs and Immigration. I don't expect those "businesses" to go belly up any time soon. Since their 2009 IPO, GOV has almost a billion dollars’ of property, at an average cap rate of 8.7%. (The “cap rate” is the ROI, or the rent after expenses divided by the building’s cost. It is the most commonly quoted figure in rental real estate.) Plus they currently pay a 6.9% dividend. Imagine it as getting a quarterly check from the IRS. Sweet.
Of course you may find these investments boring compared to a high flyer like Apple (NASDAQ: AAPL). I have written about the Apple bubble in a previous blog post and I still believe it is a bargain at current prices, but Friday's action suggest it will go lower. The news about Apple becoming the largest mobile phone seller was glossed over. With the market now sporting a P/E around 17 and Apple less than 10 it is looking attractive. I have no doubt the late Steve Jobs left many instructions and blueprints before his demise to keep the Apple brand churning for years to come. You can be an income investor in Apple. As an income investor, I'm looking to sell a March 410 put option, collecting around $600 and hoping to buy in at that price. But if I don't get into Apple I'll still keep collecting my "boring rent" checks from great businesses like BX and GOV.
sabatuj has a position in Government Properties and The Blackstone Group. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!