The Blackstone Group L.P. (BX), UMH Properties, Inc (UMH): How to Play Single-Family Homes with REITs

Two factors make Silver Bay an interesting play. First, it does not carry any debt on its balance sheet. Rather, the company is entirely equity financed, though it does intend to use debt for leverage in line with other REITs. The 10-K states that the REIT believes it can handle leverage in the vicinity of 30-50% of its total capital structure.

Secondly, investors may soon get a lower entry point. Two Harbors will distribute its current 50% stake in Silver Bay to its shareholders in April. Given that Silver Bay trades fewer than 500,000 shares per day, selling pressure when shares are divested could give patient investors a great entry point. Two Harbors owns 23,917,642 shares of the common stock, which will soon be unleashed to shareholders and likely sold at market. Those who wait for the distribution could get a better entry point on this up-start single-family REIT.

As Silver Bay improves its overall vacancy rate by listing acquired but not yet renovated units for lease, it should drive higher cash flows from operations, which will result in a robust dividend yield. Of course, this REIT’s exposure to key markets will also give it plenty of room for capital appreciation as higher rents and faster home sales boost the company’s underlying asset values.

Single-family homes are undoubtedly the best way to get access to an improving real estate market with an asset-backed, inflation-resistant investment. With so many markets offering homes at less than their cost of replacement, timely investments in single-family REITs could prove to be a boon for entrepreneurial investors.

The article How to Play Single-Family Homes with REITs originally appeared on and is written by Jordan Wathen.

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