In 2010, the media-loving activist Jerry McMillan proclaimed that “rent is too damn high!” And the Vietnam veteran and affordable housing champion seemed to hit the nail right on the head.

Americans’ rents are even higher today. In fact, they’ve jumped 20% in the last five years. And they’re expected to increase 8% by the end of this year.

[ad#Google Adsense 336×280-IA]Rents won’t fall anytime soon.

But there is a way to profit from rent inflation. And it doesn’t matter whether you’re a renter or a homeowner.

You can think of it as a way to become the landlord’s boss.

Excess Demand in a Tight Market

Investing in apartment real estate investment trusts (REITs) for steady returns and healthy dividend income is the smart way to play this housing trend.

The reason? Good old supply and demand.

After the housing market crashed in 2007, the rental market was inundated with former homeowners exiting foreclosure. It became more difficult to get a mortgage, so would-be homeowners who had been denied also added to demand.

But, at the same time, supply was tight.

Condominium conversions during the housing boom sucked up supply. And developers, like would-be homeowners, had a difficult time getting loans for new projects.

More demand and less supply. Rental prices went up.

The New American Dream

Fast-forward to 2016 and the outlook for renters is not much better.

Inventory for entry-level homes is near record lows. Would-be buyers are still priced out of the market.

Demographic shifts are also driving up demand. For example, millennials are moving out of their parents’ basements and into their own apartments.

Plus, many baby boomers have decided that apartments are their new American dream. For many, the maintenance of homeownership is just not worth it.

The rapid rise in rental demand continues to outpace the growing supply.

Building has helped ease some of the squeeze, but we are a long way away from market saturation and declining rents.

That’s why it’s a good time to own apartment REITs.

Profit From Misperception

The fear that rising interest rates will cut into margins coupled with the belief that new construction will drive down rents for good have caused apartment REITs to fall out of favor.

These fears have been unjustified.

Sure, the rate at which rents are increasing has slowed, but apartment prices are still rising.

On the whole, REITs are generating enough cash to pay out some fat and sustainable dividends. So they’re an attractive income source for investors.

For example, Independence Realty Trust (NYSE: IRT), a smaller, lesser-known apartment REIT, sports one of the highest yields in the sector: 8.7%.

It owns apartment complexes in the South and Midwest and currently pays an annual dividend of $0.72 per share.

This year, Independence Realty is expected to report funds from operations (a measure of cash flow) of $0.82 per share. Next year, analysts anticipate FFO will rise to $0.86 per share.

Larger residential REIT players AvalonBay Communities Inc. (NYSE: AVB) and Essex Property Trust (NYSE: ESS) also have well-covered dividends.

In 2016, AvalonBay’s FFO is a projected $8.30 per share versus its $5.38 per share dividend. Next year, its FFO is forecasted to rise to $8.93 per share and the dividend to $5.83 per share.

For the current year, analysts anticipate Essex Property Trust’s FFO will be $10.96 per share and its dividend will be $6.37. In 2017, they see FFO growing to $11.83 and the dividend to $6.94.

A Steady Way to Play the Trend

The multifamily property party isn’t over yet.

Rents are rising at the fastest pace in nine years. Supply may be increasing, but it is being offset by demand.

Even if the increases slow, apartment owners will still make big profits. But you don’t have to be an owner to get a piece of the pie.

Income investors seeking exposure to this booming sector – or renters seeking to offset their rising costs – should invest in apartment REITs.

Good investing,

Kristin

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Source: Wealthy Retirement