2 Residential Real Estate Stocks for Rapid Growth

While residential real estate has its unique risk profile, it offers good growth potential to make the risk worthwhile.

| More on:
Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House

Image source: Getty Images

Canada’s housing bubble has grown to epic proportions, and only a handful of countries can match its size and potential risk. However, the risk is not uniform across the board. While selected markets like Toronto and Vancouver are dangerously hot, there are several mild markets as well, though they are not nearly as large.

There are already several projections for the housing crash, and we can already see a dip, but Canada’s residential real estate sector has survived worse in the last few years, and the bubble may prevail.

Regardless of whether the bubble will burst, there are two residential real estate investments in Canada that offer promising growth potential.

A boutique apartment rental company

The business model of Mainstreet Equity (TSX:MEQ) is as simple as it gets in residential real estate. The company identifies and purchases old, mid-market multifamily properties that are ideally poised for a rent hike if appropriately managed. The margin might not be substantial, but thanks to a large number of individual units in each property, the company can turn most such acquisitions quite profitable.

It currently owns about 406 properties in 18 cities, translating to about 15,640 individual housing units or about 38 units per property. This is in line with the company’s strategy to acquire modestly sized multi-family properties instead of larger apartment buildings with hundreds of units.

The growth potential is quite evident in the 10-year growth of 385%, and the pace has only accelerated in recent years. This great growth stock is currently trading at a 21% discount, which is expected to become more significant. So, keep tracking it and try to buy the dip for maximum return potential.

A property management giant

FirstService (TSX:FSV)(NASDAQ:FSV) is a North American residential real estate giant in two domains. It has two business segments: FirstService Residential, through which it manages about 1.7 million individual residential units, the highest number for any property manager in North America. The second business segment is essential services, which comes under the umbrella of FirstService Brands.

It’s one of the most prominent players in this particular domain, catering to both residential and commercial properties, though the overall lean of FirstService is towards residential real estate.

The stock is currently trading at a 34.5% discount from its peak, and the discount seems quite called for, considering the rapid post-pandemic growth the stock experienced. It has been around since 2015, and the growth since its inception (which was relatively consistent before the pandemic) is over 378%.

Foolish takeaway

As an asset class, residential real estate is too expensive for most retail investors. But thanks to solid growth stocks like FirstService and Mainstreet Equity, you can gain decent exposure to this particular market segment. And since these companies have their distinct competitive advantages, they may offer slightly better returns than a real estate asset.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FirstService Corporation, SV.

More on Dividend Stocks

stock analysis
Dividend Stocks

Buy These TSX Dividend Shares Next Week

Are you looking for dividend stocks to add to your portfolio? Buy these picks next week!

Read more »

edit Safety First illustration
Dividend Stocks

3 of the Safest Dividend Stocks in Canada

These three dividend stocks are all high-quality companies with defensive operations, making them some of the safest investments in Canada.

Read more »

A person builds a rock tower on a beach.
Dividend Stocks

3 Stocks to Anchor Your Portfolio in a Rocky Market

Three stocks are solid anchors in any portfolio today for their outperformance in a weak market and defiance of the…

Read more »

money cash dividends
Dividend Stocks

3 Solid Dividend Stocks That Cost Less Than $30

Given their solid financials and healthy cash flows, the following under-$30 dividend stocks are a good buy in this volatile…

Read more »

grow money, wealth build
Dividend Stocks

2 High-Yield Dividend Stocks With Rock-Solid Payout Ratios

These two dividend stocks offer unbelievably high yields of more than 7% and earn more than enough free cash flow…

Read more »

Dividend Stocks

5 Steps to Making $500 in Monthly Passive Income in 2023

Generating monthly passive income isn't as hard as it sounds. Here are 5 steps to start making $500 every month.

Read more »

sad concerned deep in thought
Dividend Stocks

Worried About a Recession? Invest in This Stable Dividend Stock to Rest Easy

Stable dividend stocks bought primarily for their payouts can offer you surety of returns, even during a recession.

Read more »

A golden egg in a nest
Dividend Stocks

How to Turn $50,000 Savings Into a Generous Nest Egg in 2 Decades

Build a generous nest egg in 20 years by investing your accumulated savings in Dividend Aristocrats and holding them in…

Read more »