Is AIV Stock A Good Buy? Many large investors rely on income-producing real estate like office buildings and residential apartments to balance their portfolios.
While every investment carries risk, real property has certain distinct benefits that reduce the likelihood of losing money. For example, real estate generates reasonably steady passive income, and it generally appreciates in value. There are also impressive tax benefits that make these investments very appealing.
The problem for most individual investors is that buying income-producing property is out-of-reach from a financial perspective. They don’t have the cash or the ability to borrow hundreds of thousands – if not millions – to take ownership of large properties.
Real Estate Investment Trusts (REITs) were developed to make this type of investing more accessible. Instead of purchasing a building alone or with partners, REIT investors join forces with thousands of other people in the same financial position.
All of the funds are pooled to buy income-producing properties, and participants are issued shares based on the size of their investment. In short, REITs are something like a mutual fund, except instead of securities, the fund buys real estate.
Apartment Investment & Management Co. has been around for decades, and it was added to the S&P 500 in 2003. Investors interested in optimizing their portfolios given today’s complex market conditions are asking: Is AIV stock a good buy?
AIV Oversees 33,000 Units
Apartment Investment & Management Co. (AIV) is an REIT that focuses on residential apartment communities. At the start of 2020, the trust owned 124 residential developments totaling nearly 33,000 separate units.
AIV properties can be found nationwide, but this REIT tends to concentrate on large, densely populated cities. For example, AIV owns apartment communities in Atlanta, Boston, Chicago, Denver, Los Angeles, Miami, New York City, Philadelphia, San Diego, the San Francisco Bay area, and the Washington Metropolitan area.
The goal of owning these properties is to generate rental income at profitable levels by keeping occupancy rates high.
AIV puts a premium on exceptional customer service in an effort to attract and retain tenants, and most properties offer high-end amenities. This strategy has delivered steady increases in stock prices and shareholder returns for more than a decade.
Is AIV Stock A Buy?
AIV has seen solid growth since its launch in 1994, and it is one of the few that survived and rebuilt after real estate markets crashed in 2008. Share prices hit rock bottom in March 2009, but they have gone up steadily since. It wasn’t until this year and the COVID-19 pandemic that losses started racking up again.
The March 2020 market crash decimated AIV stock, along with nearly everything else. Over the two quarters that followed, the company saw some minor progress, but there were lots of stops and starts along the way.
The problem for AIV boils down to the methods in place to contain the spread of COVID-19. Many businesses sent their workforce home, leaving office buildings vacant. Many more had to lay off employees – or in some cases close altogether – and that created dramatic increases in unemployment.
As one might expect, without jobs, tenants can’t afford rent payments – and that’s bad news for AIV. Regulations were put in place to delay or prevent evictions, leaving building owners to cover expenses without income.
Further adding to the problem, many colleges have eliminated in-person classes and chosen virtual learning instead.
As a result, many students have stayed home with their families to save money on rent, which is another blow for the housing market in major cities.
In addition to these economic issues, AIV properties tend to be located in the same cities where civil unrest took place. That means higher expenses for security and maintenance, as well as more difficulty attracting new tenants to fill vacancies.
All in all, those who owned AIV stock before March of 2020 are generally holding on in hopes it returns to previous highs.
New investors are wondering whether these shares are likely to deliver near-term profit given the imminent arrival of COVID-19 vaccines.
Industry analysts tend to agree that holding onto existing shares is a smart decision. There is less consensus around whether now is the right time to buy for new investors. Most believe AIV will come out ahead at some point, but the question is when. If you can afford to wait, then AIV is a buy.
Risks Of Buying AIV Stock
Management announced third quarter results on October 30, 2020, for the period that ended September 30th. At that point, it appeared that business was slowly returning to normal – especially in suburban properties.
Urban properties were still underperforming, but they looked like they were on the cusp of recovering. Then, the second wave of COVID hit.
While AIV hasn’t shared detailed information beyond September 30th, it is quite likely that the resurgence of COVID-19 cases – often referred to as the “second wave” – is causing issues with keeping units occupied and collecting rental payments. There is a strong risk that the next quarter’s results will show a loss of momentum, and stock prices could tumble.
Again, AIV is likely to recover and eventually deliver returns above and beyond pre-COVID figures. However, until the pandemic has been fully extinguished, there is a lot of uncertainty around the timing of this recovery. That makes this investment particularly high-risk for those who have short-term goals.
Can AIV Competitors Win?
There are plenty of REITs to choose from, but few are as large and well-established as AIV. Examples of popular REITs include the following:
- AvalonBay Communities (AVB)
- Camden Property Trust (CPT)
- Equity Residential (EQR)
- Morgan Properties
- PRG Real Estate Management
- UDR (UDR)
Each of these has its pros and cons, but right now none have a competitive edge. The issues plaguing AIV are consistent across all REITs focused on residential apartment communities, which means nearly all of these stocks have realized losses in 2020.
Is AIV Stock A Buy? The Bottom Line
The bottom line is that investors who can afford to wait for returns may amplify their gains by purchasing AIV at today’s uncommonly low prices.
However, there is no telling how long that wait will be, so these shares aren’t right for investors who have specific short- and medium-term investment goals.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.