The United States Congress created Real Estate Investment Trusts (REITs) in 1960.
They believed that investors of all backgrounds should be able to access income-producing real estate.
REITs span several different real estate markets, including infrastructure, data centers, retail, office, mortgages, and more.
Mortgage REITs (mREITs) invest in residential and commercial mortgages.
Additionally, they invest in residential and commercial mortgage-backed securities.
Mortgage REITs allow for essential liquidity in the real estate market.
They generate revenue from interest on the properties.
After the financial crisis of 2008, many people did not want to invest in mortgage-backed securities.
However, sub-prime loans fueled this economic crash. These loans ended up affecting both homeowners and investors.
For mortgages to work, each party involved must follow through on their initial commitments.
The bank grants mortgages at reasonable rates, homeowners make payments on time, and credit agencies that rate mortgage-backed securities do their part.
The year 2020 was not great for real estate, but mortgage REITs have performed astonishingly better than almost any other asset class on the market.
We’ve put together a list of the best mortgage REITs to take a look at today to invest in before it’s too late.
Best Mortgage REITs To Buy
Ellington Residential Mortgage REIT (NYSE: EARN)
Ellington acquires, invests in, and manages residential mortgages and real estate-related assets.
The company’s portfolio involves the construction and management of residential mortgage-backed securities.
Ellington is based in Connecticut with a market cap of $144 million.
This REIT recovered the fastest from a drop in Covid-19 prices due to its relatively small size.
Many investors in the REIT space have turned their attention toward more ‘exciting’ REITs such as data centers and cell towers.
That said, mREITs are currently undervalued.
As less money is devoted to real estate investment trusts in retail, office, and hospitality industries, mREITs like Ellington could pick up a lot of momentum.
Ellington’s performance in the first half of 2021 shows promise for this mortgage-backed securities REIT.
Arbor Realty Trust Inc. (NYSE: ABR)
Arbor is a New York based REIT that specializes in the investment of structured finance assets in the multi-family and commercial real estate markets.
A bit larger than Ellington, Arbor holds a market cap of $1.77 billion.
This is another mortgage REIT that has surpassed its pre-covid performance levels, reaching highs it has not seen in ten years.
One of the largest advantages of Arbor is its focus on multi-family homes.
Companies like Arbor benefit in urban centers, where high demand for multi-family housing allows landlords to push housing prices higher.
The promise of Arbor’s holdings in combination with high-yielding dividends could make this a great time for a buy.
That said, Arbor is one of just a few mREITs that have seen positive returns through 2020.
Mortgage REITs do present a certain amount of risk that you won’t see with equity REITs.
However, those who time mREIT purchases well could see incredible yields on investment.
Either way, mortgage REITs could be a great form of diversification for your assets overall.
New Residential Investment Corp (NYSE: NRZ)
New Residential Investment Crop invests and manages investments in the residential real estate market.
The company is the third-largest mREIT in the sector.
New Residential’s investments primarily focus on excess mortgage servicing rights, servicer advances, non-agency residential mortgage-backed securities, and associated call rights.
New Residential Investment Corp has not recovered from the COVID market crash as well as the others.
The company is very slowly regaining the ground it lost from the crash, but still has a ways to go.
With a 4.62 billion dollar market cap, this apparent underperformance comes as a surprise to many.
That said, it’s unlikely they’ll continue to perform lower than before.
As an undervalued mREIT, investors should hop on this one quickly.
2021 could be an exceptionally expansive year for residential investment as individuals are forced to stay home, make improvements, and settle in a place they feel comfortable calling home.
Commercial Mortgage REITs
Realty Income (NYSE: O)
Realty Income is a commercial REIT that focuses solely on leases where tenants pay taxes, insurance, and maintenance costs themselves.
The company hones in on single-tenant commercial properties in parts of the United States and the United Kingdom.
These properties are typically supermarkets, drug stores, and discount stores.
Realty Income, like most mREITs, took a heavy hit as a result of the pandemic.
They are still recovering from this loss and have not yet reached pre-pandemic levels.
Even so, this loss is not as bad as it could have been because of the commercial businesses they represent.
They continually outperform the market, seeing steady stock growth for 2021 as a result.
As Realty Income continues to climb up the stock market, this may be a great time to get on board.
Apollo Commercial Real Estate Finance Inc. (NYSE: ARI)
Investors looking for geographical diversification should look no further than Apollo.
Apollo Commerical Real Estate is an mREIT primarily involving senior mortgages and mezzanine loans, using commercial real estate as collateral throughout the U.S. and Europe.
They are currently based in New York.
Like any of the mREITs on our list, Apollo is made attractive through high dividends and payouts.
American mortgage REITs like Apollo are made attractive because they are based in the U.S. but operate in international locations.
Thus, Apollo’s focus on commercial mortgages sets them apart from previously listed mREITs for a number of reasons.
Apollo is one mREIT that has did not fare well as a result of COVID-19.
Through the first half of 2021, they have seen a steady increase in share price and are rapidly climbing back to pre-pandemic levels.
This makes it a wonderful time to invest.
Largest Mortgage REITs
Annaly Capital Management (NYSE: NLY)
Annaly Capital Management is the largest mortgage REIT out there in terms of market cap.
Based in New York, Annaly has a significant presence in the residential and commercial mortgage space.
The company specializes in the investment of borrowed money into primary mortgage-backed securities.
Company profits are generated by the net interest paid between the company’s assets and its borrowing costs.
Annaly currently has a portfolio of over $100 billion in assets across 38 properties.
At the end of the first quarter of 2021, the company had a debt-to-equity ratio of 5.07.
They also see a high dividend yield of 10.38%.
As a result of the pandemic, the company’s stock plummeted immensely over a month’s time.
Since that drop, Annaly has seen steady growth and is again nearing their pre-pandemic numbers.
AGNC Investment Corp. (NASDAQ: AGNC)
AGNC is quite similar to Annaly in its size and focus.
Based in Maryland, AGNC is an mREIT that predominantly invests in mortgages and mortgage-backed securities.
These investments typically take place on a leveraged basis. AGNC has an $8.51 billion market cap.
The company prides itself on being one of the best-managed mREITs.
As the market returns to its normal high performance, those who invest in larger companies such as AGNC may see massive returns.
AGNC has nearly made up its market loss from the pandemic, seeing steady gains throughout 2021.
That said, the company has struggled to return to its highest price on the market realized nearly a decade ago.
Investors should take advantage of this gold mine before prices skyrocket in the coming U.S. period of economic expansion.
Cheap Mortgage REITs
Headquartered in Virginia, Arlington Asset Investment is a mortgage REIT in the residential mortgage space.
Arlington borrows via short-term repurchase agreements, which are then invited in mortgage-backed securities.
Profit is generated from the net interest spread of its assets from its borrowing costs.
They also amplify this effect through the use of leverage.
As one of the smaller REITs on our list, Arlington has a market cap of $128.90 million.
A debt-to-equity ratio of 2.69 as of March 2021 shows potential for a low-risk investment.
After reaching a peak trading price of $540 in 2004, the company has struggled to keep its trading price up.
The financial crisis of 2008 seemed to seal the deal with trading prices not reaching above even a fraction of what the price was previously.
Arlington is now trading at $3.85 a share.
This near-record low price is hard to beat for investors looking to take advantage of mortgage REITs before they really take off in the coming months.
Should You Invest Into Mortgage REITs?
Most of the mREITs on our list are still recovering from the effects of Covid.
However, these stocks will likely continue to rise as the market moves forward.
Record low prices indicate investors could see incredible returns from investing today.
Waiting too long could make investors late to the trend!
Mortgage REITs: Final Thoughts
The pandemic has resulted in an unprecedented investment environment.
Since mortgage-backed securities were in part due to the economic collapse we saw in 2008, it’s understandable why investors have been wary of mREITs.
That said, the market upswing after the pandemic will likely be just as unprecedented.
Now is a great time to join this investment trend!
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