Warren Buffett was smart to buy a maker of mobile homes, but mom-and-pop investors who want to copy his strategy will find it tough to find good values among real estate investment trusts that invest in manufactured housing, says Brad Thomas, chief analyst at iREIT Investor.
“Like Buffett, I like the manufacture housing business model and I would like to find the most attractive REIT in this growing recession-resistant sector,”
he says in a Seeking Alpha blog post.
Buffett’s Berkshire Hathaway in 2003 acquired Clayton Homes, a maker of mobile homes, for $1.3 billion in cash. At this year’s annual meeting, he defended the company against public accusations of predatory lending and collection practices, saying that Clayton had stringent credit requirements.
“I make no apologies whatsoever for Clayton's lending practices…Clayton has behaved very well,” Buffett said, explaining that about 3 percent of the $12 billion of mortgages initiated by Clayton goes bad. “When a mortgage goes bad, two people lose, both the person who owns the house and the person who owns the mortgage.”
Thomas says it would be better to wait for better financial metrics and valuations among these three manufactured housing REITs: UMH Properties, Sun Communities and Equity Lifestyle.
“While I would like to own a manufactured housing REIT I don't find any of the three REITs attractive based on fundamentals, valuation, or both,” he says.
Meanwhile, Credit Suisse says mortgage REITs have an improved risk/reward profile as the Federal Reserve looks less likely to raise interest rates very soon,
according to an article in Barron’s.
“We continue to favor the mortgage real-estate investment trusts (mREITs) that are creating operating businesses and can create their own investments,” write Credit Suisse analysts Douglas Harter, Sam Choe and Josh Bolton. “In addition, we favor those mREITs with more stable book values and earnings outlooks in the current volatility.”
Their top picks are New Residential Investment, PennyMac Mortgage Investment Trust, Two Harbors Investment and Starwood Property Trust.
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