Anthony Speciale Stock Market Analyst

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This Stock is Set to Ride the Housing Boom to Massive Returns

We’ve been talking recently about the shortage of homes in the United States and the growing demand for housing across the country for both single-family and multi-family dwellings. But the real shortage is in fact in single-family homes as people want to get out of the cities and into the suburbs.

We were short millions of homes even before the pandemic began, and that number is only growing each and every day. It’s going to take at least five years for supply and demand to get back into something like a balance.

And even though we are building a lot of houses right now, builders have been mostly focused on the upper end of the housing market where there are higher profit margins. That’s created a serious shortage of quality first-time buyer and first-time move-up buyer houses across the US.

Then, with millennials finally starting to engage in family formation, there is even more demand for homes in the suburbs rather than apartments.

This has created a whole new segment of the real estate market that is growing very rapidly, which is single-family home rentals. That’s actually become something of an institutional asset class, and investors that are doing well in this area are collecting great cash flows.

There are even single-family home rental communities popping up with all of the things that a regular development would have, except that the folks living there are younger families who are renting rather than owning.

The Company Cashing In on this Hot Housing Trend

Now, the way to make money on this trend is a company called Tricon Residential Inc. (TCN), which is a Canadian company that operates in Canada and the US. They just raised some cash through an initial public offering (IPO) that will give them a US listing and access to the US capital markets.

They’ve currently got 24,961 single-family home rental units and about 7,789 multi-family units. 90% of what they’re doing is in sunbelt markets here in the US, which is the fastest-growing market for real estate, and work from home has accelerated the population growth. After all, why would you want to be in Boston when you could be in North Carolina or Florida or Texas?

So, we’re seeing a major population shift that is creating shortages in those areas, and single-family rental communities are doing very well as a result. Again, it’s the fastest-growing segment of the market.
By the way, one of their biggest investors is Blackstone (BX), the big private equity corporation that is getting back into this market in a big way.

They’ve invested about $350 million so far this year, including an additional $45 million purchase during the most recent stock offering. Furthermore, the head of one of their privately traded real estate funds is going to be on the board of TCN to help share their experience and grow the company.

Now, Tricon management thinks they can double the number of units over the next three years. They’re using the cash from the IPO to develop more single-family home rental neighborhoods, and they’ve been growing the units under management by about 32% a year since 2012. So, really, the pathway to doubling the number of homes under management seems pretty clear to me.

The average rent is about $1,513 a month, as they are really targeted the more blue-collar, young executive market and not so much the high end or the affordable housing arena. Average income is between $70,000 and $110,000, so these are people who are not yet ready or able to buy in a particular market.

And with the sunbelt communities set to grow at about 10% over the next several years as people flock to the area, this is going to continue. If you can work from home, why not go somewhere that’s warmer, with lower taxes and a lower cost of living?

That population shift is not going to end any time soon, and Tricon is going to be a major beneficiary of this trend. So, we’ve got a great company with massive growth potential in front of it and private equity backing from one of the leading players in the real estate game in the world today.

And they have great relationships with all of the real estate development firms that they do business with, which will give them access to capital even when the markets are not in really good condition. They’ve got these deep-pocketed real estate funds and firms that will be able to help them fund their growth plans.

Tricon is also doing some additional development up in Canada, particularly in class A, multi-family buildings in Toronto, which is Canada’s fastest-growing city. So, there’s an excellent runway in front of this company, and I honestly believe this company has the potential to be one of those lifetime stocks with the potential for a 100-to-1 return.

This is a fantastic opportunity and, best of all, the stock is trading at less than 11 times earnings right now. It is dramatically underpriced and underdiscussed, and this is the kind of stock that I think can build generational wealth as it benefits from some of the biggest trends in our country and the world.