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In spite of the fact that 30 year mortgages are at the lowest rate in over 50 years, it is still very hard for potential home-buyers to get a mortgage. Lenders require higher down-payments, greater proof of income, and higher credit scores. The free-for-all loans of a few years ago are long gone. So what do the non-homeowners do? If they don't move in with their parents or in-laws, they rent. The best way for an investor to play this opportunity is through residential equity real estate investment trusts, such as Home Properties Inc. (NYSE:HME).

Of course, there are mortgage income REITs with extremely high yields, such as Two Harbors Investment Corp. (NYSE:TWO), which yields 16.9%, but I don't think that kind of yield is sustainable; plus, the trust invests in mortgages that include Alt-A mortgage loans, subprime mortgage loans, and derivatives.

However, Home Properties directly owns and operates apartment communities throughout the eastern United States. The stock trades at 17 times forward earnings. The operating cash flow of $151.5 million significantly exceeds its dividend payouts of $87 million by over 70%. Home Properties yields 4.7%, much higher than some of its competitors, such as Apartment Investment & Management Co. (NYSE:AIV) which yields 1.8%, and AvalonBay Communities Inc. (NYSE:AVB) which yields 3.2%. On September 30, KeyBanc Capital Markets upgraded Home Properties from a Hold to a Buy.

Another residential equity REIT with a decent yield is Mid-America Apartment Communities Inc. (NYSE:MAA), which pays 4.1%, and serves the Sunbelt area. The stock trades at 16 times forward earnings. The operating income of $129.8 million greatly exceeds the total dividend payouts of about $80 million. Jeffries recently initiated coverage on the company, giving it a Hold rating.

If you like the idea of investing in residential REITs, you should check out the free list at WallStreetNewsNetwork.com, which includes the stock symbols, market caps, forward P/E ratios, and yields.

Disclosure: Author does not own any of the above.

Source: Top Yielding Residential REITs: Why 4.7% Is Better Than 16.9%