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Reasons to Build a Portfolio With Real Estate Stocks

NEW YORK (TheStreet) -- If you've ever owned a home you know it's been a painful journey back from The Great Recession for the American real estate sector. For some segments, such as commercial strip malls, the recovery will never be a full recovery.

But if you are an investor, there are reasons why certain stocks that profit from the real estate market in the United States should be making a comeback in your portfolio.

First, as Warren Buffett noted in a CNBC interview, buying your home is a shrewd investment. This is proven by data from Core Logic that home sale prices rose by 0.9% in January, resulting in the biggest year-over-year gain in eight years of 12%. The present home ownership rate of 65.2% is far below the peak of 69.2% in 2004, according to data from the Census Bureau.

For that reason, look at the companies whose products and services will always been needed after you buy a home: Home Depot (HD - Get Report), its home-improvement competitor Lowe's (LOW) and paint giant Sherwin Williams (SHW - Get Report). Sherwin Williams is what I consider a "dividend aristrocrat" because it has raised its dividend annually for at least the past 25 years.

Second, when it comes to housing there will never be an end to the demand for financial services companies.

Americans know where they live is not just shelter but an asset to be refinanced to tap into its equity. As noted by the American Home Mortgage Solutions, "The dangerous thing about a taking out a home equity loan is that your residence becomes collateral to the lender."

But when it is done responsibility, it can be a very savvy financial maneuver for a homeowner with loads of equity. Wells Fargo (WFC) is the biggest home lender in the United States, so this is almost a no-brainer.

You also have to know where not to invest. Don't buy Sears Holdings (SHLD), RadioShack (RSH), or J.C. Penney (JCP) because they are sitting on a ton of undervalued commercial real estate.

At the time of publication the author had no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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