The Federal Reserve may be sticking to its story that there’s virtually no inflation in the US economy, but if you rent you know otherwise. Here’s a look at the trends that are generating rental inflation, as well as the best way for investors to benefit from it.

For generations, parents have sat their soon-to-be independent children down and talked to them about how to budget their money when they’re out on their own. When it came to housing costs, the typical advice was not to spend any more than a quarter of their incomes on rent or they might have a roof but no electricity or food. Unfortunately for today’s first-time renters, even if they wanted to take this advice they might not be able to.

The housing market was a mess following the foreclosure crisis, but it has recovered quite well since 2009. New home sales are at a six-year high, construction has posted double-digit growth and, while the price recovery has been somewhat lumpy, the S&P Case-Shiller Home Price Index has jumped from a low of 124.21 in March 2012 to its current level of 150.39. While that reading is nowhere near the headiest days of the real estate bubble when the index peaked in June 2009 at 189.93, it has made up almost half its lost ground and is back at levels last seen in 2004.

Despite that recovery, underwriting standards on new mortgage loans have remained tight. Several banks, including Thrive Portfolio holding Wells Fargo (NYSE: WFC), plan to begin loosening standards, but over the past few years most banks have required FICO scores of 620, down payments of as much as 20 percent, and a borrower’s debt-to-income ratio of no higher than about 40 percent. Few people can pass this gauntlet.

Those strict lending standards have created a new generation of renters, with about 6.2 million new tenants over the past five years.

While it was once customary for students to graduate from college, rent an apartment for a few years than buy a house, fewer and fewer are able to make the transition to ownership and have become long-term renters. That’s pushed apartment vacancy rates to near record lows, especially in high demand cities such as New York, Washington, D.C. and Los Angeles. The multifamily building boom of the past few years simply hasn’t been able to keep up with demand. Tight supply has pushed rents on an inexorable march higher over the past few years:

That dearth of available units coupled with slow income growth has driven median rents as a percentage of household income up from about 20 percent a decade ago to about 30 percent today. According to a recent study from Harvard, half of all renters are spending more than 30 percent of their incomes on rent.

Rents are up by 3 percent just over the trailing year, nearly double the overall rate of inflation, and are expected to increase by between 4 percent and 5 percent in 2014, further stretching already strained budgets.

But while renters may have it rough, those who own and operate multi-family housing units are bringing in a steadily growing stream of cash that is extremely attractive to investors.

An excellent case in point is Apartment Investment and Management Company (NYSE: AIV), known as Aimco.

Structured as a real estate investment trust (REIT), Aimco’s shares are off by nearly 7 percent over the trailing year. Required to payout at least 90 percent of their income to investors, REITs are largely treated as bond-like investments sensitive to rising interest rates. The property business also is very capital intensive, so rising borrowing costs can ding profitability.

What sets Aimco apart is that while it owns and operates nearly 60,000 rental apartments across the country and doubled its investment in development and redevelopment to $194 million last year, it uses surprisingly little leverage in its operations. In fact, last year it brought its leverage to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio down to just 0.5 times, much lower than the majority of its peers.

At the same time, Aimco’s funds from operations (FFO), a key measure of REIT revenue, rose by 11 percent last year to $2.04 per share. Part of that strong growth is due to the REIT’s strategy of operating both high-end and mid-tier apartment homes with the strongest rent rate growth coming from the higher end. It has also sold off about 18,000 rental units over the past two years, bring costs down even as the rental rates on the remaining units have been rising.

Aimco has also gotten a boost from its superior occupancy rate, which has run slightly higher than 95 percent for several years. While its holdings are geographically diversified across the country, its properties are mainly located in high demand areas where at least three other REITs are competing with it for tenants, making its occupancy rate extremely attractive.

With the forecast for another year of solid rental rate growth ahead of it, the company expects its same store revenues to increase between 3 percent and 4 percent over the course of 2014. At the same time it expects FFO growth of about 10 percent over the course of the year due to the fact that most of the loans it will need have already been committed at today’s low interest rates.

Another attractive feature is Aimco’s 3.6 percent yield. Currently paying 26 cents per share quarterly, it has consistently increased its dividend over the past five years at a rate well in excess of inflation. Most recently, it boosted its distribution by 8 percent in the fourth quarter.

Aimco’s shares may be somewhat volatile in the coming months as a result of interest rate speculation, but it offers a steady stream of income which will only grow along with the uptrend in average rental rates. That makes it a terrific inflation hedge as rents only get more expensive and buying a home remains tough as banks once bitten are twice shy.

Buy Apartment Investment and Management Company under 35.