How to Invest in REITs in Canada

Introduction

Interested in real estate but not keen on the hassle of managing properties? Investing in Real Estate Investment Trusts (REITs) might be the perfect solution for you! REITs allow you to invest in real estate without having to buy, manage, or finance properties directly.

In Canada, REITs offer an accessible and diversified way to add real estate to your investment portfolio. Whether you’re new to investing or looking to diversify, understanding how to invest in REITs can help you achieve your financial goals.

This guide will walk you through the basics, benefits, and steps to get started. Let’s explore how you can make REITs work for you!

Understanding REITs

Real Estate Investment Trusts (REITs) are companies that own, operate, or finance income-producing real estate across various sectors. They pool the capital of numerous investors to purchase and manage real estate properties, generating income that is distributed to shareholders.

1. Types of REITs: There are several types of REITs, including Equity REITs (own and manage properties), Mortgage REITs (provide financing for income-producing real estate), and Hybrid REITs (a combination of both).
2. Income Distribution: REITs are required to distribute a significant portion of their taxable income to shareholders in the form of dividends, making them an attractive option for income-seeking investors.
3. Liquidity: Unlike direct real estate investments, REITs are traded on major stock exchanges, providing liquidity and ease of buying and selling shares.

Benefits of Investing in REITs

When learning how to invest in REITs in Canada, it’s important to understand the numerous benefits they offer. These advantages make REITs an appealing choice for both novice and experienced investors.

1. Diversification: REITs provide exposure to a diversified portfolio of real estate properties, reducing the risk associated with investing in a single property.
2. Regular Income: REITs typically offer attractive dividend yields, providing a steady income stream for investors.
3. Professional Management: REITs are managed by experienced professionals who handle property acquisition, management, and leasing, freeing investors from the responsibilities of property management.
4. Accessibility: Investing in REITs allows individuals to invest in large-scale, income-producing real estate without the need for significant capital.
5. Inflation Hedge: Real estate investments can act as a hedge against inflation, as property values and rental income tend to rise with inflation.

How to Invest: Steps to Get Started

Getting started with REITs in Canada is straightforward. Here are the steps to guide you through the process of learning how to invest in REITs:

1. Set Your Goals: Determine your investment objectives, such as income generation, capital appreciation, or diversification. Clear goals will help you choose the right REITs and investment strategy.
2. Research REITs: Investigate different REITs available in Canada. Consider factors such as property types, geographic focus, dividend yields, and management quality.
3. Choose Your Investment Vehicle: Decide whether to invest in individual REITs or REIT ETFs (Exchange-Traded Funds) that provide exposure to a basket of REITs. REIT ETFs offer diversification and lower risk.
4. Open an Account: You’ll need an investment account to buy REITs. Options include online brokerage accounts, robo-advisors, and traditional financial institutions.
5. Invest Regularly: Consider using a dollar-cost averaging strategy, where you invest a fixed amount at regular intervals. This approach helps reduce the impact of market volatility.
6. Monitor Your Investment: Periodically review your portfolio to ensure it aligns with your goals. Rebalance if necessary, but avoid making frequent changes based on short-term market movements.

How to Invest for Beginners

If you’re new to investing in REITs, starting can feel a bit overwhelming. Here are some tips to help beginners on their investment journey:

1. Educate Yourself: Take time to learn about REITs, real estate markets, and the principles of income investing. There are plenty of online resources, books, and courses to help you get started.
2. Start Small: Begin with a small investment to gain experience and build confidence. As you become more comfortable, gradually increase your investment amounts.
3. Use Online Platforms: Many online investment platforms and brokers offer user-friendly interfaces and low fees. These platforms can help you manage your investments and provide tools for analysis and portfolio management.
4. Stay Informed: Keep up with news and trends in the real estate market and REIT industry. Staying informed can help you make timely and informed decisions.
5. Seek Professional Advice: Consider consulting with a financial advisor to develop a personalized investment plan. A professional can provide guidance, help you set realistic goals, and ensure your investments align with your financial objectives.

Top Canadian REITs

To invest in a REIT, you can buy shares through your brokerage account. As you’re looking for top REITs to invest in, here are some big companies that you might want to consider:

Morguard North American Residential (TSX: MRG.UN)

• Description: Focuses on leasing residential spaces in both Canada and the United States.
• Properties: Owns around 43 multi-suite residential properties across North America, with 16 in Ontario and Alberta and 27 in nine U.S. states.
• Highlights: High occupancy rate, strong yield, and significant growth potential.

• Ticker: MRG-UN.TO
• Description: Focuses on leasing residential spaces in both Canada and the United States.
• Properties: Owns around 43 multi-suite residential properties across North America, with 16 in Ontario and Alberta and 27 in nine U.S. states.
• Highlights: High occupancy rate, strong yield, and significant growth potential.
• Stock Price: 17.03 CAD
• Regular Market Change Percent: -0.35%
• Regular Market Day Range: 16.96 – 17.08
• Fifty-Two Week Range: 13.08 – 17.1
• Trailing PE: 3.70
• Dividend Yield: 4.33%
• Average Analyst Rating: 2.0 – Buy
• Market Cap: $933.82 million
• Average Daily Volume (3 months): 35,775
• Average Daily Volume (10 days): 32,270
• EPS (Trailing Twelve Months): 4.6
• Dividend Rate: 0.74

SmartCentres (TSX: SRU.UN)

• Description: The largest retail REIT in Canada, focusing on both commercial and residential spaces.
• Properties: Manages 283 properties, with 178 for rent and 105 for sale.
• Highlights: Major client is Walmart, expansion into mixed-use properties, and consistent dividend payments.

• Ticker: SRU-UN.TO
• Description: The largest retail REIT in Canada, focusing on both commercial and residential spaces.
• Properties: Manages 283 properties, with 178 for rent and 105 for sale.
• Highlights: Major client is Walmart, expansion into mixed-use properties, and consistent dividend payments.
• Stock Price: 24.38 CAD
• Regular Market Change Percent: 0.66%
• Regular Market Day Range: 24.2 – 24.4
• Fifty-Two Week Range: 20.67 – 25.8
• Trailing PE: 13.62
• Dividend Yield: 7.64%
• Average Analyst Rating: 2.9 – Hold
• Market Cap: $4.15 billion
• Average Daily Volume (3 months): 241,319
• Average Daily Volume (10 days): 280,330
• EPS (Trailing Twelve Months): 1.79
• Dividend Rate: 1.85

Allied Properties (TSX: AP.UN)

• Description: An office and data REIT focused on developing and leasing office space in major Canadian cities.
• Properties: Owns 195 rental properties in various Canadian markets.
• Highlights: Strategic acquisitions during the pandemic, strong dividend payouts, and a diverse portfolio.

• Ticker: AP-UN.TO
• Description: An office and data REIT focused on developing and leasing office space in major Canadian cities.
• Properties: Owns 195 rental properties in various Canadian markets.
• Highlights: Strategic acquisitions during the pandemic, strong dividend payouts, and a diverse portfolio.
• Stock Price: 17.74 CAD
• Regular Market Change Percent: 1.37%
• Regular Market Day Range: 17.4 – 17.75
• Fifty-Two Week Range: 15.01 – 22.66
• Trailing PE: 13.62
• Dividend Yield: 10.29%
• Average Analyst Rating: 2.3 – Buy
• Market Cap: $2.27 billion
• Average Daily Volume (3 months): 479,327
• Average Daily Volume (10 days): 491,710
• EPS (Trailing Twelve Months): -3.82
• Dividend Rate: 1.8

Pros and Cons of REIT Investment

Pros

1. Low Cost: REITs are affordable, allowing investors to start with as little as $10.
2. Low Maintenance: Owning REIT units frees you from property management responsibilities.
3. Liquidity: REITs can be easily bought and sold on public stock exchanges.
4. Diversification: REITs hold multiple properties across different regions and sectors.

Cons

1. Taxes: Distributions from REITs held in non-registered accounts are taxed at your full marginal rate.
2. Lack of Leverage: Unlike direct real estate investments, REIT investors cannot leverage their purchases to the same extent.

FAQ Section: Investing in REITs in Canada

How to invest in REITs for beginners?

Investing in REITs (Real Estate Investment Trusts) in Canada can be a great way for beginners to gain exposure to the real estate market without owning property. Here’s how to get started:

1. Educate Yourself: Learn about REITs, how they work, and the different types available (equity REITs, mortgage REITs, and hybrid REITs).
2. Open an Investment Account: Choose a brokerage that offers access to Canadian REITs. This can be an online brokerage or a traditional financial institution.
3. Research REITs: Look for REITs that align with your investment goals. Consider factors like the sectors they invest in (residential, commercial, industrial), their historical performance, and dividend yields.
4. Diversify: To minimize risk, consider investing in multiple REITs or a REIT ETF that offers diversified exposure.
5. Invest: Purchase shares of your chosen REITs through your brokerage account.
6. Monitor Your Investments: Keep an eye on your investments and the overall real estate market to make informed decisions.

What are the rules for REITs in Canada?

Canadian REITs must comply with specific regulations, including:

1. Income Distribution: REITs must distribute at least 90% of their taxable income to shareholders as dividends.
2. Asset Requirements: At least 75% of a REIT’s assets must be invested in real estate, cash, or government securities.
3. Income Sources: At least 75% of a REIT’s gross income must come from real estate-related sources, such as rents or mortgage interest.
4. Diversification: REITs must adhere to diversification rules to reduce risk, typically limiting the concentration of investments in single properties or sectors.

What is the average return on a REIT in Canada?

The average return on a REIT in Canada can vary based on market conditions and the specific REIT. Historically, Canadian REITs have provided annual returns ranging from 5% to 10%, including dividend yields and capital appreciation. However, past performance is not indicative of future results, and returns can fluctuate.

How much money is needed to invest in REITs?

The amount needed to invest in REITs can be quite flexible:

1. Individual REIT Shares: You can start by purchasing individual REIT shares, with prices typically ranging from CAD 10 to CAD 100 per share.
2. REIT ETFs: REIT ETFs provide diversified exposure to multiple REITs and can be purchased through brokerages, often with a minimum investment of a few hundred dollars.
3. Minimum Investment: Some brokerages may have minimum investment requirements, but generally, you can start investing in REITs with as little as a few hundred dollars.

Do REITs pay monthly?

Many REITs pay dividends monthly, providing regular income to investors. However, some REITs may pay dividends quarterly. It’s important to check the dividend payment schedule of each REIT before investing.

How do I make money from REITs?

You can make money from REITs in two main ways:

1. Dividend Income: REITs distribute a significant portion of their income as dividends, providing regular income to investors.
2. Capital Appreciation: The value of REIT shares can increase over time as the underlying real estate assets appreciate, allowing you to sell your shares at a profit.

Conclusion

Investing in REITs in Canada is an excellent way to gain exposure to the real estate market without the challenges of direct property ownership. By understanding how to invest in REITs, exploring the benefits, and following a structured approach, you can make informed decisions that align with your financial goals. Whether you’re a beginner or an experienced investor, these guidelines can help you navigate the world of REIT investing and build a secure financial future. Remember, the key to successful investing is continuous learning, disciplined execution, and staying focused on your long-term goals. Happy investing!