Some investors buy properties and rent them out to receive rental income. Those properties require a huge amount of capital up front.

By investing in real estate investment trusts (REITs) instead, investors can invest a small amount and still receive a decent monthly income. Additionally, a professional management team takes care of the properties and the tenants, so you don’t have to.

Furthermore, by buying REITs, you diversify your portfolio immediately because REITs typically own and operate hundreds of properties.

About Canadian REIT

At the end of December Canadian REIT (TSX:REF.UN) owned 198 properties totaling 25 million square feet of gross leasable area with $5.5 billion of assets. Canadian REIT is one of the most stable REITs you can find in Canada. It has over a decade’s track record of growing funds from operations and cash distributions. It also owns, manages, and operates a high-quality, high-occupancy, and diversified portfolio of retail, industrial, and office properties.

How to receive $1,000 in monthly income

Buying 6,667 units of Canadian REIT at $43.4 per unit would cost a total of $289,348. You’d receive $1,000 per month, a yield of 4.2%.

Most of us probably don’t have that kind of cash lying around. No problem. You could buy 3,334 units at $43.4, costing a total of $144,696, and you’d receive $500 per month and still get a 4.2% yield from your investment.

Okay, $144,696 is still too much. Instead, you could buy 667 units at $43.4 per unit, costing $28,948, and you’d receive $100 per month.

See what I’m getting at? You’d receive that 4.2% annual income no matter how much you invest. And the investment amount is up to you.

Investment Annual Income
$289,348 $12,000
$144,696 $6,000
$28,948 $1,200

Is Canadian REIT’s income safe?

Canadian REIT maintains a conservative funds from operations (FFO) payout ratio of about 60%, so there’s a margin of safety for its distribution. The REIT’s FFO per unit either remains stable or grows every year. From 1994 to 2014, its FFO per unit grew on average 8% per year. This supports its distribution growth, which has grown for 14 consecutive years. Additionally, the REIT maintains a high occupancy of about 95%.

Tax on the income

REITs pay out distributions that are unlike dividends. Distributions can consist of other income, capital gains, foreign non-business income, and return of capital. Other income and foreign non-business income are taxed at your marginal tax rate, while capital gains are taxed at half of your marginal tax rate.

So, to avoid any headaches when reporting taxes, buy and hold REIT units in a TFSA or an RRSP. However, the return of capital portion of the distribution is tax deferred. So, it may be worth the hassle to buy REITs with a high return of capital in a non-registered account.

Of course, each investor will need to look at their own situation. For instance, if you have room in your TFSA, it doesn’t make sense to hold investments in a non-registered account to be exposed to taxation.

In conclusion

If you’re looking for a safe place to park your money, consider Canadian REIT, which has been paying a monthly distribution since 1994 and has paid a growing distribution for 14 consecutive years.

Although Canadian REIT pays a higher yield than GICs and conveniently pays a monthly distribution, it is considered to be riskier than GICs because it’s a stock that’s innately volatile. Comparatively, at maturity you would get your principal back from a GIC.

Earn more rental income from these REITs

We'd all love to have a steady stream of extra income, but who wants the hassle (and expense!) of buying and managing property and dealing with tenants? We have a much better option: REITs allow investors like us to purchase shares in a diversified portfolio of properties and earn a share of the profits!

Want to know more? Our just-released report, "Earn $6,000 Per Year in Rental Income Without Becoming a Landlord" has all the details. Just click here now to find out how to get your FREE copy today!

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Fool contributor Kay Ng owns shares of CDN REAL ESTATE UN.