Real estate is a wealth-building vehicle that has stood the test of time. However, it can be an intimidating venture for new entrants to purchase a rental property and requires significant upfront capital. In addition, many people don’t have the skill set to perform general maintenance and repairs, nor do they want to chase tenants for monthly rent.
Fortunately, the stock market offers real estate investment trusts (REITs) that provides investors with exposure to the real estate market. Canadian Apartment Properties REIT (TSX: CAR.UN) and Smart REIT (TSX: SRU.UN) are two REITs that will produce passive income without you having to take on the financial burden and headaches of owning a property.
Canadian Apartment Properties REIT
With housing prices at all-time highs and an expected rise in interest rates, the financial burden of owning a home becomes less attractive for the average Canadian. Therefore, we can expect the demand for rentals to rise. Canadian Apartment Properties REIT (CAP) has over 48,000 residential units in major urban centres across Canada, which is where demand for these types of rentals will be the highest.
CAP has already acquired properties in Dublin, Ireland, and plans to continue expansion throughout northern Europe. With a debt-to-capital ratio of 42.5%, CAP has the resources necessary to fund its expansion while providing investors with exposure to Europe without stretching the company’s balance sheet.
With an occupancy rate of 98.7% and a dividend-payout ratio around 42%, CAP will have the cash flows available to maintain its current dividend yield of 3.92% during its European expansion.
Smart REIT
Smart REIT focuses on retail and mixed-use properties across Canada. One of its greatest strengths is its current tenant portfolio, which includes retail giants such as Wal-Mart, Home Depot, and Canadian Tire. By having such well-established companies occupying its properties, there is additional security regarding future cash flows and maintaining its occupancy rate of 98.3%.
One of the biggest threats posed to retail REITs is the rise of e-commerce. However, Smart REIT has mitigated this risk by adding its “Penguin Pick-Up” service. This provides tenants with an additional online and convenience service by allowing customers to order its tenants’ products online and pick them up at its “Penguin Pick-Up” locations.
With consistent revenue and cash flow growth over the past three years, investors have reason to believe this will continue and allow the company to expand its current operations and service its 5% yield.
Foolish bottom line
Investors can reap the benefits of these passive-income boosters by buying and holding them forever. The combination of a long-term horizon for growth, along with highly sustainable dividend yields, will result in significant, low-risk returns over time.
Fool on!
