There is a saying when it comes to investing in real estate: “The perfect day to start investing in real estate is yesterday, so that means today is when you should start.” Because of tax laws, consistent cash flow, and the appreciation of assets when times are good, it makes sense why so many multi-millionaires got that way from buying real estate.
There are two prime ways that I can see to invest in real estate. The first is by actually acquiring properties and then renting them. The problem with this is that if you are new to the business, you might spend too much, deal with bad tenants, and lose money. While property managers are an option, they take a cut of the rent, so you are left with less cash flow.
The other option is to buy a stock like RioCan Real Estate Investment Trust (TSX:REI.UN). A REIT is a special company that gets to avoid paying income tax in exchange for kicking off the majority of its income in the shape of a dividend every year to investors. By acquiring shares of REITs you are effectively becoming a landlord without having to acquire any of your own properties. You leave the heavy lifting to RioCan and just take a cheque home.
There are some investors in Canada that believe RioCan is the best REIT that an investor could hold. And for the most part, I am inclined to agree with this statement. RioCan is in the shopping business. That means it owns millions of square feet in Canada and the United States that is dedicated to shopping centres. Since people are always going to want things, I doubt that these are going to disappear anytime soon.
But as we have seen with Warren Buffett’s recent purchases, it’s not just about great assets. RioCan has a wide moat because it can be difficult to build new shopping centres. There is only so much need, so if RioCan already dominates, a competitor is unlikely to come along to try to launch a competitive centre. This gives RioCan room to breathe and continue growing.
That growth, by the way, is coming in a very creative way. RioCan already owns the property that its buildings are on. Therefore, rather than trying to find new land, it is simply building up. It is experimenting by launching condominiums on top of its shopping centres. This is smart because the big costs of launching new properties are already gone. On top of that, the retailers leasing from RioCan are happy to have more people close by to buy goods.
All told, this has resulted in RioCan being able to pay a very lucrative dividend. Currently, the yield is 5.43%, which is insane. That $1.41 paid yearly will look good reinvested in more shares of the company, allowing you to generate even more cash flow from real estate you don’t have to worry about. And if the condominium project works for the company, I expect the dividend to rise even more.
So if you want solid cash flow that isn’t going to go away anytime soon, you should seriously consider buying shares of RioCan. It really could be the perfect real estate investment for you.
Fool contributor Jacob Donnelly has no position in any stocks mentioned.