Do you like owning real estate assets, but don’t have enough for a down payment to make the purchase?
This predicament isn’t something you’re facing alone. Many young savers in Toronto and Vancouver have found themselves in a situation where it’s almost impossible to own a piece of real estate after an unprecedented run-up in home prices since 2009.
But I have a solution for you. What about buying units of real estate investment trusts (REITs)?
REITs are investment vehicles that allow retail investors to invest in income-producing assets, such as apartment buildings, commercial properties, and hospitals.
In this model, professionals manage these real estate assets and distribute most of the rental income among the unitholders. Investing in REITs is also a great way to build your savings, which you may have created through your Tax-Free Saving Account (TFSA).
Another benefit of investing in REITs is advantageous tax treatment. REITs pay distributions before they pay tax to the taxman, sparing more income for cash payouts.
Today, I’ve picked two top Canadian REITs which offer high yields and stable income to investors.
Canadian Apartment Properties REIT (TSX: CAR.UN) is a top-performing REIT in the residential rental market. It manages multi-unit residential properties, including apartment buildings, townhouses and land lease communities located near major urban centres across Canada.
A robust demand for rental units in Toronto and other major cities has helped Canadian Apartment REIT to outperform other REITs at a time when their share prices are under pressure due to rising interest rates in Canada.
Over the past 12 months, Canadian Apartment REIT’s shares have soared 19% when compared to ~4% gains in iShares S&P/TSX Capped REIT Index ETF.
Having RioCan Real Estate Investment Trust (TSX: REI.UN) in your portfolio makes sense if you’re just starting to save in your TFSA due to the company’s financial strength and its dominant position in the market.
RioCan, Canada’s largest REIT, manages 299 retail properties across Canada. It owns and manages the country’s largest portfolio of shopping centres, including Wal-Mart and Canadian Tire.
Rising interest rates in Canada and fears of Amazon’s entry in the retail space have scared some investors away from this top REIT in recent months, sending its stock down 7% this year.
But I think this is a good time to make the entry to earn steady monthly dividends. RioCan has a solid track record when it comes to paying dividends. It has paid dividends uninterrupted for the past 22 years. During that period, it has raised its annual distribution 16 times.
RioCan generates enough rental income to manage its monthly distribution of $0.1175 per unit. At the time of writing, the payout provides an annualized yield of 5.7%, which isn’t a bad return for new TFSA savers to start with.
