Give Up on the Depressing Dream of Property Ownership and Check Out These REITs Instead

Property ownership has become prohibitively expensive for the average investor. Forget about getting your own property and invest in a REIT like InterRent Real Estate Investment Trust (TSX:IIP.UN) instead.

House Key And Keychain On Wooden Table

Image source: Getty Images

For many people in Canada, the dream of owning your personal little piece of land has died. It can be downright depressing, particularly if you live in one of the hottest markets in Canada, such as Toronto or Vancouver. Investing in property is an equally ridiculous endeavour, especially if you have the audacity to want to generate real cash flow from the property.

So, why even bother? Just give up on the dream and try to figure another way to diversify into real estate. There are a number of real estate investment trusts (REITs) that can satisfy that itch to own a piece of property you can rent out to the growing masses of renters that can’t afford a house either. And these investments can actually generate a yield to fund your retirement without needing to deal with tenants of your own. There are three REITs that I have been checking out that are interesting substitutes for owning rental properties.

Canadian Apartment Properties (TSX:CAR.UN)

Canadian Apartment REIT is the largest by market capitalization of the three REITs listed here at $6.7 billion. Although primarily situated in Ontario and British Columbia, this REIT has apartments all over Canada and has started to build its portfolio in Europe (Ireland and the Netherlands) as well. The company pays a distribution of just under 3% and has been growing that distribution for a number of years.

Killam Properties (TSX:KMP.UN)

Killam is focused on the Canadian market. With rising home prices, demand for rental units has been rising and this REIT has been capitalizing on the trend. Most of its income has traditionally come from the Maritime provinces such as Nova Scotia and New Brunswick, although it has been growing its Ontario business in particular in recent years. Killam yields around 4% at the current unit price and has been raising its payout for a couple of years, although it does not have the steady payout history of Canadian Apartment REIT.

Killam’s net operating income has experienced a compound annual growth rate (CAGR) of 8.5% over the past few years. This company has also been deleveraging, which should help it navigate a rising-rate environment. Furthermore, it has been dropping its payout ratio as its profitability has been increasing, meaning the distribution should be more secure, potentially leading to more increases in the future.

InterRent (TSX:IIP.UN)

InterRent operates properties all over Canada, with a large number of properties in the major centres of Ontario and Quebec. Over the past eight years, InterRent has experienced a CAGR of its funds from operations of 27%. Its profitability has allowed this REIT to steadily increase its payout over those years. At the present time, it yields just over 2%.

Why choose a REIT?

Home prices are becoming increasingly unaffordable due to high prices, rising mortgage rates, and essentially flat wage growth. Owning rental properties makes a lot of sense as more people give up on the housing dream. But why have the headache of going at it alone?

I personally like the idea of investing with companies that know how to look after tenants rather than learning the ropes myself. Of course, the downside is that you are still owning a business as opposed to owning your own little plot of land. It seems to me, though, that the downside risks to property ownership are still great enough and the irritation of managing a property repulsive enough that I would prefer to own a company that does all this for me instead and sit around and collect my distributions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Kris Knutson has no position in any of the stocks mentioned.

More on Dividend Stocks

Engineers walk through a facility.
Dividend Stocks

1 TSX Stock I Wouldn’t Touch With a 10-Foot Pole

AtkinsRéalis (TSX:ATRL) is one TSX stock I'd never invest in.

Read more »

edit Woman in skates works on laptop
Dividend Stocks

3 No-Brainer Stocks to Buy Under $30

These three stocks all offer a huge deal for investors looking for dividends, as well as growth that will last.

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

Payday ringed on a calendar
Dividend Stocks

3 Dividend Stocks That Pay Me More Than $54.57 Per Month

These three dividend stocks have done me well over the years, so let's look at how much I've gotten in…

Read more »