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Income Investors: A Fortunate REIT That Could Make You Substantial Wealth Over the Long Term

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If you’ve yet to contribute $6,000 to your TFSA this year or if you’ve stashed the cash but are lacking in investment ideas, you may want to consider Canadian Apartment Properties REIT (TSX:CAR.UN), or CAPREIT, a red-hot REIT that I think will get hotter and stay hot for at least another five years.

CAPREIT has been one of the most rewarding REIT investments over the past five years, with shares soaring an astounding 134% in the time span. The 2.7% yield seems unimpressive on the surface, but when you consider how far shares have run (the yield falls as shares go up) and frequent distribution hikes that have been made over the years, only then does it become apparent that CAPREIT has a lot more to offer on the income front than meets the eye.

Based on the chart, CAPREIT looks like a name that’s too hot to handle. It’s been on a heck of a run and is starting to look expensive. While shares do trade at a very hefty premium, I’d argue that they don’t trade at enough of a premium given what I believe are profoundly powerful market advantages that CAPREIT possesses and the vast amount of fruit that such advantages will yield over the long haul.

You see, CAPREIT is a company that Phillip Fisher, legendary investor and author of Common Stocks and Uncommon Profits, would have called “fortunate and able.”

The REIT isn’t just a well run or “able.” It’s fortunate enough to happen to own a heck of a lot of properties within real estate markets that have been experiencing severe supply-demand imbalances. Select markets that have experienced massive rental unit supply shortages have allowed CAPREIT to call the shots and profit profoundly from favourable industry trends that CAPREIT had absolutely nothing to do with.

CAPREIT owns a lot of rental properties in markets like those in the Greater Vancouver Area that are in a state of emergency. There aren’t enough units to go around, and as one of the major rental unit suppliers, CAPREIT has the power to increase rents with little to no effect on vacancy rates, which are already at rock-bottom levels.

Given the circumstances, rental markets like those in Vancouver or Toronto won’t be hitting an equilibrium anytime soon, and with CAPREIT poised to opportunistically inject new supply into such markets, I see vast potential for further economic profits, as rents continue to soar into the stratosphere.

Last year, I called CAPREIT a strong buy, highlighting the fact that the REIT had found itself in the right place at the right time, and that economic trends pointed to a further strengthening in CAPREIT’s already strong position in its markets of operation.

“Vancouver has been a frothy housing market for quite some time, but over the past year, sales have slowed thanks in part to more stringent mortgage rules and foreign buyer taxes, among other regulations that have tempered housing sales. These new rules make it uneconomical for some folks to afford a mortgage on a home, so naturally, they flock towards rental apartments, which are already in short supply,” I said. “For the renter, it’s a complete disaster. But for CAPREIT, it’s a generational opportunity.”

Indeed, it’s a generational window of opportunity (or adversity if you’re a renter) — one that I believe will remain open for at least a few more years.

Stay hungry. Stay Foolish.

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Fool contributor Joey Frenette has no position in any of the stocks mentioned.

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