Retire Early: Make a Growing Passive Income With REITs

REITs could offer inflation-beating income returns over the long run.

The potential to generate a growing passive income through investing in real estate investment trusts (REITs) remains high.

Certainly, there are fears surrounding the outlook for the global economy, with trade tensions between the US and China being high.

However, with the prospect of a loose monetary policy being pursued by many of the world’s major central banks, the industry may experience continued growth over the medium term.

Favourable operating conditions

Since the financial crisis, global property prices have benefitted significantly from an accommodative monetary policy that has been pursued by a number of central banks. Policies such as lower interest rates and the Federal Reserve’s asset repurchase program have improved confidence among investors, which has led to rising asset prices.

Looking ahead, there could be a continuation of this trend in the medium term. Weak economic data in the US means that a cut in interest rates is becoming increasingly likely. Certainly, the previously expected rise in interest rates after the upward movements in previous months is now unlikely. This could mean that the global economy, and thereby asset prices, gains a boost over the medium term.

Cyclicality

Although property prices may have faced an uncertain period of late, their long-term track record has generally been favourable. Therefore, investing in REITs is likely to be a beneficial strategy to investors who are seeking to generate a passive income over the long run.

Even if property prices come under pressure in the short run, investors in REITs could benefit. It may be possible to buy attractive assets at below their intrinsic value; thereby creating greater scope for profitability through the cycle. Since REITs generally have impressive income returns that may prove to be sustainable even during challenging operating conditions, investors in them may have the cash flow required to increase their exposure the sector during periods of uncertainty. This could help them to maximise their long-term returns.

Debt

Although the property industry may have a solid track record of growth and could benefit from a dovish global interest rate environment, ensuring that REITs have modest leverage could be a sound idea.

This could help investors to avoid potential losses. It may also ensure they invest in companies that could be better-placed to capitalise on possible opportunities which may be ahead during more challenging parts of the property cycle.

Focused growth

With the world economy continuing to evolve towards a digital future, investors may wish to focus on REITs that have exposure to faster-growing segments of the economy.

For example, consumers are increasingly comfortable buying goods online. This may mean that demand for warehouses increases and retail units are gradually converted to office or residential space. As a result, REITs that own vast swathes of retail units may be unable to deliver the level of returns that companies with portfolios that are focused on warehousing can offer.

Overall, though, the sector appears to have a favourable long-term outlook. Through diversifying and adopting a buy-and-hold strategy, REITs look set to offer a growing passive income for investors.

More on Investing

dividends can compound over time
Dividend Stocks

2 Dividend Stocks to Hold Comfortably for the Next 5 Years

These companies have significant growth programs in place to support steady dividend hikes.

Read more »

A plant grows from coins.
Dividend Stocks

A 5% Dividend Stock Paying $39.30 Every Month

A high-yield dividend stock can provide recurring income streams every month on a modest investment.

Read more »

Canada national flag waving in wind on clear day
Investing

The Sectors Where Canada Actually Beats the United States

Canadian energy stocks and financial stocks continue to outpace their U.S. counterparts.

Read more »

Middle aged man drinks coffee
Dividend Stocks

The Average TFSA and RRSP for a 45-Year-Old Canadian

The average TFSA and RRSP for a 45-year-old Canadian show substantial contribution rooms but also a massive opportunity to build…

Read more »

Person holds banknotes of Canadian dollars
Dividend Stocks

A 5% Dividend Stock Ideal for Passive-Income Seekers

This TSX giant has increased the dividend annually for past three decades.

Read more »

woman looks ahead of her over water
Dividend Stocks

2 Dividend Stocks I’d Buy Today and Feel Good Holding for at Least 5 Years

Given their resilient business models, consistent cash flow generation, long history of dividend growth, and improving long-term growth prospects, these…

Read more »

top TSX stocks to buy
Dividend Stocks

A Strong TFSA Stock Offering a 3.9% Yield and Monthly Paycheques

This high-quality Canadian monthly dividend stock could reward TFSA investors with reliable income today while delivering stronger returns in the…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

I’d Put My Entire TFSA Contribution Into This 6% Monthly Passive-Income Stock

A $7,000 TFSA contribution could turn into about $35 a month in tax-free cash if Peyto’s dividend holds.

Read more »