Being a landlord isn’t all it’s made to be. Many folks don’t realize that it’s not as simple as finding a tenant and collecting monthly rental payments. It can be its own full-time job, and as someone who’s retired or is close to being retired, there are better ways to go about investing in real estate.
Let’s say you’re someone who’s willing to roll your sleeves up and put in the work that comes with being a landlord (maintenance, renovations, chasing tenants for their rent, and all the sort); you may not realize that you still stand to leave a lot of money at the table relative to a professional landlord who’s more efficient with a knowledge of the ins and outs of the business and the real estate markets of interest.
As such, retirees should strive to be lazy landlords rather than owning physical real estate and doing everything themselves. The monthly distributions will go into your pocket without requiring you to lift a finger, and with professional managers running the show, you’ll likely get a far superior return on your invested dollar than if you attempted everything yourself.
Consider the following two REITs if you’re looking to start your own real estate empire.
Canadian Apartment Properties REIT
Canada’s housing is red hot, and the Greater Vancouver and Toronto areas are white hot. Consider a market like Vancouver, which has been in a rental state of emergency over the past few years, with rental unit demand heavily overwhelming the supply.
Rents are through the roof, and vacancy rates are close to zero — a truly dire situation for Vancouverites, but a great opportunity for residential REITs with significant exposure in the market like Canadian Apartment Properties REIT (TSX:CAR.UN), or CAPREIT. Legendary investor Peter Lynch would refer to CAPREIT as a business that’s fortunate and able, meaning the company is in an advantageous position and is well versed enough to capitalize on the opportunity to be had.
There are no easy solutions to cool down Vancouver’s frothy rental market, and as a result, CAPREIT will continue to outperform, as it looks to step in on the demand side while upping rents across its existing units. CAPREIT is the epitome of a growth REIT with a 2.4% yield and a stock that isn’t about to be stopped in its tracks anytime soon.
Interrent REIT (TSX:IIP.UN) is another growth REIT with a proven model for delivering substantial gains to shareholders. The firm acquires residential real estate at “cheap” multiples with the intention of unlocking value through renovations, management improvements, and everything in between. In essence, managers have the know-how to produce synergies in the form of the ability to command higher rents, with the value the firm adds to its recently acquired properties.
“Interrent doesn’t ‘flip’ the properties it acquires. It has the financial capacity to retain the income-generating properties and hold them for the long term. Where the value is created is through the ‘spruce up,’ which is the primary source of what makes ‘home flipping’ so profitable with those who know what they’re doing.” I said in a prior piece.
With a mere 1.8% yield, Interrent may be lacking on the income front, but it makes up for this in terms of its stellar AFFO growth rate and its ridiculously low 0.15 beta, which means shares of the REIT are less correlated the broader markets, making them perceived as less risky.
REITs are outstanding alternative investments that tend to be lowly correlated to the equity markets. Despite the low yields, one can do extraordinarily well on the capital gains front over a multi-year time horizon. It’s stock-like performance for a lesser degree of volatility. It’s a terrific proposition for those seeking to further diversify their portfolios without compromising on the return front.
Stay hungry. Stay Foolish.
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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 Joey Frenette has no position in any of the stocks mentioned.