The Motley Fool

Forget Real Estate! Buy These Stocks to GET RICH

Image source: Getty Images

Real estate has been an incredible engine of wealth creation for millions of Canadians. Canada’s median house price has more than doubled over the past 10 years. Leverage has enhanced these returns for most homeowners. The average Canadian household’s net worth is now $678,792, driven primarily by this real estate boom. 

However, housing across the country is now so expensive and unaffordable that future price gains could fail to match up to past performance. In other words, real estate investing is now more competitive and less lucrative than it’s ever been. Coupled with the economic crisis and falling rents, savvy investors should turn their attention to other asset classes. 

I believe dividend stocks from robust companies could outperform real estate over the next decade. Here’s a closer look at why you should consider adding dividend stocks to your portfolio instead of expanding your real estate empire. 

Passive income

The dividend yields on some stocks outweighs the average rental yield from real estate. While the gross rental yield in major cities such as Toronto and Vancouver ranges from 3.9% to 5.5%, dividend stocks can offer far higher returns. 

BCE, for example, offers a 6% dividend yield at current prices. Canada’s largest telecom company has escaped this crisis relatively unscathed. Similarly, Fortis and Enbridge offer robust dividends that haven’t been dented by the pandemic. 

These dividends are far greater than rental income from real estate. In fact, the difference is much wider when you consider the costs associated with rental real estate and the net rental yield after expenses.   

The 10 Best Stocks to Buy This Month

Click here to learn more!

Leverage and price appreciation

Of course, rental yield isn’t the only reason investors are attracted to real estate. Record-low borrowing costs and record-high immigration have created the perfect wealth creation cocktail for landlords. 

However, these factors also drive wealth creation on the stock market. Corporations can borrow at similar, if not cheaper rates, than households. BCE, for example, has $1.27 in debt for every dollar in shareholder equity. This leverage magnifies the company’s return on equity and ultimately drives growth. 

Meanwhile, growth stocks such as Shopify or Constellation Software have delivered capital gains that far outweigh any return from real estate. In fact, $10,000 invested in Constellation Software stock in 2010 would be worth $360,000 today. Even mortgage leverage cannot replicate that performance. 

Real estate stocks

If you’re still unconvinced, there’s probably a better way to add real estate exposure to your portfolio without the hassle of being in debt or a landlord. Real estate investment trusts (REITs) offer all the same benefits (high income, price appreciation, leverage) without any of the downsides (property selection, maintenance, taxes) associated with this asset class. 

In fact, REITs are trading at a historic discount right now. Brookfield Property Partners, for example, offers a 12% dividend yield and is trading at half its book value per share. In other words, you can gain access to Brookfield’s iconic portfolio of properties at 50% discount. Over the next 10 years, this REIT could outperform the general real estate market. 

Bottom line

Real estate has been a great investment. But the returns could be far less impressive over the next decade. Income and growth stocks offer better opportunities, in my opinion. Even REITs could be a better option for most investors. 

Consider these stocks before you place a down payment for your next investment property. 

Besides Brookfield, consider adding these to your watchlist...

The 10 Best Stocks to Buy This Month

Renowned Canadian investor Iain Butler just named 10 stocks for Canadians to buy TODAY. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.

Because Motley Fool Canada is offering a full 65% off the list price of their top stock-picking service, plus a complete membership fee back guarantee on what you pay for the service. Simply click here to discover how you can take advantage of this.

Click Here to Learn More Today!

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 Vishesh Raisinghani has no position in any of the stocks mentioned. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of and recommends Constellation Software, Enbridge, and Shopify. The Motley Fool recommends Brookfield Property Partners LP.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.