Being a landlord isn’t all it’s made to be. There’s chasing tenants for the month’s rent, the pain and labour of maintenance, mortgage payments, leasing, and showings.
Being a landlord can really be a full-time job, and for prospective retirees, getting into the real estate game for a passive-income stream may not be the best course of action. Of course, you can pay someone to manage a property. But unless you’ve got a considerable amount of capital to sink into the world of residential real estate, you’re probably better off with one of the many cheap REITs that can help you build your own mini real estate empire.
And best of all, you can stash top REITs in your TFSA (Tax-Free Savings Account) and keep every dime of the distributions you’ll get.
Moreover, you’ll have some of the experienced, more efficient property managers to give you the best bang for your buck. And finally, you’ll also be able to invest in income-producing properties beyond just residential. With a relatively small investment, you can spread your bets across a broad range of real estate sub-industries to further diversify your passive-income stream. Think battered office and retail real estate, two of the cheaper places to be in the REIT space amid the COVID-19 pandemic.
Be a lazy landlord with top passive-income REITs
So, unless you’ve got millions in capital that you’re willing to invest into a single real estate sub-industry and can deal with the pains that come with the day-to-day operation of an income-producing property, consider the following Canadian REIT while it’s still near bargain-basement prices.
SmartCentres REIT (TSX:SRU.UN) is one of my favourite plays in the REIT space these days. After enduring a brutal 2020, the REIT sport yields of 6.4%.
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SmartCentres REIT: Passive income and value meets momentum
SmartCentres REIT is a strip mall-focused play that’s fallen drastically out of favour during the first COVID wave. Shares have since come roaring back, surging 67% from its March 2020 bottom to $29 and change, where shares currently sit today.
While the distribution isn’t nearly as bountiful as it was just a few months ago (the yield has compressed as a result of recent appreciation in the stock), I still think the name is cheap, given the more prosperous environment that lies ahead and the yield, and it is well covered by funds from operations.
While a reopening has mostly been baked in, I think that longer-term passive-income investors will enjoy a potential re-valuation to the upside over the next five years, as Smart diversifies its property book into residential. If Smart can strike the perfect balance between retail and residential, its quality of cash flows could warrant a major solid rally that could be sustained well into the post-COVID world.
Foolish bottom line
Smart isn’t just a reopening play; it has so much more going for it over the next decade. With rent collection rates en route to normalization, I think it would be a wise idea for lazy landlords to punch their ticket into the name now before value and high yielders are bid up ahead of a potential inflation surge.
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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 owns shares of Smart REIT. The Motley Fool recommends Smart REIT.