With the average price of a home in Canada’s major metro areas still well north of a cool million, many Canadians are priced out of the market. This not only impacts first-time buyers but also would-be landlords looking to buy a rental property. Fortunately, there is some help for homeowners on the market, but not where you expect.
It’s time to be creative
One of the biggest problems is the huge cost of a down payment. Not too many people, particularly first-time homebuyers have a quarter-million dollars sitting away for a down payment.
What this does is force those would-be homeowners to move far outside of the metro areas for some (but not much) cost relief. For would-be landlords, this compounds problems further, as tenants may be less inclined to rent a unit far away from the jobs and entertainment they gravitate towards.
The solution to that growing problem isn’t coming from taxing some individuals or from deterring foreign buyers. And rapidly hiking interest rates may drive down costs but will do nothing for affordability.
Instead, it’s time to be creative. The solution to both issues comes in the form of RioCan Real Estate (TSX: REI.UN).
Would-be landlords: Want to generate income without a mortgage?
RioCan is one of the largest REITs in Canada. The company has hundreds of properties that are primarily retail oriented. In fact, RioCan’s tenant list is well diversified and comprises some of the largest names in retail and finance in the country.
Those well-established tenants help RioCan generate a stable and recurring revenue stream, which comes back to investors in the form of a monthly dividend. This can handily take the place of a tenants’ rent, and without the need to take out a costly mortgage.
By way of example, let’s consider a $100,000 investment in RioCan, which is less than half of a recommended down payment of at least 20%. For that initial investment, you can expect a monthly income of $367.
As a reminder, that’s income. There’s no mortgage, no repair bills, no property taxes, and no chasing down tenants each month to pay. Perhaps best of all, if you aren’t ready to draw on that income just yet, it can be reinvested until needed, allowing it grow even further. This factor alone makes RioCan one of the best set-and-forget stocks on the market.
But wait — there’s still more.
Would-be homeowners: There is another option for you
While the juicy income stream may appease would-be rental property investors, it doesn’t help prospective homeowners looking to buy a property. For that, let’s take a moment to talk about an initiative that RioCan is doing known as RioCan Living.
As I mentioned above, RioCan’s portfolio comprises mainly of retail properties. That allocation is slowly shifting towards more mixed-use residential units. The new residential units are located along transit corridors in Canada’s major metro areas.
In other words, the high-demand areas that younger would-be first time homebuyers are looking to live. The properties are situated atop several floors of retail, providing a growing revenue stream for the company that is both diversified and in demand.
This shift also addresses another growing concern to the whole market — the impact of mobile e-commerce on traditional brick-and-mortar stores. Specifically, some retail sites can (and are) reconfigured to become RioCan Living sites.
Final thoughts for first-time buyers
In my opinion, RioCan is a great long-term investment that should be a core holding in every portfolio. The REIT can provide growth, income, and stability to an increasingly volatile market for both investors and first-time buyers alike.
In short, buy it, hold it, and watch it grow (without a mortgage).
