Real estate has always been the most desired form of investment in Canada. That explains why Canadians kept buying houses in 2021, even when house prices surged significantly. What attracts people to real estate investing is its ability to earn passive income in good and bad times.
But there are many ways to earn money, like a landlord, without the hassle of maintaining the property. A land property earns money through rent and capital appreciation of property. But with some real estate stocks, you can earn money through interest rates on mortgages.
Image source: Getty Images
Earn from property management services
Unlike most real estate stocks with land properties on their balance sheet, FirstService (TSX:FSV)(NASDAQ:FSV) doesn’t have such assets. It is an outsourced property services provider that manages and maintains 8,600 residential properties. It also caters to commercial properties through over 1,500 franchisees. The company earns money through recurring contracts that make its cash flows predictable. It earns 87% of its revenue from the United States and the rest from Canada.
FirstService stock is sensitive to factors that affect real estate. Hence, the stock surged over 125% during the two years of the pandemic, when interest rates were at a record low and house prices surged. However, it fell 36% year to date, as rising interest rates and government policies cooled house price growth. The stock has corrected to proper valuations and could now see a normal pace of growth later this year.
Passive income from the interest rate on loans
You can offset the negative impact of rising interest rates on property prices with Timbercreek Financial (TSX:TF). The company is a non-banking commercial real estate lender that offers short-duration loans to income-generating commercial properties. This way, it secures interest payments.
The company will benefit from interest rate increases, as the majority of its loans are structured with floating rates. This means higher distributable income for shareholders as the company distributes over 90% of its interest income. That explains the stock’s 7.83% distribution yield.
The company has been paying regular monthly distribution since July 2016. It only increased distribution once because of the stable interest rate. What is surprising is that it did not reduce the distribution, like other commercial REITs, during the pandemic. This shows the company’s resilience to crises.
Passive income from rent
While the above two are new ways to earn from real estate property, REITs give you the traditional and the most prominent income from rent. As a landlord, what kind of property will give you high rent? The answer is, commercial property, especially retail stores in prime locations. SmartCentres REIT (TSX:SRU.UN) is a leader in such retail properties in the Greater Toronto Area.
The REIT is not immune to real estate risks, like a drop in the occupancy rate, reduction in property prices, or high debt. But the management has secured the most lucrative properties that can churn out rental revenue for decades. It is now developing residential and commercial properties around its retail stores to enhance their value.
SmartCentres is the landlord of Walmart, and the new residential developments could give Walmart all the more reason to extend its contract. The REIT enjoys a 6.44% distribution yield and has a record of paying regular monthly distribution even before 2009 without any distribution cuts.
Final takeaway
Your portfolio needs exposure to alternative investments like real estate. You no longer need $500,000 to $700,000 to get real estate exposure. Try creative ways to be a landlord and let your passive income from real estate stocks help you pay your rent.
