Even though the Bank of Canada held rates steady earlier this month, current mortgage rates are insane. Throw in the ridiculously high value of properties in Canada’s metro areas, and you have a perfect storm of unaffordability.
This also puts would-be landlords who were considering buying real estate into an odd state. Do they invest a considerable amount into a down payment and then look to find and maintain a suitable unit?
Fortunately, there is an alternative, even when mortgage rates are insane like they are now. And you don’t even need to worry about the tenants.
Here’s the solution to your rental property blues
That solution lies with RioCan Real Estate (TSX:REI.UN). RioCan is one of the largest REITs in Canada. Historically, RioCan’s portfolio consisted mostly of commercial and retail sites, such as those found in shopping malls. And RioCan’s tenants represent some of the largest names in the retail sector providing necessities for communities.
In total, RioCan boasts over 190 properties located across Canada, largely centred around Canada’s major metro markets.
As impressive as that sounds, in recent years, that mix has shifted towards mixed-use residential properties, and that’s where there is a massive opportunity for investors.
The opportunity at RioCan
The rapid rise of real estate prices has produced a growing issue for both prospective landlords and first-time homebuyers.
With an average price of a home in Canada’s metro areas well above $1 million, owing to the unaffordability of a (now) rising mortgage, as well as a massive (and growing) downpayment requirement, purchasing has been pushed out of reach for many.
As a result, prospective buyers have been pushed far out of metro areas to regions where commute times are massive and amenities are few, yet prices are only just a tad lower.
So then, how can RioCan help?
RioCan’s growing mixed-use residential projects, dubbed RioCan Living, could be the answer prospective buyers are looking for.
In short, the mixed-use properties comprise residential towers sitting above several floors of retail, thereby satisfying both demands. The properties are also situated in high-traffic areas of Canada’s metro regions, along transit lines.
Suffice to say, the risk associated with that investment is spread across dozens of properties and potentially hundreds of units rather than a single property. It also helps not being required to find tenants and maintain a rental unit yourself.
And that’s not even the best part.
Welcome to life as a lazy landlord
Just like a would-be landlord, investing in RioCan can provide a monthly income. RioCan offers investors a monthly distribution that currently carries a juicy yield of 5.18%. This makes RioCan one of the better-paying dividends on the market.
This means that a prospective investor who drops $40,000 into RioCan (which is still significantly lower than the average downpayment) can look to generate a monthly income of just over $170.
Let’s not forget that buying that investment as part of a TFSA can allow it to grow tax free. Additionally, investors not ready to draw on that income just yet can reinvest it until needed, pushing that potential income even further up.
Finally, unlike the current mortgage market, it’s also an ideal time to consider buying RioCan. As of the time of writing, over the trailing 12-month period, the REIT is trading down nearly 15%.
Mortgage rates are insane, but there are opportunities
No stock, even the most defensive is without some risk, and that includes RioCan. Fortunately, in the case of RioCan, that risk (and investment) is significantly lower than the alternative of buying a single rental property.
In my opinion, RioCan is a great long-term investment option that should be part of a larger, well-diversified portfolio.
Buy it, hold It, and watch it grow.
