Why These TSX Stocks Are the Best Way to Play the Real Estate Market

Not all real estate stocks give you the best opportunity to leverage the strengths of the sector.

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Real estate is considered one of the safest investments. It’s backed by hard assets that appreciate in value and offer income-producing opportunities. However, a relatively small segment of Canadian investors has enough capital to enter the real estate market. For most others, real estate stocks offer the best way to enter this market segment.

Dozens of real estate stocks and real estate investment trust (REIT) stocks can give you exposure to this market though a handful may be considered better entry points than others.

An apartment REIT

Canadian Apartment Properties REIT (TSX:CAR.UN) is among the largest Canadian REITs and a leader in the residential space. The company has developed a portfolio of over 2,900 apartment suites and 65,000 townhouse and manufactured home residential units worth over $17 billion collectively. The stock is currently trading at a 22.3% discount.

Its leadership position and strong portfolio make it a strong investment candidate in the real estate sector. The stock offered decent growth potential and dividends at a modest yield in the past, though the balance has shifted in the last couple of years.

But there is a chance that the stock will get on its capital-appreciation track again, as the market stabilizes, and if you buy now, at a discounted price, you can lock in a decent 2.9% yield.

An industrial REIT

Granite REIT (TSX:GRT.UN) can be a great pick for the sector if you are looking for resilience and exposure to international real estate assets. Granite has a portfolio of about 142 properties spread out over five countries. These are mostly light industrial/logistics properties, which are perfectly positioned to benefit from an e-commerce boom.

Granite REIT is currently trading at a 22% discount, pushing its yield close to 4%. Since it’s also an established aristocrat, your payouts are most likely to keep on growing. But an even more compelling reason to consider this REIT is its capital-appreciation potential, which has pushed it up 100% in the last 10 years.

A property management company

REITs are the most common real estate stock category for investors in Canada, but there are several strong candidates outside this set, too. FirstService (TSX:FSV) is a North American giant in the real estate management space in the region. It’s also a strong player in the essential property services domain.

This business model partially shields the company from real estate headwinds, as its business doesn’t rely on market activity. It has also been a powerful grower since its inception that’s currently recovering from a long-term correction phase. But even in its discounted state, it has returned its investors over 100% in the last five years.

Foolish takeaway

The three can be considered among the top stocks in the Canadian real estate sector. They allow investors to leverage different types of opportunities in the real estate sector and healthy/reliable dividends, though with modest yields.

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 Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends FirstService and Granite Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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