For many Canadians, investing in real estate is a major financial goal, whether it’s having a rental property or flipping houses. The issue is that investing in real estate requires significant upfront capital and typically free time to manage the investment. Luckily, though, whether you want a more passive investment or have less capital to invest upfront, Canadians can take advantage of real estate stocks.
Investing in real estate stocks offers several advantages for investors. First off, because you’re buying individual shares of companies or units of a real estate investment trust (REIT), you don’t need much capital to start investing. It’s entirely possible to gain exposure with less than $1,000 of cash.
Furthermore, investing in real estate stocks allows you to gain exposure to the stability and growth potential of the sector. In addition, as you are researching your investments and keeping up to date with their performance, you will learn about the industry, such as what factors impact the profitability as well as what valuation metrics and ratios to use to assess your investment.
Having a diversified investment portfolio is essential, and real estate is one of the most important sectors you’ll want to have exposure to, especially residential real estate since it’s highly defensive, offers significant growth potential over the long haul, and many real estate stocks make excellent passive-income generators.
If you’re looking to add or increase your exposure to real estate, especially with many REITs trading cheaply in the current environment, here are two of the top stocks to buy now.
A top Canadian residential real estate stock to buy and hold long-term
If you’re looking to gain exposure to residential real estate due to its defensive nature and long-term growth potential, one of the best stocks you can buy is Canadian Apartment Properties REIT (TSX: CAR.UN).
CAPREIT, as it’s known, is the largest and most diversified residential REIT in Canada, offering a tonne of advantages to investors. In addition to the advantages that all real estate stocks offer that are listed above, owning a high-quality and well-diversified REIT helps to lower the risk of the investment considerably while still exposing investors to the long-term growth potential of the industry.
If you owned just one rental property, you run the risk of a tenant not paying rent or a few months of little to no income, as tenants move out and you look for new renters.
With CAPREIT, though, the real estate stock owns roughly 46,000 units and another 12,000 manufactured home community sites spread out all across the country. Furthermore, in the last 20 years, the REIT has never had an occupancy rate lower than 95%.
In addition, owning units of CAPREIT gives investors exposure to an excellent management team and employees across the country. Besides the research you do to buy the stock and the time you put into following its progress, it’s a real estate investment that will require essentially no work from you to manage.
Best of all, though, in this environment, investors can gain exposure to Canadian real estate stocks like CAPREIT at a discount. Not only is CAPREIT trading 20% below its all-time high of more than $62, but it also trades at a price-to-funds from operations (P/FFO) ratio of just 19.9 times, below its five-year average of 22 times.
One of the best Canadian REITs offering attractive passive income and growth potential
In addition to CAPREIT, another high-quality Canadian real estate stock to consider is Granite REIT (TSX: GRT.UN).
Granite is not a residential REIT. It’s an industrial REIT. However, it’s another high-quality investment that offers stability, constantly growing passive income, and a tonne of long-term growth potential.
For years now, as the economy has shifted, and e-commerce continues to become more popular, industrial space has been in high demand. That not only gives Granite a tonne of growth potential, but it also makes the REIT considerably defensive.
The REIT is well diversified, with properties in Canada, the U.S., and across Europe. In addition, its occupancy rate is just under 98%.
Furthermore, its current P/FFO ratio of 14.9 times is well below its five-year average of 18.1 times, making it one of the best Canadian real estate stocks you can buy today.
