One of the foremost goals of every investor is to generate passive income from a well-diversified portfolio. REITs (real estate investment trusts) are great ways to establish passive income streams, and the market provides plenty of intriguing options to consider.
If you want to generate passive income, here are two Canadian REITs you may want to consider for your portfolio
Forget the whole landlord-of-a-rental-property thing
One of the best long-term ways to generate passive income is to own a rental property. Or at least, that was one of the best long-term ways until rapidly rising interest rates and massive downpayment requirements changed the real estate market.
With the price of a home still hovering near a cool million in Canada’s metro areas, most investors cringe at the thought of a $200,000 traditional downpayment and that monthly mortgage.
Instead, investing in RioCan Real Estate (TSX: REI.UN) is an alternative for would-be landlords to consider.
RioCan is one of the largest REITs in Canada. The company boasts a portfolio of retail and increasingly mixed-use residential properties that are concentrated in major metro markets.
That represents a huge advantage for investors. Here’s why.
First, it’s significantly lower risk over buying a property and maintaining it. Instead, that risk is spread out over a larger portfolio of dozens, if not hundreds of units in multiple markets. Oh, and there’s no need to seek out payments from tenants.
Second, RioCan has a lower upfront cost. Investors can invest a fraction of what a traditional downpayment comprises and start earning a juicy monthly distribution, much like a landlord collecting rent.
Finally, let’s talk about that distribution. RioCan offers a juicy yield of 5.31% making it a great way to generate passive income. Prospective investors that drop $35,000 into RioCan can expect to generate a monthly income of just over $150.
And keep in mind that investment example is still significantly lower than a traditional down payment.
Don’t forget industrial properties
Another intriguing REIT to consider buying is Dream Industrial REIT (TSX: DIR.UN). As the name implies, Dream is focused on industrial assets. Dream’s portfolio comprises over 320 assets with over 70 million square feet of gross leasable area.
Those assets are located across Canada, the U.S., and Europe, making Dream a well-diversified global operation. This translates into a stable business with a very high occupancy rate (98.6% in the most recent update) that also generates a growing cash flow.
This makes Dream an excellent option to generate passive income. As of the time of writing, Dream boasts a yield of 4.89%. And like RioCan, that distribution is paid out on a monthly cadence.
You can generate passive income this month
No stock is without risk, which is why it’s important to diversify your portfolio. Fortunately, both RioCan and Dream offer some defensive appeal as well as juicy income-earning potential.
And for those investors not ready to draw on that income-earning potential just yet, there’s another option. Reinvesting that income until needed can bolster your eventual income even further.
In my opinion, investors looking to generate passive income should consider one or both of the above REITs as part of a larger, well-diversified portfolio.
