How to Invest in Real Estate Without Buying Property

Real estate income is supposed to be passive income, but there are so many considerations. Instead, consider this method.

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Real estate is often touted as one of the best ways to make passive income. After buying a property, you can simple look forward to years and even decades of collecting cash each and every month. But is it really that easy?

Here’s why Canadians may want to try out another option.

Why buying property is a bad idea

I am simply not a fan of buying property if you’re simply getting into it for passive income. Passive income is passive; therefore, you shouldn’t have to act like it’s a part-time job to do it. And in the case of collecting rents for property, this is something that just is not passive investing.

Buying a property and collecting rental income is a lot more work than it seems. You have to manage the property, address complaints, invest in the property and so on. Even if you hire a management company, this means you’re receiving less cash yet still having to address the issues of your tenants.

Never mind that beyond the actual property management, there are going to be other costs. There are capital gains taxes, property taxes, and a mortgage to pay. And worst yet, if you don’t have someone in your property, this means you could lose out on thousands in income while you wait for someone to move in.

Instead, invest in property the smart way

This is why there are companies that focus their entire attention on property management. It’s not a part-time, passive-income stream, but their careers. And many of these companies are found on the TSX today, where investors can purchase shares of these real estate investment trusts (REIT).

There are many advantages to buying REITs. First off, you have a company managing these properties for you, and you’re merely getting a piece of the action. Then there’s the fact they cost far less for just some shares rather than an entire investment. This also makes the investment less risky, as you’re not sinking hundreds of thousands of dollars into a side hustle that could fail.

Then, of course, comes the dividend income. REITs pay out 90% of taxable income to shareholders, usually in the form of dividends. So, even when your shares drop, you’ll still be collecting dividends while you wait for returns.

A solid REIT option

If you’re looking for a great option among REITs, I would certainly consider Choice Properties REIT (TSX:CHP.UN). Choice REIT offers investors mixed-use properties, with its residential and business properties sitting on top of its commercial properties across Canada in urban centres.

Investors can pick up Choice REIT while it remains a valuable investment, trading at just 8.06 times earnings at the time of writing. It also holds a 5.74% dividend yield, coming out at $0.75 per share annually. And again, it’s managed by a strong team, with properties like Loblaw in its portfolio. So, you can look forward to strong income both through returns and from passive income from dividends.

So, don’t pick up real estate properties that simply don’t offer the security and passive income that comes with REITs. Instead, consider one like Choice REIT for long-term, safe income.

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 Amy Legate-Wolfe has positions in Loblaw Companies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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