Buying a rental property is one of the most common passive income generation methods worldwide. However, it’s not as passive as it seems because a landlord has to either take care of the property or pay someone to do that (which cuts into their profits). A far more passive and effortless way of making money from the real estate market is to invest in real estate investment trusts (REITs).
These are publicly traded companies that own and operate income-producing properties and are required to pass on most of their rental income to their investors. However, there are other benefits of gaining exposure to the real estate market via these REITs, like access to property types and locations that you might never be able to afford directly.
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A multi-residential REIT
InterRent REIT (TSX: IIP.UN) is an Ottawa-based REIT with a sizable portfolio of income-producing apartment buildings. It has an impressive presence in multiple local markets — over 13,907 residential suites in 126 communities. There are thousands of new residential suites in the development pipeline, so the portfolio might grow considerably in the future. The REIT boasts an impressive occupancy rate of 97%.
When it comes to its income-generation potential and, by extension, its yield, InterRent is not quite as impressive as many other REITs operating in Canada. It offers a yield of around 3%, which is an enhanced version of its typical low yield and a result of the discount it’s trading at.
However, it also offers one of the most financially stable dividends (among the REITs) and is an Aristocrat that has grown its payouts for 11 consecutive years.
An industrial REIT
Dream Industrial REIT (TSX: DIR.UN) is a great example of the kind of real estate assets most investors can only get access to through a REIT and may not buy/invest in directly. It has a portfolio of about 330 industrial properties in Canada, Europe, and the United States. The geographically diversified portfolio offers the company multiple growth avenues.
From an income perspective, the REIT is more generous than InterRent. It’s currently offering a yield of about 5.3%, partly due to the 26% discount it’s currently trading at. Its financials, including its funds from operations, are quite healthy, reflecting financially sustainable dividends.
The REIT has maintained the same payouts for 10 years, so even though you can be reasonably sure about the REIT’s dividend sustainability, it might not be wise to expect dividend growth.
Foolish takeaway
The two REITs offer sustainable and financially healthy dividends. Even though the yields seem low compared to most other REITs in Canada, they are actually quite decent, considering their historical yields. The credit here goes to the bear market phase of the two REITs, which they have yet to recover from.
