Who doesn’t want a nice and relaxed retirement? It would be reassuring to earn retirement income from different sources. One way to make $1,000 each month in retirement is via real estate investing. However, owning rental properties requires management, including maintaining the property. It could feel like a job unless it’s something you don’t mind doing or you’re hiring someone else to manage the properties for you, which means more money out of your pocket.
A more passive way Canadians can earn $1,000 a month from real estate is by investing in Canadian real estate investment trusts (REITs). Higher interest rates since 2022 have dragged down their valuations, pushing up their cash distribution yields. This means Canadians now require less money to invest in REITs to earn the same amount of monthly income.
CT REIT
For example, CT REIT (TSX: CRT.UN) traded at $17.32 per unit at the end of 2021 with a yield of about 4.8%. To earn $1,000 per month from the stock at the time, Canadians would need to have invested $250,000.
The retail REIT has since continued increasing its cash distribution. Additionally, the stock has declined meaningfully by 21%. As a result, it now offers a cash distribution yield of almost 6.8% at $13.63 per unit at writing. Canadians today only need to invest about $177,013 (29% less than $250,000) to earn $1,000 per month from the REIT.
Although it’s a retail REIT, CT REIT enjoys solid fundamentals, including having a high occupancy rate of about 99.5% and a weighted average lease term of about eight years, which is above average in the industry. That said, it does rely on investment-grade Canadian Tire, which is its largest tenant.
The REIT trades at a discount of about 19% from its long-term normal valuation. If its results stay resilient as it has since 2015 and the stock was to return to its long-term normal valuation, it could deliver total returns of more or less 15% per year over the next few years.
Want a more defensive REIT? Consider residential REITs.
Killam Apartment REIT
Let’s take Killam Apartment REIT (TSX: KMP.UN) as an example. The residential REIT traded at $23.59 per unit at the end of 2021 with a cash distribution yield of 2.9%. It is almost 26% lower today. At $17.48 per unit at writing, it offers a higher cash distribution yield of 4%.
At the end of 2021, investors needed to invest about $410,261 in the residential REIT to generate monthly income of $1,000. Today, investors only need to invest about $299,657 (almost 27% less than $410,261).
The REIT trades at a discount of about 10% from its long-term normal valuation. If it continues to grow its funds from operations per unit as it has done over the last five years, and the stock was to return to its long-term normal valuation, it could deliver total returns of more or less 13% per year over the next few years.
A general rule of thumb to keep in mind is that stocks in the same industry with lower yields are usually lower-risk investments than ones with higher yields.
