TFSA: How to Turn the New $7,000 Contribution Into Monthly Passive Income

Wondering how to earn monthly passive income from your recent $7,000 TFSA contribution. Here are two stocks to consider adding right now.

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Blocks conceptualizing Canada's Tax Free Savings Account

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Canadians get to add an additional $7,000 to the TFSA (Tax-Free Savings Account) in 2025. That is an extra $7,000 that can be used to generate passive income with zero tax consequence.

Inside the TFSA, you don’t pay tax when you sell your investments or collect dividends. You don’t pay tax when you withdraw from the TFSA. This makes it the most flexible registered account in Canada.

REITs are a great asset for earning passive income in a TFSA

If you are looking to earn monthly passive income from your TFSA investments, real estate investment trusts (REITs) are a very interesting place to look. REITs collect rents from their tenants monthly.

Since REITS are required to pay out most of their profits for tax purposes, they tend to distribute their excess cash monthly as it comes in. As a result, REITs can be a great place to collect income.

REIT stocks have been beaten down over the past six months and many are trading at their cheapest valuations in years. Consequently, contrarian investors can pick up a nice stream of income and the potential for capital upside as these REITs eventually revert to their mean.

If you are looking for some ideas on the REIT space, here are two Canadian stocks to consider.

A Canadian REIT with US assets for TFSA passive income

Created with Highcharts 11.4.3BSR Real Estate Investment Trust PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

BSR REIT (TSX:HOM.UN) is an excellent stock for a TFSA if you want specific exposure to the United States. If you want to hedge a weak Canadian dollar, holding this stock for US dollar rents is a great idea.

BSR owns a mix of quality, garden-style apartments in Dallas, Houston, Austin, Oklahoma City, and Little Rock. Its Texas markets are some of the fastest-growing regions in North America.

With recent new supply being absorbed, BSR should start to see nice organic rent growth in 2025. Likewise, it just announced its first new acquisition in a couple of years. The REIT has a strong balance sheet and great management team.

BSR stock yields 4.5%. A $7,000 TFSA investment in BSR REIT would earn $26.33 monthly or $316 annually.

A retail REIT with a +5% yield

Created with Highcharts 11.4.3First Capital Real Estate Investment Trust PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

First Capital REIT (TSX:FCR.UN) is a good bet for value, growth, and income. It operates some the highest quality urban-focused, grocery-anchored properties in Canada.

Grocery-anchored retail is attractive because of the resilience of its tenants in various economic conditions. Even in recessions people need groceries, dollar stores, banks, medical offices, pharmacies and value retailers. These make up a majority of First Cap’s tenants.

Given its high-quality locations, it has been earning high single-digit rental rate growth in the past couple of years. This has translated into good AFFO (adjusted funds from operations) per unit growth.

Its stock is down 10% in the past three months. The stock trades at a substantial discount to its private market value. The market doesn’t yet recognize its substantial land bank of development opportunities.

First Capital REIT stock yields 5.3% right now. If you put $7,000 of TFSA cash into First Capital REIT, you would earn $30.85 monthly or $370 annually.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
BSR REIT$17.72395$0.0667$26.33Monthly
First Capital REIT$16.80416$0.074$30.85Monthly

Prices as of January 17, 2025

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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 Robin Brown has positions in BSR Real Estate Investment Trust. The Motley Fool recommends BSR Real Estate Investment Trust and First Capital Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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