Investing in real estate is a great way to build wealth and a dream for many Canadians. Whether you’re saving up to buy an income property or looking to invest in a high-quality real estate stock like Canadian Apartment Properties REIT (TSX: CAR.UN), the sector offers several advantages for long-term investors.
Real estate provides long-term appreciation while also generating consistent cash flow in the near term. While some investors prefer to own rental properties outright, for many investors, especially those just starting to save up their hard-earned money, a high-quality real estate investment trust (REIT) like Canadian Apartment Properties stock offers an attractive and accessible alternative.
So, let’s look at whether CAPREIT, as it’s known, is worth buying while it trades below $40.
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What are the benefits of buying a stock like Canadian Apartment Properties REIT?
There are several advantages to investing in a stock like Canadian Apartment Properties instead of purchasing a rental property outright.
First and most obviously, you don’t need a significant amount of money to begin investing. You can start by buying just a handful of shares for a few hundred dollars, making it far more accessible than saving up for a down payment on an investment property.
Additionally, if you invest through a registered account like the Tax-Free Savings Account, it allows you to earn tax-free returns, maximizing the income and capital appreciation you receive over time.
Another key benefit is that REIT investors avoid many of the headaches associated with being a landlord. You don’t have to worry about managing tenants, dealing with property maintenance, or covering mortgage payments during vacancy periods. CAPREIT’s professional management team handles everything for you, from finding renters to overseeing renovations and maintaining the properties.
Furthermore, in addition to the passive income that Canadian Apartment Properties stock will generate for you, the REIT also actively seeks opportunities to grow its portfolio.
In fact, it’s constantly reinvesting cash flow to expand its real estate holdings, which helps drive long-term growth for investors. This means that while you earn dividend income, your investment also has the potential to appreciate over time.
Diversification is another major advantage. CAPREIT owns thousands of residential units across the country, significantly reducing the risk tied to any single property or market. So, although occupancy rates may never be 100%, they are also highly unlikely to drop below 90%, ensuring steady income generation for years to come.
Moreover, Canadian Apartment Properties stock leverages its own debt to fund acquisitions and expansion, with its management team ensuring that the balance sheet remains strong and sustainable. This financial discipline allows the company to continue growing without overextending itself.
Finally, the dividends you earn from CAPREIT can be reinvested immediately, either by purchasing more shares to grow your holdings or diversifying into new stocks. This flexibility makes it an excellent option for investors looking to compound their wealth over time.
Therefore, with so many advantages to owning such a high-quality stock like Canadian Apartment Properties REIT, it’s certainly worth investing in. The only question is whether or not it’s worth buying at this valuation.
Is CAPREIT worth buying below $40?
As with many real estate stocks in Canada, higher interest rates have caused these REITs to sell off, giving investors an opportunity to buy now while they trade ultra-cheap.
For example, currently, CAPREIT trades just below $40 per unit, at the bottom of its 52-week range, and more than 25% below its 52-week high.
Furthermore, today, Canadian Apartment Properties stock trades at a forward price-to-funds-from-operations (P/FFO) ratio of just 15.7 times, well below its five-year average forward P/FFO ratio of 20.3 times.
In addition, with the stock trading cheaply its dividend yield has increased to 3.9%, significantly higher than its five-year average forward yield of 3%.
Therefore, not only is Canadian Apartment Properties stock one of the best investments you can make in the real estate sector, but while it trades below $40, you can not only buy it cheaply, but you can also lock in a higher-than-normal yield.
If you’re considering CAPREIT, though, I’d act soon. It likely won’t remain this cheap for long, and as interest rates continue to decline in the near term, the stock will almost certainly begin to recover rapidly.
