According to MoneySense, the average asking price for a two-bedroom rental in Canada is now $2,293, a brutal 11.3% jump from last year. Canada’s housing market is in rough shape, and maybe, just maybe, another five years of Liberal rule with Gregor Robertson (yes, the former Vancouver mayor) as housing minister could turn things around. Elbows up.
But while we wait on the government to fix the affordability crisis, one thing’s clear: if your income isn’t growing as fast as rent, you need to be investing. Now, $7,000 won’t get you a down payment, let alone a property. But you can still get exposure to rental housing through a pooled vehicle called a real estate investment trust (REIT).
One of my favourites is Canadian Apartment Properties REIT (TSX:CAR.UN), better known as CAPREIT. Here’s why I’d invest $7,000 into it any day, no questions asked.
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Why invest in CAPREIT?
REITs are companies that own and manage income-generating properties. In Canada, they’re not legally required to distribute 90% of their income like U.S. REITs, but most still pay generous and regular distributions to attract income-seeking investors. That’s because they avoid paying corporate taxes as long as they pass most of their earnings to unitholders.
CAPREIT is the biggest landlord on the TSX when it comes to residential real estate. It owns roughly 64,300 units, including apartment buildings, townhomes, and manufactured housing communities, all spread across major Canadian cities.
That kind of scale gives it diversification, pricing power, and operational efficiency. These are traits I like a lot more than what you’ll find in retail or office REITs, which tend to suffer more during recessions or structural shifts like remote work.
What I see in the data supports that preference. Last reported occupancy remains rock solid at 97.6%, meaning almost all of CAPREIT’s properties are rented out. That tells me the demand is there, and tenants are paying.
The average rent sits at $1,677, which reflects consistent growth over the past few years as home ownership becomes less affordable. Funds from operation reached $420.6 million in the latest annual period, or $2.52 per share. That number has grown at about 2.2% annually over five years, which is respectable given the interest rate environment.
Debt levels look well managed, too. CAPREIT’s debt makes up 37.9% of its total assets. It’s paying a low average interest rate of 3.16%, and it earns enough to cover interest costs over three times, well above any danger zone.
Put simply, this is a landlord with a stable portfolio, steady earnings, and strong tenant demand. That makes it, in my view, one of the best REITs on the TSX for building long-term, tax-free income in a Tax-Free Savings Account (TFSA).
How’s the dividend?
CAPREIT pays its unitholders monthly, which makes it especially attractive for anyone using a TFSA. In a TFSA, the $0.1292 per unit you get each month is yours to spend or reinvest without worrying about taxes. That adds a layer of flexibility you wouldn’t get in a taxable account, where distributions are partially taxed as income.
CAPREIT’s paid uninterrupted for 28 years straight, a rare feat even among large REITs. The pace of dividend increases hasn’t been aggressive, but it’s steady. The current annualized payout of $1.5499 per unit is up 5.4% from last year, and the three- and five-year compound growth rates are 2.2% and 1.7%, respectively. That’s modest but shows a commitment to growing distributions over time.
The payout ratio sits at 61.5%, roughly in line with the sector average. That’s a healthy range. It means CAPREIT isn’t overstretching its financials to support the dividend. There’s still room for reinvestment and debt repayment, which helps explain its relatively low interest rate and strong financial footing.
Overall, it’s a dependable monthly income stream with room for growth. If you’re investing for passive income, especially in a TFSA, CAPREIT fits the bill.
