After years of runaway prices, the Canadian housing market is finally correcting in major cities like Toronto and Vancouver. That’s great news if you’re a first-time buyer.
Between the First Home Savings Account (FHSA), which lets you save up to $40,000 tax-free, and the Registered Retirement Savings Plan (RRSP) Home Buyers’ Plan, which offers up to $60,000 in withdrawals for a down payment, there’s meaningful support in place. Many provinces also slash land transfer taxes and property taxes through various grants.
But if you’re thinking about buying a rental property? Hard pass. Cap rates, which measure rental income as a percentage of property value, remain low, especially once you factor in maintenance, vacancies, interest payments, and the headache of managing tenants. Pre-construction condos are even worse. Just check Reddit for horror stories of investors now underwater on units.
If you want real estate-linked income, paid monthly, and at a 4.8% yield that’s tax-free in the right accounts, like a Tax-Free Savings Account (TFSA), here’s what I’d invest in instead: BMO Equal Weight REITs Index ETF (TSX:ZRE).
What Is ZRE?
ZRE is a Canadian-listed ETF that tracks the Solactive Equal Weight Canada REIT Index. This means it holds a basket of Canadian real estate investment trusts (REITs) in equal amounts, rather than letting the largest ones dominate. That’s important because Canada’s real estate market is narrower. ZRE gives you exposure across the board.
Retail REITs that own malls and plazas make up about 39% of the fund. Multi-family residential REITs, which own apartment buildings, account for another 31%. The rest is spread across diversified REITs, healthcare facilities, offices, and industrial properties. You’re not betting on one building or one city. You’re getting a professionally managed portfolio of thousands of underlying properties.
How much income does it pay?
As of the latest figures, ZRE has a 4.83% annualized yield with monthly distributions. That’s solid. But more importantly, the type of income it pays can vary, and that matters for taxes.
In 2024, ZRE’s total distribution per unit was $1.459. Here’s how it broke down: about 6% was eligible dividends, 41% was other income, 30% was capital gains, and roughly 12% was return of capital. The rest included some foreign income.
The easiest way to avoid headaches is to hold ZRE inside a TFSA. You can’t buy a rental condo tax-free, but you can buy a real estate ETF that owns hundreds of properties, and get all that income without dealing with tenants, repairs, or taxes.
