When it comes to building passive income, real estate has always been one of the first places investors look. And because owning physical real estate is expensive and often a lot more hands-on than it sounds, Canadian real estate investment trusts (REITs) have become some of the most popular investments to buy for income.
Owning an income property is the dream for many investors. However, there are a lot of variables that can quickly make things more complicated than expected, like dealing with maintenance, finding and vetting tenants, and handling unexpected costs or changes in local real estate markets.
That’s why REITs are so popular. They give you exposure to real estate, plus significant diversification, and you still get the income. But because a professional management team is running the business, you get all of that without the headaches.
However, just like any other sector, not all REITs are worth owning for the long haul, especially after the last few years, where higher interest rates have put pressure on the entire space.
So, if you’re looking for Canadian REITs that you can buy today, the goal isn’t just to find the highest yield or the cheapest-looking name.
It’s to find the ones with strong assets, reliable tenants, and enough financial flexibility to keep performing even when the environment isn’t perfect.
The ones that can actually hold up through different market conditions and give you the confidence to buy and hold for the long haul.
A person stands in front of several doors representing different U.S. stock options for Canadian investors.
The types of Canadian REITs that are built to last
One of the biggest things to understand when it comes to investing in Canadian REITs is that reliability matters more than anything else.
Because at the end of the day, you’re relying on those properties to continue generating cash flow, and that comes down to the quality of the assets and the tenants behind them.
That’s why Canadian Apartment Properties REIT (TSX: CAR.UN) is one of the best Canadian REITs to buy now and hold for years.
It owns a massive portfolio of residential properties, and more importantly, it’s diversified all across the country.
Furthermore, housing isn’t discretionary. People always need a place to live, regardless of what’s happening in the economy, which is what keeps occupancy high and cash flow stable.
Plus, after the recent weakness in the stock, it’s still trading well below its historical valuation, with a forward price-to-adjusted funds from operations (P/AFFO) ratio of just 16.6 times, significantly lower than its 10-year average of 23.5 times.
Additionally, its yield now sits at roughly 4.2%, well above its 10-year average forward yield of 3.2%.
In addition to CAPREIT, though, Granite REIT (TSX: GRT.UN), is another high-quality name for Canadians to consider that offers a completely different kind of exposure.
Instead of residential properties, it focuses on industrial real estate, warehouses, logistics centres, the kind of infrastructure that e-commerce and global supply chains rely on.
And because e-commerce has boomed in recent years and demand from tenants has grown significantly, its occupancy is constantly near full capacity. That means when leases roll over, the company has been able to push rents significantly higher.
On top of that, it maintains a very conservative payout ratio, which means its current 3.8% dividend yield is well supported and has room to continue growing annually, as it has for the last 15 years.
A reliable income stream that can hold up in any environment
Finally, if you’re looking for a Canadian REIT that’s built specifically for stability, Choice Properties REIT (TSX: CHP.UN) is one of the best picks for income investors.
Choice is one of the most reliable Canadian REITs to buy because a massive portion of its portfolio is anchored by grocery stores, which is about as defensive as it gets.
Regardless of what’s happening in the economy, people still need to buy food, fill prescriptions, and handle basic necessities, and that’s what makes the cash flow that it generates and its 5% dividend yield so reliable.
The Foolish takeaway
There’s no question that Canadian REITs are one of the best places to find reliable income, but quality matters and so does balance.
That’s why these three stand out. You’re getting the defensiveness of residential demand, the long-term growth of industrial real estate with Granite, and the stability of necessity-based retail from Choice Properties.
And when you combine those, you end up with a mix of REITs you can actually hold with confidence through any market condition.
