Real estate has long been one of the go-to investments for Canadians seeking passive income. The appeal is easy to understand. Rental properties can generate recurring monthly cash flow while also potentially appreciating in value over time. In theory, you collect rent while your tenants help pay down the mortgage.
Of course, the reality can be messier. Owning physical real estate comes with plenty of headaches. Maintenance costs, property taxes, bad tenants, vacancies, insurance, repairs, and rising financing costs can all eat into returns. Managing properties can also become a second job entirely. It can quickly go from passive income to a second job.
Smarter investors will eventually start looking for ways to gain real estate exposure without actually becoming landlords themselves. Instead of directly owning buildings and managing tenants, some investors prefer outsourcing the operational side entirely while still collecting regular income distributions.
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Why REITs can be easier
That is one reason many income-focused investors eventually start looking at real estate investment trusts, or REITs, instead. REITs allow investors to own diversified portfolios of income-producing real estate through the stock market without directly managing properties themselves. They trade just like any other stock on your brokerage app.
Depending on the REIT, that can include apartments, office buildings, industrial warehouses, shopping centres, healthcare facilities, or mixed-use real estate. Most REITs are also designed specifically around distributing income to investors, which is why they often offer higher yields than traditional dividend stocks.
Why ZRE stands out
For Canadian investors looking for broad, but hands-off REIT exposure, one exchange-traded fund (ETF) worth reviewing is the BMO Equal Weight REITs Index ETF (TSX:ZRE).
Unlike traditional market-cap weighted real estate ETFs where the largest REITs dominate the portfolio, ZRE uses an equal-weight approach. That means individual holdings have more balanced representation across the portfolio rather than concentrating heavily in a handful of giant names.
The ETF provides diversified exposure across multiple Canadian real estate sectors while reducing dependence on any one property type or company. ZRE currently offers an annualized yield of 4.1% while charging a management expense ratio (MER) of 0.61%. The ETF also pays distributions monthly, which may appeal to income-focused investors seeking more regular cash flow.
Like most Canadian-listed ETFs, ZRE is also eligible to be held inside registered accounts such as a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP).
