How to Use a TFSA to Bring in $1,000 a Month – Completely Tax-Free

Learn how to use a TFSA to bring in $1,000 a month tax-free with REITs and income ETFs built for steady cash flow.

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Key Points
  • Long-term Compounding in TFSAs: Tax-Free Savings Accounts (TFSAs) offer Canadians a powerful tool for wealth building through tax-free growth and long-term compounding, enabling the potential for generating $1,000 monthly.
  •   Strategic Investment Choices: Achieving $1,000 a month requires both time and strategic investment choices, such as allocating funds in REITs and ETFs with attractive yields.
  •   Top Investment Picks: Suggested investments include Slate Grocery REIT and Allied Properties REIT for high yields, and the BMO Monthly Income ETF for diversification and reduced risk.

The Tax-Free Savings Account (TFSA) is one of the best wealth-building tools available to Canadians. The tax-free growth from a TFSA makes it the perfect place to let long-term compounding work. It’s not impossible to use a TFSA to bring in $1,000 a month.

Accomplishing that goal requires time and patience. Perhaps most importantly, investors need to pick the right investments.

House models and one with REIT real estate investment trust.

Source: Getty Images

How much does it take to earn $1,000 a month in a TFSA?

Let’s start with the obvious. Using a TFSA to bring in $1,000 a month, which is $12,000 a year, requires a decent amount of initial capital.

Given a 6% yield, an investor would need $200,000 invested to generate $12,000 a year.

But here’s the best part. Investors with a longer timeline don’t need that $200,000 right now. Thanks to the tax-free nature of a TFSA, a steady stream of contributions over a longer period of time can handily hit that goal.

That’s because the best tool that investors have isn’t the account or the investments, but rather time for compounding to work.

Here’s a look at three investments to buy now in a TFSA to bring in $1,000 a month.

Pick #1: Slate Grocery REIT

Slate Grocery REIT (TSX: SGR.UN) is one of Canada’s largest REITs. Slate is a grocery-anchored REIT with a portfolio of over 100 U.S.-focused properties.

Grocery-anchored properties are some of the most defensive retail options on the market. They have constant foot traffic, provide a necessary service to the communities they serve, and are more defensive than other retail property types.

Irrespective of how the market fares, people need to buy food. That necessity makes it an interesting fit for TFSA investors who want cash flow tied to essential spending.

Another key point to note is that Slate’s properties also include secondary tenants in addition to the anchor grocer. These smaller tenants are complementary to the main anchor, providing a secondary rental stream and foot traffic. Examples of these tenants include restaurants, banks, pharmacies, and medical offices.

Slate’s monthly distribution is the real draw to investors. As of writing, Slate offers a yield of 7.05%, making it one of the better-paying REITs on the market.

Pick #2: Allied Properties REIT

The second pick for investors looking to use a TFSA to bring in $1,000 a month is Allied Properties REIT (TSX: AP.UN). Allied Properties is another REIT, but with a different property mix.

Allied Properties offers exposure to office real estate. This means that it can provide a recurring rental stream that is less volatile than some retail properties.

The flip side of that is risk. Office real estate has come under pressure in recent years, leading some REITs to add mixed-use residential properties into their mix.

Allied Properties has some exposure to that sector but remains primarily office-property focused.

In terms of income, Allied Properties offers a monthly distribution with a yield of 7.2%. Like Slate, that makes it one of the higher-yield options on the market.

Pick #3: BMO Monthly Income ETF

Completing the trio of picks for investors using a TFSA to bring in $1,000 a month is an ETF. Specifically, BMO Monthly Income ETF (TSX: ZMI). BMO Monthly Income ETF can help balance out the risk from the individual REITs mentioned above.

Rather than focusing on one company or sector, this ETF provides diversified monthly income through a broader portfolio. In this case, broader is an understatement.

This fund is a fund-of-funds, offering exposure to other BMO ETFs across multiple sectors. This gives it a broader market appeal and significantly less risk than holding a single ticker.

For investors looking to build a TFSA to bring in $1,000 a month, the diversification offered by this fund could be ideal over longer periods.

Use a TFSA to bring in $1,000 a month

Building a TFSA to bring in $1,000 a month takes time and the right investments. Here’s how investors can hit that goal by splitting an investment over those three stocks.

CompanyRecent PriceTotal InvestedNo. of SharesDividendTotal PayoutFrequency
Slate Grocery REIT$17.14$70,0004,084$1.19$4,859.96Monthly
Allied Properties REIT$9.96$70,0007,028$0.72$5,060.16Monthly
BMO Monthly Income ETF$19.75$70,0003,544$0.66$2,339.04Monthly
  Total:$12,259.16Monthly:$1,021.60 

Fool contributor Demetris Afxentiou has no position in any of the stocks mentioned. The Motley Fool recommends Slate Grocery REIT. The Motley Fool has a disclosure policy.

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