If you have $50,000 sitting in a Tax-Free Savings Account (TFSA), one option would be using it as a down payment on a rental property. After all, real estate has long been marketed as the gold standard for passive income.
The problem is that rental properties are often anything but passive. You have to deal with tenants, repairs, property taxes, insurance, maintenance, and occasionally the dreaded late-night phone call when something breaks. On top of that, today’s higher mortgage rates and lower immigration levels have made the math on many rental properties less attractive than it was a few years ago.
That is why some investors prefer generating income through securities instead. One option worth considering is the Canoe EIT Income Fund (TSX: EIT.UN), a closed-end fund specifically designed to generate high monthly cash flow for investors.
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What is EIT.UN?
EIT.UN is a professionally managed portfolio of stocks. The fund owns a mix of Canadian and U.S. companies across sectors such as financials, energy, industrials, and other dividend-paying businesses.
Rather than trying to pick individual stocks yourself, you are effectively hiring the management team to do that work on your behalf. The fund currently pays a monthly distribution of $0.10 per unit, which is the main reason income-focused investors are attracted to it.
There are tradeoffs, of course. EIT.UN charges a relatively high management fee of 1.1% compared to a passive exchange-traded fund (ETF), and it also uses leverage, meaning it can borrow money to enhance returns and distributions. That can boost performance during strong markets but can also amplify losses during weaker periods.
Still, for investors primarily focused on generating monthly cash flow, EIT.UN remains one of the most popular income funds on the Toronto Stock Exchange with over $3.3 billion in assets.
How much income can $50,000 generate?
Using the June 11 closing price of $17.22 per unit, a $50,000 investment would purchase approximately:
That works out to roughly 2,903 units of EIT.UN. Since the fund currently pays $0.10 per unit each month, the monthly income would be:
That comes out to approximately $290 per month, or about $3,484 per year, completely tax-free if held inside a TFSA.
Of course, investors should remember that distributions are not guaranteed. The share price can fluctuate, and future payouts could change depending on market conditions and fund performance.
Still, for investors seeking a relatively hands-off source of monthly income, EIT.UN offers a way to turn a TFSA into a recurring cash-flow machine without the responsibilities that come with owning physical real estate.
