We’ve all seen the ads—some guy sitting in his private jet touting the “foolproof” way to create wealth through real estate. But being a landlord isn’t all luxury planes and passive income. These days it comes with a lot of risk (and a huge upfront cost).
Fortunately, there is another way to get exposure to real estate without having to, you know, buy property. Real Estate Investment Trusts (REITs) are publicly traded companies that own income-generating real estate—basically, giant landlords that own a mix of residential, retail and commercial properties spread out across the country (or globe.)
- This volatility in the housing market has made real estate investment trusts (REITs) more attractive to investors and the benchmark REIT ETF has gained 7% this year (after falling 15% in the winter of 2022.)
Why it’s happening: REITs provide more liquidity and less risk than owning an income property outright—it’s a lot easier to sell a trust unit than an entire house. Some other benefits:
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Lower barrier of entry into the market: Squirreling together a downpayment and getting approved for a mortgage requires a lot of capital—you can buy into a REIT for much less.
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Tax benefits: There are tax advantages to holding your REIT units within a registered account. In a TFSA, you can avoid taxation. In an RRSP, you can use the investment to reduce your income and pay tax later when you withdraw.
- Less hassle: You won’t have to call a plumber at 5 am because of a leaky faucet or spend your weekends doing maintenance.
Yes, but: Owning real estate directly offers some advantages, too. In Canada, you don’t pay capital gains tax on the sale of your principal residence, which is a pretty generous tax benefit.
- You also can’t live in a REIT, so there’s that.
Why it matters: Another interest rate bump from the BoC last week won’t help the housing market stabilize any faster—REITs might be a better option than ownership in the meantime.