With the stock market crashing and interest rates tumbling, now seems to be as good a time as any for real estate investments.
However, investing in real estate isn’t the only method of generating passive income — buying REITs is just as good, or better, depending on the investor.
Real estate investments
Of course, there’s no denying the earnings potential of a good real estate investment.
In theory, you simply front the down payment, charge more for rent than you pay for the mortgage, pocket the difference and eventually sell the house for much more than you bought it for.
However, there are a lot of finer details and things that can go wrong along the way.
For one, you have to be able to afford the down payment. Even if the housing market cools with a recession, a 20% down payment is still going to be at least $50,000-100,000 — depending on the area of course. This hurdle can take a lot of investors out of the running right away.
Now, even with the down payment covered, there can be a lot of issues surrounding renting the property out. Staging and showing the place, carrying out repairs, footing bills, property tax, and so on and so forth. These things simply eat away at your time and your bottom line.
So, in order to avoid these types of issues, REITs can be preferable to traditional real estate investments.
Advantages of a REIT
REITs generally don’t require a minimum investment, as they trade just like a stock. So, you needn’t worry about being able to put six figures down from the onset.
As well, when you buy into a REIT, you’re not going to be directly managing any property. You won’t be responsible for going out and fixing a busted fridge or finding a new tenant.
You simply invest your money with the REIT and they take care of all of that.
Disadvantages of a REIT
Obviously, you don’t have control over the properties the company chooses to buy. It’s therefore important to choose REITs that align with your investment philosophy from the beginning.
As well, you generally aren’t going to make a ton of money on your principal investment with a REIT. While the monthly income you can generate is quite substantial, REITs tend to just bounce around in price rather than outright grow over time.
So, come time to sell, you’ll more or less be getting your principal investment back, whereas someone making a real estate investment will generally sell for more than they bought for.
Choosing a REIT
Choice Properties REIT (TSX:CHP.UN) is Canada’s largest REIT and has over $16 billion in assets under management.
Most of its real estate investments are in the retail space, with a small but growing portfolio of other properties.
While its main focus is not on residential, but rather retail property, Choice is still well positioned to succeed in the near term.
This is because its retail locations are anchored by Loblaw, Canada’s largest grocer. Thus, Choice’s income and stability should be secured as Loblaw should continue to perform well as a vital service provider for Canadians.
Currently, Choice is trading at $12.87 and yielding 5.75%. At that yield, an investment of $20,000 would generate $100 a month in passive income.
Real estate investment strategy
Before making a real estate investment, consider whether it’s the best action for your situation. Under some circumstances, investing in a REIT can be a far better option.
As far as REITs go, Choice is one of the most stable options for Canadians, as its anchored by its main tenant, grocery giant Loblaw.
Many investors fear market crashes. However, long-term investors should embrace this crash, because bear markets can potentially allow you to make millions. So if you’re tired of reading about other people getting rich in the stock market, this might be a good day for you.
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TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
