Buy REIT Stocks and Make Big Bucks in Real Estate
Real estate investments can be very easy. You don’t need a lot of money to get started either. No, you don’t have to take out a mortgage to buy a condo or building. You can invest diversely in real estate from day one. With commission-free trading at Wealthsimple, you can only invest one unit of Real Estate Investment Trust (REIT) shares each time.
REITs are managed by professional teams that handle mortgages, tenants, real estate, insurance, and property taxes. In addition, they own a portfolio of real estate and potentially developing land, which presents less risk than buying a single property.
Here are a few tips to help you make big bucks out of REIT stocks.
Select the asset type
You can invest in residential, industrial, office, retail, healthcare, data center, self-storage, and cellular REITs. Investors would be happy if they weren’t invested in retail or office properties, which have suffered huge losses in their fair assets during the pandemic.
There are also diversified REITs that could have retail, office, residential, and industrial properties in their real estate portfolio. However, buying them isn’t the best move if you are only optimistic about certain areas.
By purchasing individual REITs, you can invest in residential and healthcare REITs that are more defensive and industrial, data center, self-storage, and cellular REITs that could enable greater growth.
For exposure to residential REITs, consider Canadian Apartment Properties REIT (TSX: CAR.UN). Consider the NorthWest Healthcare Properties REIT (TSX: NWH.UN) as your exposure to the Healthcare REIT. Granite REIT (TSX: GRT.UN) is a good idea if you like industrial REITs. To familiarize yourself with data center, self-storage, and cellular REITs, explore ideas on the NYSE.
Assessment is key
If you want great returns on your REIT stocks, it is the same as any other equity investment. You want to buy when the REIT shares are trading cheaply. Unfortunately, the real estate sector is pretty full valued right now.
There will be opportunities to make lots of money. For example, during the pandemic, investors could have purchased Canadian Apartment Properties REIT units for around $ 40 per unit with a yield of around 3.4%. Your position would have increased by more than 50%.
Likewise, you could have earned an 11.4% return on NorthWest Healthcare Properties REIT at $ 7 per unit. The healthcare REIT’s share rose 85% from this level. From Granite REIT, you could have made a 6.2% return at about $ 47 per unit and the stock would have risen about 82%.
Buy REIT stocks in TFSAs
When buying Canadian REITs, consider the investments in your Tax-Free Savings Account (TFSA). Canadian REITs typically pay out monthly cash distributions, which is perfect for those looking for monthly income.
REITs pay out cash distributions, which are like dividends but taxed differently. In the case of unregistered accounts, the return of the capital portion of the distribution reduces the cost base. The capital repayment is tax-privileged until the shareholders sell or their adjusted cost base goes negative.
REIT distributions may also include other income, capital gains and foreign non-commercial income. Other income and foreign non-business income are taxed at your marginal tax rate, while capital gains are taxed at half your marginal tax rate.
If you hold REITs in a tax-free savings account (TFSA), your REIT income is tax-free, with the exception of withholding tax on foreign income. When there is foreign income, it is often a small, negligible amount.
This article represents the opinion of the author who may disagree with the “official” endorsement position of a premium service or advisor to the Motley Fool. We are Motley! Questioning an investment thesis – even one of our own – helps us all think critically about investing and make decisions that will help us get smarter, happier, and richer. As a result, we sometimes publish articles that may not match recommendations, rankings, or other content.
The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST and NORTHWEST HEALTHCARE PPTYS REIT UNITS. Fool Kay Ng has no position in any of the stocks mentioned.