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Earning passive income as an investor in Canadian real estate is far from easy. If you want to buy a residential, holiday or commercial property, there is an opportunity a lot of the work involved.
First, you have to go through a strict due diligence process when buying the property. Buying a property these days requires some upfront payment. If you are looking for financing, the bank or lender will ask for many details and will look into the deal.
Many first-time landlords do not take the “time factor” into account when making their investment
Second, once you own the property, there is a huge amount of management involved. Many first-time real estate investors don’t realize how much work it can take to find tenants, draft leases, maintain/repair the property, and collect rent.
Landlords often make the mistake of not considering the “time” factor when managing an investment property. Ultimately, this can negatively impact your overall returns and peace of mind. The reality is that being a landlord in Canada is hardly a passive way to earn income.
REITs are a great way to generate passive income with relative ease
Fortunately, there is a way you can truly be a passive landlord and earn very attractive returns on capital and income. That goes through the stock exchange. Through real estate investment trusts (REITs), investors can participate in a large portfolio of high-quality properties in just about any market segment that interests them.
There are REITs focused on healthcare, retail, food, hotels, retirement homes, apartments and industrial real estate. You can choose one or own a combination of these different REITs.
The great thing is that they already have very qualified managers who have experience in acquiring and managing properties. They also generally have a lot more capital flexibility to buy high quality assets. With that in mind, many top REITs also pay generous monthly dividends for passive income.
Be a worry-free landlord with this top TSX REIT
All in all, owning REITs is a good alternative if you want to be a worry-free landlord. The best news is that you can often buy REITs on the TSX at a discount to their private market value. In fact, it is a very high quality REIT trading at a bargain price today Granit REIT (TSX:GRT.UN).
Granite owns a large, diverse portfolio of logistics, manufacturing and industrial properties throughout North America and Europe. Granite is seeing very robust demand for its properties amid e-commerce and onshoring trends. In fact, the REIT expects rental growth of 20-25% on new/renewed leases over the next year!
This year, the REIT expects its working capital (FFO) (a key profitability and cash flow metric) to grow by over 10%. Given a large development pipeline, it could grow just as much over the next year. This should support future dividend increases. The REIT has increased its payout by over 4% annually since 2012.
Earn a monthly passive income stream and some nice capital upside
Today, this passive income stock produces a 3.8% distribution yield at your expense (yield). Investing $20,000 in this stock would make you about $63.33 per month.
After falling 24% this year, Granite is trading at a very attractive price of $80.14 per unit. That’s a discount of nearly 12% to real estate value in the private market. It also trades at a steep discount to its American and European industrial peers.
Despite economic fears, this REIT continues to develop very well. But the market doesn’t recognize it. Consequently, lazy landlords looking for passive income and potential capital upside can benefit by buying this stock and holding it for a recovery.