How to Easily Create Your Own Real Estate Empire

Forget buying a rental property. Create wealth passively with Boardwalk REIT (TSX:BEI.UN), RioCan Real Estate Investment Trust (TSX:REI.UN), and iShares S&P TSX Capped REIT Index Fund (TSX:XRE).

| More on:
The Motley Fool

There are all sorts of reasons why somebody might want to invest in real estate compared to the stock market.

Firstly, people like that real estate is a real asset. You can drive by and look at it, knowing that if the stock market ever goes to zero, at least you’ve got a tangible asset. After all, everyone needs a place to live. It also generates a very predictable cash flow, and tends to stay mostly occupied. Rents tend to go up at about the same level as inflation, and the value of the building also usually to goes up over time as well. Expenses are usually pretty predictable, too.

Put that all together, and you have an investment that offers inflation protection, a fairly predictable return, and is always in demand.

Thousands of Canadians are heavily invested in the sector, doing things like borrowing to invest in condos in Canada’s major centres. It’s a move that’s worked out very well over the past few years, but could potentially turn very ugly if Canada’s real estate bubble bursts.

For investors looking to build their own real estate empire, might I suggest an alternative? Instead of pouring all of your assets into an investment property or two, focus your efforts on buying a diverse basket of real estate investment trusts.

Advantages to REITs

There are numerous advantages to buying a basket of REITs instead of trying to invest on your own.

Firstly, there’s the diversification factor. A REIT owns hundreds of different properties spread across the country, diversification the average real estate investor can only dream about. Even if you wanted to build that sort of empire on your own, it would be extremely difficult for one investor to do so.

Then there’s the issue of professional management. Paying a property manager to take care of one or two units will never be cost effective. By the time you’re done paying a manager, and then the rest of your expenses, there will hardly be any profit left. Paying someone to take care of a huge apartment complex or retail space? That’s a little more efficient.

Start with these REITs

There are dozens of different REITs that trade on the TSX, and dozens more that trade on the U.S. markets. Which ones should you choose for your portfolio?

The easy choice is to buy a basket of them through the iShares S&P TSX Capped REIT Index Fund (TSX:XRE), which owns a basket of 17 different REITs. The ETF offers investors instant diversification and a yield of 5.4% for a very small management fee of 0.55%. That’s the easiest way, and it will get you the most diversification.

Or investors could just go to the biggest and arguably the best in the sector, RioCan Real Estate Investment Trust (TSX:REI.UN). RioCan owns nearly 80 million square feet worth of retail space in North America, spread out over 340 different shopping centres. It boasts hundreds of different tenants, and is diversified enough that no tenant makes up more than 5% of total rents. And most importantly, RioCan pays a 5.7% yield.

Or investors could choose Boardwalk REIT (TSX:BEI.UN), which is one of Canada’s largest owners of apartments. Shares have been weak lately, since investors are nervous about Alberta’s rental market, a province that accounts for about 60% of Boardwalk’s net income. But so far the company has weathered the storm just fine and actually posted improved profit numbers in the second quarter.

Unlike many of its competitors, Boardwalk didn’t load up on debt during the last few years, choosing to sit on its hands instead of buying units at what management deemed to be unattractive prices. Instead, the company invested in its current units and paid down debt. It seems to be a solid strategy, since Boardwalk’s apartments are desired by tenants, and its strong balance sheet ensures it’ll easily be able to get through this tough time. Shares currently yield 3.9%.

Building your own real estate empire is as easy as making a few clicks on your mouse and buying Canada’s finest REITs. Create wealth passively while letting the other guys go and unplug toilets.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Nelson Smith has no position in any stocks mentioned.

More on Dividend Stocks

dividends can compound over time
Dividend Stocks

Want a 7% Yield? The 3 TSX Stocks to Buy Today

These TSX stocks are offering high yields of over 7%, making them attractive for investors seeking steady passive income.

Read more »

how to save money
Dividend Stocks

The Smartest Dividend Stocks to Buy With $200 Right Now

These smartest dividend stocks can consistently pay and increase their dividends in the coming years, irrespective of the macro uncertainty.

Read more »

Electricity transmission towers with orange glowing wires against night sky
Dividend Stocks

3 Utility Stocks That Are Smart Buys for Canadians in November

These utility stocks benefit from regulated businesses and generate predictable cash flows that support higher dividend payouts.

Read more »

Start line on the highway
Dividend Stocks

Invest $10,000 in This Dividend Stock for $600 in Passive Income

Do you want to generate passive income? Forget the rental unit! This option will save you the mortgage yet still…

Read more »

Senior uses a laptop computer
Dividend Stocks

1 Reliable Dividend Stock for the Ultimate Retirement Income Stream

TD Bank (TSX:TD) shares are way too cheap with way too swollen a yield for retirees to pass up right…

Read more »

A worker drinks out of a mug in an office.
Dividend Stocks

Is Brookfield Infrastructure Partners a Buy for its 4.75% Yield?

Brookfield Infrastructure Partners (BIP) has a 4.75% dividend yield. Is it worth it?

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »