Lord of the realm, the easy way: Investing in REITs

If you don't want headaches, a REIT might be right for you.

Not everyone has either the cash or the inclination to be a property baron. There’s all that dealing with tenants, all those house repairs and maintenance. Ick. Fortunately, real estate investment trusts (REITs) provide an easier way to get in on Canada’s housing boom. They provide a steady stream of revenue, and they’re easily turned into cash. “The real estate market has been relatively stable,” says Sylvain Cossette, a partner with law firm Davies Ward Phillips & Vineberg in Montreal. “We’ve had controlled interest rate environments and people have forgotten the more problematic days of the early 1990s.”

But that doesn’t mean investors don’t have to do their homework. Not all REITs are created equal, especially since few are truly national. “Residential investing is entirely dependent on which cities you have exposure to,” says Gavin Graham, chief investment officer of Guardian Group of Funds in Toronto. “As they always say in property: location, location, location. In this case, the location is Alberta or [other] resource-based places.”

That could mean a bet on Calgary’s Boardwalk (TSX: BEI.UN), the largest apartment owner in the country. More than half of Boardwalk’s 33,298 units are in booming Alberta. On the other hand, Canadian Apartment Properties (TSX: CAR.UN) is heavily stocked in Toronto, where the vacancy rate is 3.7%, compared to nearly zero just six years ago. With cheap mortgages and a glut of condos coming onstream, Toronto is not landlord-friendly these days. Still, even with all that, CAP gives a nice yield of 6.5%.

If you’re feeling a little frisky, you might want to take a look at a couple of so-called growth REITs. These are commercial property promoters, such as Whiterock (TSXV: WRK.UN) and Lanesborough (TSXV: LRT.UN), that have converted into the REIT structure, says Cossette. They pay higher yields, but are more risky, so they tend to appeal to investors with a higher risk tolerance as opposed to institutional investors.

If you don’t like what you see, don’t fret: four or five more REITs are in the pipeline, which could pose a problem since good properties are rare, says Cossette. That could mean future consolidation, but certainly a change in the investing landscape.