REIT (Real Estate Investment Trust)

A REIT, or Real Estate Investment Trust, is a company that owns, operates, or finances income-producing real estate. Think apartment buildings, shopping centres, office towers, warehouses, and retirement homes. When you buy shares of a REIT, you’re investing in real estate without having to buy, manage, or maintain property yourself.

REITs trade on the stock exchange just like regular stocks, so you can buy and sell them through any Canadian brokerage. Some well-known Canadian REITs include RioCan, Canadian Apartment Properties (CAPREIT), and SmartCentres.

How they make money for you

REITs are required to distribute most of their income to shareholders. That means they tend to pay regular, often monthly, distributions. This makes them popular with investors looking for steady income.

The total return from a REIT comes from two sources: the distributions you receive and any change in the share price over time.

Things to keep in mind

REIT distributions are taxed differently than regular dividends. In a non-registered account, much of the income may be taxed as regular income rather than receiving the dividend tax credit. Holding REITs inside a TFSA or RRSP can help you avoid that extra tax.

REITs also tend to be sensitive to interest rates. When rates rise, borrowing costs go up for the properties they own, and REIT prices can dip. When rates fall, the opposite tends to happen.

If you want real estate exposure without being a landlord, REITs are one of the most accessible ways to get it.

A concrete example

Say you buy 500 units of a Canadian REIT at $18 each, for a total investment of $9,000. The REIT pays a monthly distribution of $0.08 per unit. That’s $40 per month, or $480 per year, giving you an annualized yield of about 5.3%. You collect that income every month without dealing with tenants, maintenance, or property taxes.