Real Estate ETF Canada | Our Full Guide to Investing in REITs With Recommendations

October 30, 2021 | Editorial Team

Real estate ETF Canada is a great way to invest in the real estate market. The fund invests in commercial and residential properties across Canada. These include both urban and rural areas. It also has exposure to industrial property as well as land for development purposes.

This means that investors can use it by looking to diversify their portfolios. Also, those who want to make money from rental income can use it. There are many different types of REITs available on the stock exchange today. Some focus on one type of investment. In comparison, others have several investments under management.

Our recommendation:

Real Estate ETF Canada Funds: What Are They?

These funds may offer you more flexibility than other options (see other top Canadian ETFs). That is because they allow you to choose which assets you would like to own within your portfolio. They often provide an excellent return with minimal risk. But, there are some risks associated with investing in these companies. One risk is that if interest rates rise, it could negatively impact returns.

Canadian flag and compass arrow showing Real estate notice

Another potential issue is that the value of certain assets owned by the company will fluctuate over time. If the price falls below what the company paid, the shareholders might lose out.

A real estate investment trust is like a mutual fund. But instead of holding shares, it holds interests in real estate projects. For the corporation to qualify as a REIT, the project must meet specific requirements set forth by the government. For example, to qualify as REIT, the company must:

  • Generate at least 75% of its gross income through rent payments, real estate sales, or interest on mortgages.
  • The corporation should invest more than 75% of its assets in cash, real estate, or Canadian treasuries.
  • The corporation must pay significant federal taxes.
  • The company must pay more than 90% dividends every year.

The government put in place these rules so that people wouldn’t use REITs as tax shelters. Once you qualify for the above rules, the company issues shares to investors. Investors pay a small fee each year to hold onto their shares. When the company makes profits, they distribute the earnings among shareholders based on the number of shares held.

What Is the Best REIT ETF in Canada?

The question depends upon how much capital growth you need from your investment. The best Canadian REIT ETFs include:

  1. CI First Asset Canadian REIT ETF was established in November 2004 as one of the low, medium risk ETFs under First Asset corporation. CI Financial acquired it later.

2. BMO Equal Weight REITs Index ETF – the bank of Montreal’s Global Asset Management established the ETF. It is another high-income mutual fund to cut risk founded about ten years ago. (see other top bank ETFs).

3. IShares S&P TSX Capped REIT INDEX ETF – BlackRock created the ETF back in Oct 2002. It is amongst the oldest REIT ETFs in Canada and a provider of ETFs.

4. Vanguard FTSE Canada Capped REIT Index ETF – Vanguard ETF is the 2nd largest ETF provider on the planet. It is the largest mutual fund provider playing a significant role in lowering management fees. It holds the largest Canadian Apartment Properties REIT.

5. Purpose Real Estate Income ETF – Purpose Investments established the ETF in 2014. It is a diversified portfolio with a contingent dividend yield.

a person touching the screen panel with ETF concept

Are REITs Good Investments Canada?

Investing in REITs is safe. Because REITs distribute most of their profit back to shareholders. Because of this, they don’t need to worry about paying high fees to financial institutions. They only manage large-scale projects. Thus, they aren’t exposed to smaller businesses that might fail.

There are two main reasons why you’d want to invest in REITs. First, they usually pay higher dividend yields than regular corporate bonds. Second, they also tend to outperform when compared to the S&P 500 index. They still perform better than average during times of economic uncertainty. Thus less volatile than the market. REITs are generally good investments.

Why Invest In REITs?

Investing in REITs offers many benefits. What Are Some benefits of buying a REIT?

1) Diversification – Spread your capital among different types of businesses. With that, you will reduce the chances of losing all your hard-earned savings in a single company’s failure.

2) Stability – REITs tend to hold only large portfolios of stable business interests. They are less likely to suffer significant losses due to economic downturns.

3) Tax benefits – The government taxes most REIT dividends at lower tax brackets than regular dividend payouts. Owning shares in a REIT makes sense when trying to cut taxes.

4) Liquidity – When buying stocks through brokers, (see ‘Best Online Brokerage‘), you must wait until the nest trading hours. In contrast, REITs trade throughout the day selling shares. This allows you to sell whenever you wish without having to worry about closing times.

5) Low fees – Most REITs charge very little in annual brokerage costs. That makes them ideal for people who don’t need professional financial advice.

6) Portfolio Management – REITs use sophisticated computer programs to manage their holdings. This ensures that they always buy the right mix of assets based on current trends.

7) Accessibility – Unlike direct ownership of individual stocks. REITs trade their significant exchanges in public. That means anyone can buy or sell shares.

8) Growth Potential – Some REITs might not pay out high yields. But many do, providing more opportunities for gains.

9) Lower Taxes – Do you have income outside of your primary house? You may want to consider using REITs to shelter some of your earnings from taxation.

10) Significant Investments – There’s no least amount required to open an account with a REIT. This allows newbies to get started.

11) Easy Trading – As mentioned above, REITs trade during regular market hours. This gives you more flexibility than other investment vehicles.

12) Less Risk – The government-issued bonds backs the majority of REITs. This reduces risk.

13) Global Reach and International Exposure – Thanks to their public nature. REITs offer exposure to worldwide markets. Some REITs specialize in international properties. Thus offers exposure to foreign economies as well as local ones. 

How Do I Start a REIT in Canada?

There are two ways to get started. Buy shares through the Toronto Stock Exchange or invest via mutual funds. Before buying individual stocks, you need extensive research into the company before deciding. Mutual funds give you access to any securities. You don’t have to go through all the work involved when buying shares. Besides, most mutual funds include fees that reduce profits.

What are your options?

When purchasing shares, consider whether you need immediate liquidity or long-term stability – for a long-term investment decision, you need to analyze it first to see if it will pay off eventually. A good rule of thumb is to look for a fund that offers low expenses and high dividends. Dividends are payments made by the company to shareholders. Low costs mean lower fees for you.

How Do I Buy a Share of the Canadian REIT ETF?

You can buy shares through any brokerage firm or a robo advisor (see ‘Best Robo Advisors‘). You can also use online trading platforms. These trading platforms have middlemen between buyers and sellers. In either case, you must first decide whether you wish to buy individual stocks or mutual funds. Once you know which option suits you better, you need to find a broker willing to sell you shares.

If you buy individual stocks from a broker, you will likely face higher transaction costs. Consider purchasing shares through a mutual fund.

Is it Good to Invest in a Real Estate ETF?

It’s one of the top ETFs for Canadians to diversify their portfolio. At the same time, they can meet their investment objectives. You get exposure to residential and commercial properties. At the same time, you are avoiding many of the risks associated with owning physical property. The most significant risk is depreciation.

a person analyzing investments in real estate ETF

Yet, there are some other benefits too. If you live near an area experiencing rapid growth, you may enjoy increased rental income. These companies own assets across North America. You can expect them to do well no matter what happens in the economy.

REITs offer more stability than buying individual securities in stock markets where prices fluctuate (see stock market for beginnings). But REITs rarely increase or decrease in price. So, if you decide to sell off part of your holdings, you won’t experience much loss.

What Should You Consider Before Investing in a Canadian REIT ETF?

REITs are a way to gain access to the Canadian housing market. You don’t have to worry about fluctuations in real estate ETF Canada. REITs pay higher dividend yields than regular corporate bonds. They tend to outperform the commodity futures index. REITs are less volatile than the market. Despite that, they still perform than average during times of uncertainty.

Before deciding whether to buy any investment, make sure you understand how it works. For example, does it need active management by professionals? What is the net asset value (NAV) of the ETF? Do you know which stocks you should include in the fund? How often will the ETF payout dividends? Do you know what is the difference between ETF and Index funds? What kind of returns can you expect? These questions help determine whether an investment is suitable for you.

The Bottom Line

Are you looking for the perfect ETF in the Canadian REIT sector? This article should help you choose one that meets your needs. There are several different kinds of ETFs out there. Some focus on specific ETFsectors, while others cover many industries.

Others have very specialized investment strategies. When choosing which ETF type to use, look at what sector the company operates within. Keep in mind how much risk you are willing to take on. Are you comfortable losing some of your initial capital? Or you prefer more stability than growth potential.