Canadian REIT ETFs offer attractive asset attributes for real estate investments because they invest in multiple real estate companies that own real estate at the same time.
It reduces the risk for an investor who only relies on their own property. REIT ETFs also offer investors a good opportunity to diversify.
Investing directly in real estate may sound lucrative, but it requires a lot of research and is both time and capital intensive. Additionally, poor choices could lead to all that hard-earned money going down the drain.
What is a REIT ETF?
A REIT ETF offers a cost-effective way of investing in the real estate asset class. In addition, ETFs are very liquid and are traded on the stock exchange like normal stocks.
There are a few REIT ETFs to watch out for:
- REIT ETFs that invest directly in real estate companies
- REIT ETFs that invest in other REIT ETFs
Click here for the MEGA REIT list
The best REIT ETFs
The selection of REIT ETFs is significantly smaller than that of bond ETFs, which should make it easier to find the best REIT ETF.
In fact, finding the best ones will be pretty easy as there aren’t many options. I’ve outlined the 6 candidates below.
To choose the best REIT ETF it really depends on what you are looking for. Are you looking for growth? for income? or for both growth and income?
For growth, you’re missing out. The performance of the top 2 REITs shines compared to the TSX, but weakens compared to the S & P500. If you want good returns, stick with the S&P 500 index with an index ETF like the VFV ETF.
If you’re looking for income, there are better options like the FIE ETF (iShares Canadian Financial Monthly Income ETF) which offers better yield and a decent return.
All in all, if you need to hold a REIT ETF I would say that best REIT ETF is ZRE (BMO Equal Weight REITs Index ETF). I prefer ZRE over RIT because of the lower fees.
ZRE, the best REIT ETF, holds 23 REITs. If you have a particular interest in specific REITs, below is the table of the top REITs trading in Canada and ZRE has 23 of them (click to view the list).
Why invest in REIT ETFs
Investors invest in REITs not only to benefit from a diversified portfolio, but also because of their lucrative payouts, as REITs have to pay out at least 90% of their income as a payout (difference between payout and dividend).
Some REITs are focused while others are diversified (by asset class, investment objective, or region). Because REITs are tied to a specific property class, a Canadian REIT ETF can offer investors a balanced investment option.
Many real estate investors therefore prefer to invest through an exchange traded fund rather than trying to understand individual REITs because of their low cost, convenience, and diversification.
Which REIT ETF is good for your portfolio?
Investing through an ETF gives investors ownership of dozens of REITs through a single investment and at a reasonable price.
As soon as an investor decides to invest with ETFs, he / she has to find out the characteristics that make a good REIT ETF for him / her.
For example, whether you need an equity REIT or a mortgage REIT or a combination of both. Few other things for investors to look out for are an ETF’s expense ratio, returns, and assets under management.
Investors should try to find a balance between higher returns and lower expense ratios.
Don’t let yourself be pressured into exposure to REITs. You don’t have to make your portfolio accessible to all sectors. REITs in Canada have limited growth unless they consolidate. At some point I decided not to have any REITs in my portfolio.
How to buy REIT ETFs
To buy a REIT ETF, you need a discount broker because ETFs trade like stocks on an exchange for ETFs. You indicate the number of stocks you want to buy from the selected ETF and whether you want to pay the market price or enter the price you want to pay.
I usually place a limit order with the market price just to avoid a mistake from the trading algorithm.
It happens that there are many discount brokers that offer access to free ETFs and you should use a discount broker with free ETFs whenever possible. Questrade is one of those discount brokers with free ETFs.