So many Canadians are finding themselves nowhere near being able to afford a house, despite being at or just past the age where there parents and grandparents were becoming 1st-time homeowners. We live in a very different world now and these people have the unfortunate reality of being young adults at a time when salaries and wages are not keeping up with inflation or the price of housing in Canada. Why fewer people than ever before are able to afford a home – even a starter – has been covered at length in the media and to a lesser extent here too.
People who do have a sufficient nest egg saved up for buying a home but don’t want to purchase something at a price that may make it have negative value in the future have options. One of them is to invest that money in a REIT – a real estate investment trust. These investment groups have for the most part been very successful in Canada and America because in both countries the value of real estate can be relied upon to appreciate significantly. When your money is invested in one that makes smart calls about where to invest in real estate, it can net you the return you need to buy a home down the road.
This, along with the affordability challenges facing many would-be buyers, is something that we can relate to here at Real Estate Leads, and in the same way we know that generating new clients can be similarly challenging for new agents. That’s why we are so keen to promote our online real estate lead generation system to any new real estate agent who is eager to do everything they can to make their career profitable as soon as possible.
But back to our topic and why investing money in a REIT may be a good choice for clients who can’t get into the market but feel they still want to make an investment in real estate.
Fave of Yield-Hungry Investors
For decades now REITs have been preferable for yield-hungry investors because they provide steady dividend income and tax benefits. There is a lot of insider belief right now that it is an opportune time to invest in REITs amid rising inflation, record capital flowing into the property sector and tight real estate supply. Of course there is risk, but there always is to some extent. But we need to remember we are in an inflationary period and historically real estate investments have performed well in inflationary times.
The stats certainly bare out that’s where we are right now with Canada’s economy. The country’s inflation rate climbed 7.5% in February from a year earlier to a 31-year-high, and the Bank of Canada raising interest rates earlier this month was a big part of why that happened. All the while home prices went up 20+% in February to a record $816,720, and this has not surprisingly left many Canadians priced out of the housing market.
Interest rates can go up because of inflation during an economic expansion, and this is also what we have happening here moving into Q2 for 2022. Along with that rental income for REIT companies goes up too, and the profits then become dividends redistributed to shareholders.
Role of Private Capital
Another very noteworthy reality for 2022 is we have a RECORD amount of private capital chasing real estate, which makes this space that much more attractive to potential investors. Somewhere areound USD $364 billion in private capital was earmarked for global real estate investment over the past year.
The best of REITS if you have the means of investing in them are single-family home REITs, and the reason is simply because most now have double-digit growth in net operating income growth. Need to be convinced of that? Investors who put big money in Canadian residential REITs over the last 10 years have gotten an average 220% return out of that investment. Looking at it from the other end of the equation, homeowners have seen somewhere around an average of a 137% increase in home prices from 10 years ago. Tax measures need to be taken into consideration there, but still.
Long story short – investors can appreciate their wealth through REITs without taking on the costs of a mortgage, property taxes, and home maintenance. Industrial REIT investments are smart too, there are many people who choose to be invested in both.
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