On Monday we began our mini-series on REITs, real estate investment trusts. In that post we talked about how REITs are like shares that can be bought and sold on the stock market. We also talked about how there are several different kinds of REITs you can choose to invest in. What we didn’t touch on was how exciting it can be to decide which type of REIT you want to invest in, taking all factors into consideration such as the market they represent, and watching how that market is doing in the Canadian economy.
Retail REITs
Retail REITs currently represent around one-quarter of all REITs in Canada and are by far the most popular type of REIT. These REITs invest in shopping malls and retail outlets and whenever considering a retail REIT, the investor first needs to look at the retail industry and how it’s doing. If the sector is doing well, there’s a good chance that REITs will also do will; however, that’s not the only thing you need to take into consideration when looking at investing in real estate REITs. Because real estate REITs rely on income from tenants’ rent, it depends on the actual tenant renting out the building the REIT is invested in. Strong tenants with little risk are usually grocery stores and home improvement stores.
Residential REITs
Residential REITs are invested in apartment buildings and sometimes, manufactured housing. People who want to invest in these REITs should look at the rental market and see how well it’s doing before investing. Because rental markets do well in cities where housing availability is low, big cities such as Toronto and Vancouver are great places to invest in residential REITs.
Healthcare REITs
Healthcare REITs are particularly interesting, especially right now, because they are directly tied to Canada’s healthcare system and more specifically, the funding available for it at the time. Currently, as Canada’s baby boomers continue to age and place heavier stress on the healthcare system, healthcare REITs are particularly interesting to watch.
Office REITs
Just as residential REITs invest in apartment buildings with multiple tenants, office REITs invest in office buildings with multiple business tenants. When investing in office REITs, the investor needs to consider things such as economic conditions, the unemployment rate, vacancy rates, and the area that the REIT is in.
Mortgage REITs
These types of REITs represent about 10% of the REIT market in Canada and instead of being tied to commercial or home equity, they are directly tied to the mortgages on the property. Currently, Canada mortgage REITs are a great investment because the interest rate is so low, giving investors the best return on their money. However once interest rates rise, returns on investment do also decrease.
Once you’ve decided to invest in REITs, your next step is to look at the different markets they represent, decide which one you’re most interested in, and which one is faring best. While taking all these factors into consideration might sound overwhelming, it’s actually one of the most fun parts of investing in REITs. It’s all about making predictions, following trends, and keeping up with the news in different markets – then just deciding which one you like best!
