In a breakdown piece for The Motley Fool
, industry observer Kay Ng suggested investing in real estate investment trusts (REITs) as a way for would-be market participants to collect passive rent.
“REITs collect rent from the many properties they own and manage, and they pay out most of that cash flow as distributions to unitholders. So, you can conveniently be anywhere in the world and collect juicy paycheques from your REIT holdings every month,” Ng wrote.
Ng cited providers such as Dream Industrial Real Estate Invest Trust and Northview Apartment REIT that can lead to yields as high as 8 per cent.
REITs can also provide tax-free income on a monthly basis, as these trusts are considered a different category from dividends.
“Investors may also be interested to know that in non-registered accounts, the return-of-capital portion of REIT distributions is tax deferred until unitholders sell or adjusted cost basis turns negative,” Ng said.
This is where the risk factor comes in, as the tax-free character is most attractive for enterprising individuals who wish to make bank quickly and reliably in this sector. Thus, current investors may face harshly intensified competition in an arena which promises arguably the best possible returns, dollar for dollar.
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By its very nature, real estate investment is a complicated affair, as a portfolio holder has to remain on top of the maintenance, mortgages, tenants, and other aspects of the business. However, an industry analyst recently pointed at an alternative that might provide great yields—albeit at greatly increased risk.