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Investing in real estate stocks

Pros and cons of investing in residential, commercial and industrial real estate.

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There are three segments of the real estate sector and multiple ways to invest, each with their own benefits and risks.

What are real estate stocks?

Real estate sector consists of stocks from companies that own, develop and manage properties. The Global Industry Classification Standard defines 11 stock sectors, each characterized by a specific industry or slice of the market.

The real estate sector can be further broken down into residential, commercial and industrial real estate. Some real estate companies and trusts specialize in buying only one type of property while others manage multiple segments of the sector.

Ways to invest in real estate sector stocks

The real estate sector is dominated by real-estate investment trusts (REITs): companies that purchase and maintain income properties. REITs are publicly traded trusts that are bought and sold like stocks. They offer the opportunity to participate in real estate an investor might otherwise not have access to, like shopping malls and business parks.

Those looking to explore real estate stock investments can invest in REITs or real estate ETFs.

Invest in REITs

If you’d prefer to invest in individual real estate companies, REITs are bought and sold through a brokerage account.

Most trading platforms come with research and analysis tools designed to help you compare and select investments across sectors. Stock screeners can help you narrow your options to investments available in the real estate sector, listing real estate companies and REITs alongside key metrics to help you assess your options.

Pros

  • Support individual companies. Investing in REITs gives you the opportunity to back individual companies and trusts based on your interests, values and investment goals.
  • Highly liquid. Unlike buying and selling physical property, you can swap REITs online in a matter of minutes.
  • Dividends. Like stocks, REITs pay dividends, which can act as a source of income.

Cons

  • Limited exposure. To compete with the broad selection of securities available through a single ETF, you’d have to purchase many individual stocks.
  • Volatile. REITs are easily influenced by interest rate fluctuations, making them inherently more volatile than ETFs.

Compare real estate stocks

The list below shows some of the real estate stocks Canadian investors can buy into on either Canadian or US exchanges. If you’re interested in a specific company, take some time to carefully research it — including its history and financials — before you buy in.

  • Imperial Equities Inc. (TSXV: IEI)
  • Genesis Land Development Corp. (TSX: GDC)
  • Wall Financial Corporation (TSX: WFC)
  • Halmont Properties Corporation (TSXV: HMT)
  • Dream Unlimited Corp. (TSX: DRM)
  • Melcor Developments Ltd. (TSX: MRD)
  • Chartwell Retirement Residences (TSX: CSH.UN)
  • Boston Properties, Inc. (NYSE: BXP)
  • Healthpeak Properties, Inc. (NYSE: PEAK)
  • Simon Property Group, Inc. (NYSE: SPG)

Invest in real estate ETFs

An ETF — or exchange-traded fund — is a bundle of securities that track a specific stock sector or market index. Real estate ETFs track REITs and indexes for the real estate market. Instead of purchasing a single stock, ETFs offer access to a collection of stocks in a specific stock market sector, providing more comprehensive exposure.

Like stocks, ETFs can be bought and sold through a brokerage account. When you purchase an ETF, you pay an expense ratio: an annual cost expressed as a percentage of the funds invested and can range from 0.03% to 2.5%.

Popular ETFs in the real estate sector include:

  • BMO Equal Weight REITs Index ETF (TSX: ZRE)
  • iShares S&P/TSX Capped REIT Index ETF (TSX: XRE)
  • CI First Asset Canadian REIT ETF Common (TSX: RIT)
  • Vanguard FTSE Canadian Capped REIT Index ETF (TSX: VRE)
  • Canadian Apartment Properties Real Estate Investment Trust (TSX: CAR.UN)
  • RioCan Real Estate Investment Trust (TSX: REI.UN)
  • SmartCentres Real Estate Investment Trust (TSX: SRU.UN)
  • iShares Cohen & Steers REIT ETF (BATS: ICF)
  • iShares Core U.S. REIT ETF (NYSEARCA: USRT)
  • iShares U.S. Real Estate ETF (NYSEARCA: IYR)
  • Real Estate Select Sector SPDR ETF (NYSEARCA: XLRE)
  • Schwab US REIT ETF (NYSEARCA: SCHH)
  • SPDR Dow Jones REIT ETF (NYSEARCA: RWR)
  • Vanguard Real Estate Index Fund (NYSEARCA: VNQ)

Pros

  • Low risk. ETFs are less risky than stocks because they’re a collection — not a singular entity. The diversity of ETFs helps safeguard the fund from potential losses.
  • Portfolio diversification. Buying into an ETF broadens your portfolio with a single purchase.

Cons

  • Lower dividends. Dividends from an ETF may have trouble competing with high-yield stocks.
  • ETF fees. While it’s possible to swap stocks commission free, ETFs carry expense ratios that are typically unavoidable.

You can invest in real estate ETFs from Canada, but if you’re looking for more options, you can also explore ETFs that trade on stock exchanges in other countries like the NYSE in the US. There are several Canadian-based brokerages that offer access to international exchanges on which real estate ETFs trade including Interactive Brokers and Questrade.

How is the real estate sector performing?

The stock market is in constant flux, and individual stocks can change prices second by second. But you can use the performance of ETFs to gauge the average performance of a stock market sector over time. The graph below tracks the Real Estate Select Sector SPDR ETF (NYSEARCA: XLRE) in the US.

Why invest in real estate stocks?

Real estate stocks and ETFs typically offer dividends, which act as passive income. Better yet, real estate assets tend to be viewed as a stable investment, as they’re backed by physical property and often have long-term contracts or lease agreements, which can stabilize incoming cash flow.

Real estate investments can diversify your portfolio, while hedging against inflation. By investing in real estate stocks or funds, you own a piece of a tangible asset without purchasing and maintaining the property firsthand. It’s a practical option for those who want to diversify their portfolio with real estate but don’t want to own their own property.

What unique risks does the real estate sector face?

The profitability of the real estate market is closely correlated with occupancy rates and property values. If property values fall, so will share prices.

REITs also tend to be more volatile than physical properties, so while you benefit from having the property managed on your behalf, you also take on more risk.

Compare online brokers

If you want to buy stocks or ETFs in the real estate sector, you’ll need to start by opening a brokerage account. If you’d prefer to invest in real estate more directly, you can also compare Real estate investment.

Name Product Available Asset Types Stock Fee Option Fee Account Fee ETF Transaction Cost Feature Table description
OFFER
Wealthsimple Trade
Stocks, ETFs
$0
N/A
$0
Free
Get 2 free stocks when you open a Wealthsimple Trade personal account and deposit and trade at least $150.
Pay no commissions when you trade Canadian stocks and ETFs with Wealthsimple Trade.
Interactive Brokers
Stocks, Bonds, Options, ETFs, Currencies, Futures
Min. $1.00, Max. 0.5% of trade value
$1.50 min. per order
$0
Min. $1.00, Max. 0.5% of trade value
Extensive trading capabilities and global investment tracking.
Access market data 24 hours a day, six days a week and invest in global stocks, options, futures, currencies, bonds and funds from one single account.
BMO InvestorLine
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs
$9.95
$9.95 + $1.25 per options contract
$0 if conditions met, otherwise $25/quarter
$0 - $9.95
Buy and sell a select group of Canada’s most popular ETFs without paying commissions.
An easy-to-use online trading platform with access to research, tools, and the option to access InvestorLine adviceDirect for additional professional support.
Scotia iTRADE
Bonds, Options, Mutual Funds, ETFs, GICs, International Equities
$4.99-$9.99
$9.99 + $1.25 contract ($4.99 + $1.25 contract if completed 150 trades or more a quarter)
$0
$9.99 ($4.99 if completed 150 trades or more a quarter)
Pay no annual account fees.
Buy, sell and trade ETFs, Equities, Options and more with competitive commissions.
CIBC Investor's Edge
Stocks, Bonds, Options, Mutual Funds, ETFs
$4.95 - $6.95
$4.95 - $6.95 (+$1.25 per contract)
$0 if conditions met, otherwise $100/year
$6.95
$4.95 - $6.95 is applicable for online stock, ETF and option trades only. Pay $4.95 when you qualify as an Active Trader (trade 150+ times per quarter).
An intuitive and easy-to-use platform with access to a variety of tools that help you make smart decisions and trade with confidence.
Questrade
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs, International Equities, Precious Metals
$4.95-$9.95
$9.95 + $1 per contract
$0
Free
Get $50 in free trades when you fund your account with a minimum of $1,000.
Opt for self-directed investing and save on fees or get a pre-built portfolio and take some of the guesswork out.
OFFER
Qtrade Direct Investing
Stocks, Bonds, Options, Mutual Funds, ETFs, GICs
$6.95 - $8.75
$6.95 - $8.75 + $1.25 per contract
$0 if conditions met, otherwise $25/quarter
$0 - $8.75
Get up to 50 free trades. Be one of the first 100 new Qtrade clients to use the promo code 50FREETRADES and deposit a minimum of $10,000 (or top up to $15,000 to get $150 transfer fees waived). Valid until December 31, 2021.
Qtrade Direct Investing offers low trading commissions and an easy-to-use platform with access to powerful tools and a wide selection of investment options. Trade 100 ETFs free of charge and thousands more for $8.75 or lower.
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Bottom line

The real estate sector offers the opportunity for stable dividends backed by physical assets, but isn’t immune to risk. Investors should be wary of shifting property values and occupancy rates before they invest.

Research your trading platform options to find the brokerage account best suited to your needs.

Frequently asked questions

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

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