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Investing in real estate stocks
Pros and cons of investing in residential, commercial and industrial real estate.
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.
- 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.
- 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)
- 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.
- 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.
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.
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