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Thank you MM for the opportunity to write my first guest post.
Who am I? I’m a professional starving artist in both the music and photographic world trying to find financial freedom on a pauper’s income.
After many years of financial floundering I decided to take advantage of my time and start investing for my future. I would love to jump off on a tangent here and talk about how financial advisers aren’t in it for you (they are in it for themselves first,) but that would be a whole post unto itself. But the long and the short of the matter is that for anybody who is not from old money the only way to financial freedom is through investing.
So, you’re a recent graduate and either in debt or nearly broke. You have an erratic to non-existent income, or you just landed your first entry level job, but live in a city where that doesn’t even cover basic needs. You’d love to have a steady income stream but you don’t know how to do that aside from already owning a home and renting out a basement apartment or having an additional rental property.
If you could come up with a down payment and think you’re the person who likes to be hands on and wants to take on the responsibility of a rental property yourself. What could happen? Lets say your furnace exploded on Christmas Eve and you weren’t able to source a new furnace, have it installed and tested until 3 days later. Thus causing your pipes to freeze and then burst. As a result, your tenants decided to take you to the housing tribunal for arbitration for failing to provide heating, all the while living on your property WITHOUT paying you anything. You are left with the financial burden of keeping up with your mortgage, gas, water, electric, and insurance payments until the arbitration process has concluded, which can take up to 6 months! At which you’re left with a judgment in your favour but the tenant decides to move on leaving you with nothing for the 6 month period they lived on your property. If you couldn’t make all your payments for repairs the contractor might have put a lien on your property. If you all of a sudden needed to sell the property then getting the lien cleared would slow down your closing time.
But if you’re like me you don’t have enough money for the down payment on a home (Median home price where I live is $550k) what can you do? Aside from selling pint after pint of blood, or striking up back-alley deals you will be happy to know that there are companies out there, both public and private called REITs. REIT stands for Real Estate Investment Trust. These are businesses that quite simply buy properties, build buildings and rent them out. They take care of all of the business of renting and send you your slice of the profits every month. This of course frees you from the panoply of glamorous jobs that come along with owning rental properties.
Private REITs often require that you have a significant sum of money to invest so that leaves you with publicly traded REITs. (Full disclosure: I own several different mostly Canadian publicly REITs) Yes, this does require that you have a brokerage account (get a discount-brokerage account and do it yourself!) and buy units (shares) of these companies on the open stock markets. The minimum requirements for a discount brokerage account in Canada are quite small, (around $1000 or so) so it’s not all that hard to get into it. And, because the best online brokerages are publicly traded it’s very easy to sell your shares and cash out.
There are many, many different REITs in Canada. Most of them try to pick their desired customer and stick with it as the stock markets seem to prefer “pure-play” type companies. Pure-play simply means you do one thing and you do it well. Some deal entirely with industrial tenants, some like retail, some like office properties, and some deal expressly with medical professionals. So you get to choose what sort of customers you want.
How much do they pay? Typically most REITs in Canada, (the healthy well run ones) pay somewhere in the neighbourhood of 4-8% annual yield. No, it’s not guaranteed, but that’s where a bit of research is required on your part to make sure you’re comfortable with a company like this. Thankfully there are wonderful research tools available online you will be able to figure out which ones are right for you.
Lastly, most REITs are very tax-friendly for investors of ALL tax brackets. (Even the low/no tax bracket like mine and other starving artists!)