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Canadian Investment Dollars: South Of The Border or The Great White North Is Better?

by Heather McDowell on 16 Feb 2023

A real estate investment trust also referred to by the acronym REIT, is an organization that owns, operates, or finances income-generating real estate.

Modeled after mutual funds, REITs work on a crowd-sourcing philosophy by pooling the capital of numerous investor clients. This makes it possible for individual investors to see a return on investment.

These dividends come from real estate investments in the form of monthly or quarterly distributions. Consequently, they’re seen as smoothing out the bumps in distributable cash flow. Another huge plus for the REIT’s investor-clients is that they need not buy, manage, or finance any properties themselves.

Real estate investment trusts infuse funds into both commercial and residential real estate property types including hotels, apartment buildings, townhouse complexes, cell towers, data centres, warehouses, medical facilities, offices, multi-use buildings, and retail centres.

REITs are often publicly traded under substantial volume. Consequently, and unlike physical real estate investments, are considered extremely liquid instruments.

Three Main Types Of Real Estate Investment Trusts

REITs can be classified by their modes of purchase or holding:

Publicly traded REITs trade like stocks on major exchanges, like the TSX and NYSE, and are purchased through a brokerage account.

Public non-traded REITs don’t trade on exchanges but are purchasable through online portals. These are often referred to as real estate crowdfunding platforms.

Private REITs are only available to those individuals with high net worth. These types of REITs don’t trade on exchanges.

Breaking It Down To Build An Empire

The above-mentioned types of real estate investment trusts have subcategories. The two most popular of which is equity and mortgage REITs. 

mREITs or Mortgage REITs are known for loan and mortgage origination. They lend money to real estate developers, more often than not. They make money primarily from the interest earned from loans.

Equity REITs own, operate, and/or manage real estate properties with the potential to generate income. These REITs make money by leasing space—such as apartments, townhouse complexes, multi-use spaces, office buildings, or commercial property—to tenants.

The Not-So-Dirty Dozen

Equity REITs can be broken down into 12 different sectors, each focusing on a separate segment of the greater real estate market. A few considerations for equity REITs to take note of are as follows:

Diversified REITs manage numerous types of real estates, such as residential, commercial, and industrial space.

Hospitality REITs tend to be the most volatile, as they’re connected to a fairly cyclical sector that requires a strong economy to perform well.

Industrial REITs have gained momentum recently due to the surge in e-commerce companies with a need to rent facilities to store their products.

Infrastructure REITs are unique in that they don’t usually lease out physical space, such as buildings or land. Instead, they lease out infrastructure-related real estates, such as cellular towers, oil pipelines, fiber-optic cables, and other telecommunications assets.

Residential REITs are historically stable investments, as the population is rising so does the demanding more rentals.

Hybrid real estate investment trusts are a combination of mREITs and equity REITs. They make money both by renting property to tenants and earning interest from their loans.

Trustees of a real estate investment trust are generally subject to fiduciary duties similar to those of the directors of a corporation.

Canadian Real Estate Wealth reached out to Sylvia McNamee of ACE Project Marketing Group which represents several real estate development projects in conjunction with North America Home Finance and Waverly Financial, for her insight into how savvy investors choose the investment that’s right for them. Here are her recommendations:

“Like any investment, the key to successfully investing in real estate development is seeing a proven track record of performance and the data used to calculate outcomes and returns. For example, our last investment opportunity, the Five Bridges Development Project which funded the Five Crossings Smart Suites residential community in Kelowna, British Columbia, was an extraordinary success. The investment offer was quickly completed, a database of over 7000 registrants was generated for the residential sales, and the project drew over 500 unit selection forms on the 207-unit building which sold out within 72 hours.

That success was no surprise as the developer, Millennial Developments, relied on data analytics to create the right product, in the right market, at the right price. Using that same predictive modeling, our current opportunity, The Collinson Rise Development Project, which is another community from Millennial Developments located in close proximity to Five Crossings, is able to offer a targeted 9% preferred annual return and profit sharing to investors in a secured structure. Before even moving into residential marketing for Collinson Rise, we already have that engaged database of over 7000 registrants interested in purchasing in Kelowna, Canada’s fastest growing city, and are confident in producing similar success for both investors and in actual sales numbers.”

Should Canadian $ Stay North Of The Border?

A REIT investment can be a great way of diversifying a portfolio and participating in real estate investments. The Napoleon sentiment first coined by Prussian diplomat Klemens Wenzel Furst von Metternich, « when America sneezes Canada catches a cold” still rings true today. The quote was referenced by Canadian financial juggernauts RBC in the wealth management content as it applies to the direction of the Canadian economy relative to that of our neighbours to the south. This strong link is a result of the huge amount of trade between our two countries. Exports and imports between the U.S. and Canada amounted to a combined total of over $500 billion in 2020. 

With the Canadian economy’s $2.2 trillion being dwarfed by the U.S.’s $24.8 trillion, it’s easy to see how to America retains its title of the world’s largest economy,  the temptation to invest down south is palpable. Add to that the widely held belief in the cause-and-effect nature of our relationship with our southern and biggest trade partners, it may seem fool-hearty not to take our dollars down south. 
Is it better, is to say-more financially prudent to invest in a REIT for properties in the U.S. or in Canada? We posed that very question to real estate expert Ms. McNamee and here are her thoughts on the matter: 

“There’s no blanket,’ one size fits all answer, of course, as every investor has a unique situation. However, for Canadians, there is a huge advantage in investing in real estate development in Canada, particularly in places like Kelowna, which is growing exponentially and has a clear and pressing need for affordable housing. Opportunities like Collinson Rise allow investors the possibility to grow their portfolio quickly in a secured investment structure but also lets them be part of the process of allowing more Canadians to make the move to homeownership by helping create affordable housing. It’s an alternative investment approach that provides a unique opportunity that benefits both investors and end users, and I think that shared benefit is something rarely experienced in other types of investments.”

In Conclusion

While on the subject of old adages, we at Canadian Real estate Wealth feel that knowledge is power but if we were to add our own spin on the phrase it would be that working with the right people is prudent and may even be profitable.

If you’re looking to collaborate with strong partners with a proven track record for formidable financial navigation, then reach out to North America Home Finance or learn more about the Collinson Rise Development Project here

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