Member since: Feb 04
Originally posted by gollu
Is this a good time to put some money into Canadian REITs for long term appreciation and also for some monthly income? Is it a good investment?
Depends entirely on your time horizon and investment goals.
A few things to keep in mind about REITs:
- Currently most Canadian REITs are at or near all time high valuations due to low rates and expectations of future low rates
- REITs are an income oriented investment i.e. don't expect much capital gains. Many REITs don't move much in price for years and years - they just keep paying out a monthly income.
- The Canadian REIT market is very thin, privately controlled, fractured, and illiquid
There are some governance, transparency, and entrenched interest issues.
- REITs can, and do, blow up every now and then and distributions do get cut
Recently, a lot of Western Canada focused REITs have been under a lot of pressure, distributions have been cut and unit prices have collapsed.
For e.g. Temple Hotels, Dundee Office (now Dream), Artis, etc.
- Residential housing focused REITs have done well recently and have been acquired at a premium (Milestone is one recent example, and same is playing out for Pure Multi-Family currently)
- US REIT market is more liquid, deep, and diversified, but yields are lower
That said, REITs can be a good investment and provide diversification, income and low beta stability to your portfolio
What are the disadvantages/pitfalls that I should look out for before putting money into this kind of investment?
Like any other investment, you have to do your research and DD.
There are some unique metrics to REITs that you need to be aware of and consider, such as FFO, AFFO and Payout/AFFO %, NOI growth etc.
Another alternative is to buy a REIT ETF.
You will lose part of your yield income to fees, though.
"Mah deah, there is much more money to be made in the destruction of civilization than in building it up."
-- Rhett Butler in "Gone with the Wind"
Last edited by: pratickm on 23-07-19 13:21:46