Written by Adam Othman at The Motley Fool Canada
The real estate sector is currently going through a difficult period. The interest rate hikes instituted by the Bank of Canada (BoC) have undoubtedly started to affect activity in the Canadian housing market. Home prices continue to fall across the country. The Canadian Real Estate Association (CREA) reported that home sales fell 12.6% between March and April 2022.
The Bank of Canada plans to enact further interest rate hikes to continue its attempts to quell searing inflation in the market. Buying an investment property to use as a source of passive income can seem attractive when prices are falling. However, the situation does not appear to be improving anytime soon.
Anticipation of further declines
Market analysts don’t have a solid outlook for the Canadian housing market. Even real estate investment trusts (REITs) can seem like a risky investment. Analysts continue to lower their price targets for REITs, especially those whose business is focused on the residential real estate sector.
Canadian REIT investors rely on these assets as relatively stable monthly passive income streams. However, the real estate market is full of uncertainties and it is not known when the housing market will be able to stabilize.
Fortunately, the housing segment is only part of the real estate industry. You might consider investing in more diversified REITs, such as H&R REIT (TSX:HR.UN), to benefit from positive momentum and stability elsewhere in the industry.
The best thing about investing in REITs is the ability to generate monthly income while relying on experts to make the right investment decisions and do all the hard work that ownership entails. .
Diversified REITs to buy now
Market analysts are not bearish about all REITs. Some have raised their target prices for a few REITs, and H&R REIT is one of them. The trust’s consensus price by market analysts is $17 per unit. H&R REIT is trading at $13.79 per unit at the time of writing. Investing in the REIT could provide you with significant returns if it achieves its target price.
H&R REIT is a $3.80 billion market capitalization trust specializing in commercial real estate. The trust has also diversified into the residential and industrial real estate market segments, giving it considerable protection through diversification.
The residential and industrial segments could offer substantial upside in the years to come, making H&R REIT an attractive investment to consider at current levels.
Using H&R REIT as part of a passive income stream could also be a practical decision. It pays its investors a hefty dividend yield of 3.99%, which it pays out monthly. You can use it to start building a monthly income stream, much like owning a rental property. However, it comes without all the hassle of owning it, making it a true passive income stream, unlike property investment.
Buying rental property or investing in residential REITs can put your capital at significant risk right now. Investing in diversified REITs like H&R REIT might be the most practical way to gain exposure to the real estate sector right now.
The post office Afraid to buy an investment property? Buy this REIT instead appeared first on Motley Fool Canada.
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Dumb Contributor Adam Othman has no position in the stocks mentioned. The Motley Fool has no position in the stocks mentioned.