How do I invest in real estate without owning real estate?

A real estate investment trust (REIT) is a company that owns, operates or finances income-generating real estate. Most specialize in a particular real estate sector and, like mutual funds and ETFs, REITs pool the capital of many investors. REITs trade on a stock exchange and allow individual investors to earn dividends from real estate investments, without the need to purchase real estate themselves.

Examples of Canadian REITs include Granite REIT, which invests mainly in industrial properties in and outside of Canada, and Canadian Apartment Properties REIT, which invests in Canadian rental properties.

For additional diversification outside of the purchase of a single REIT, you might consider REIT ETFs or REIT mutual funds.

REIT ETFs are exchange traded funds (ETFs) that primarily invest in REITs and generally aim to mimic the return of a particular REIT index. Like most ETFs, they’re very liquid investments and their holdings are transparent and frequently reported.

Real estate mutual funds are a closely related choice that holds both REITs and publicly traded real estate related companies. An example of a real estate related company could be a company that manages senior housing and assisted living facilities. They’re managed by professional money managers who research and select fund holdings.

Mutual funds don’t trade on a stock exchange. Rather, they’re priced at the end of the business day and your order is filled at that day’s price, also known as net asset value (NAV). Mutual funds may have minimum investment requirements — check the fund description for details.

While most ETF managers will publish a listing of their holdings daily, mutual fund holdings are usually only available once a quarter. Less frequent reporting may make it more difficult to understand the current composition of the fund when deciding if it suits your investment requirements.

Examples of Canadian real estate ETFs and mutual funds include iShares S&P/TSX Capped REIT Index ETF and CIBC Canadian Real Estate Fund.

You can trade these products by signing on to your CIBC Investor’s Edge account and going to “Trading”. Select “Stocks and ETFs” or “Mutual Funds”.

There are a number of ways to combine your money with other real estate investors that fall outside of traditional securities like mutual funds and ETFs.

A real estate limited partnership (RELP) is a private investment structure with limited partners. The general partner is usually a corporation, an experienced property manager or a real estate development firm. These partnerships often invest in larger projects such as apartment buildings and shopping centres to capture rental income.

Syndicated mortgages and mortgage investment entities also have multiple investors that pool their monies. These groups may lend money as secured mortgages to individuals, with the mortgage secured by a real property such as a house, strip mall or piece of land. Another option is to lend to a developer for the funding of construction or pre-construction costs of a development project, with the loan secured by a mortgage on the real property.

Newer entrants in this group that add a social media aspect to the mix are crowdfunding sites. These sites match people with a like-minded interest in real estate investing who might lack sufficient capital or have no interest in maintaining a property themselves. Crowdfunders pool their money to purchase properties and share the profits from rents and property appreciation, less fees. This is a relatively new and therefore largely untested method of investing in real estate that may or may not have some of the legal protections contained in the more traditional products. Make sure to do your research before investing.