Real estate investing is attractive for a very Canadian reason: people like the idea of income that shows up whether markets feel calm or chaotic. The catch is that real estate exposure can mean two totally different experiences.
- Rental property Canada: real estate as a hands-on business, even if you hire help
- Canadian REITs: real estate as a liquid portfolio allocation you can buy and sell like a stock
This comparison is intentionally tilted toward REITs vs rentals from the perspective of conservative investors who want real estate exposure without taking on a second job. While rentals can work, they just come with operational risk, financing risk, and time risk that often get underestimated.
What You’re Really Buying
Rentals (Direct Property Ownership)
A rental property is a single, concentrated asset. Your results will be heavily shaped by one location, one building, and your ability to keep it occupied and maintained.
The economics are simple in principle:
- Income: rent collected from tenants
- Upside levers: leverage, rent increases, and improvements
- Risks: vacancy, missed payments, damage, unexpected repairs, and local market weakness
Many investors use cap rate as a quick filter:
- Cap rate = Net Operating Income (NOI) ÷ Property value
The key is net, not gross. A property can look great on rent alone and then disappoint once you account for insurance, taxes, maintenance, and vacancy.
REITs
A REIT (Real Estate Investment Trust) is a publicly traded or private investment vehicle that owns income-producing properties. For the individual investor, instead of one building, you own a slice of a portfolio managed by professionals.
- Income: distributions funded by rents and operations
- Upside levers: rent growth, portfolio expansion, redevelopment, and efficiency
- Risks: interest rates, tenant credit, sector cycles, and market volatility
- Advantage: diversification and professional management
For REITs, investors often look at cash-flow measures like AFFO to judge whether distributions are supported after recurring capital needs.
Time, Effort, and Stress
Rentals: time is the hidden “fee”
Direct ownership demands attention. Even with a property manager, you are still responsible for:
- big repair decisions and budgeting
- insurance claims and compliance issues
- bookkeeping and tax reporting
- vacancy periods and tenant turnover
In calm years, rentals can feel straightforward. In bad years, several problems can stack at once, and they tend to show up at inconvenient times.
REITs: the portfolio version of real estate
With REITs, the work is front-loaded and lighter over time:
- choose a sector mix and diversify
- monitor distributions and balance sheets periodically
- rebalance once or twice a year
There are no tenant calls, no renovation overruns, and no mortgage renewals. For many investors, the time saved is a meaningful part of the return.
Income & Volatility (What Usually Surprises People)
Rentals: net yield is what matters
Rental income is only stable after you subtract the real costs:
- vacancy allowance
- maintenance and capital expenses
- property taxes and insurance
- management fees (if used)
- financing costs, including renewal risk
A common mistake is to treat the mortgage payment as the only major cost, then get blindsided by a roof, a furnace, or a long vacancy.
REITs: price volatility vs distribution stability
REIT prices can swing, especially when rates move. Distributions usually move more slowly. That gap can be confusing at first.
A practical approach is to decide in advance how you will use the cash flow:
- DRIP: reinvest distributions to compound
- Cash mode: take distributions as income
If you can tolerate market price swings, REITs often offer operational stability. No surprise repairs, no tenant risk in a single unit, and no refinancing anxiety.
The Tax Angle
Taxes often determine outcomes more than the headline yield.
REITs in TFSA/RRSP/Taxable
- TFSA: growth and distributions are generally sheltered
- RRSP and RRIF: tax-deferred while inside the plan
- Taxable: distributions are taxed, and the character can vary
In a taxable account, REIT distributions can include Return of Capital (ROC). ROC is not taxed immediately, but it reduces adjusted cost base (ACB), which can raise the capital gain when you sell.
U.S. dividends may face withholding depending on the account type and the structure you use. Registered plans can have more favourable treatment in some common setups, while TFSAs generally do not receive the same treatment under treaty rules.
A simple starting point for many Canadians: begin with Canadian-listed REITs or REIT ETFs inside a TFSA or RRSP. Add U.S. exposure only when you are intentional about account placement and costs.
Rentals in taxable
Rental income is typically taxable. Many expenses are deductible, and you can claim depreciation (CCA), but it can create recapture when you sell. Rentals also come with heavier record-keeping.
Costs & Hidden Gotchas
Rentals: landlord expenses Canada
- closing costs and legal fees
- inspections and immediate repairs
- ongoing maintenance and periodic large capex
- insurance increases and deductibles
- property management fees
- vacancy and turnover costs
- occasional legal and compliance costs
Rentals can be profitable, but the cost profile is irregular. A single large repair can wipe out a year of expected profit.
REITs/ETFs: smaller costs, different form
- ETF MER (if you buy via a fund)
- trading spreads and commissions
- discounts or premiums to NAV
REIT costs are usually more predictable, which helps with planning.
Liquidity, Financing, and Estate Planning
Rentals
- illiquid, selling can take time
- refinancing rules can change
- estate administration can be more complex
REITs
- liquid, trade quickly
- easy to rebalance or raise cash
- simpler to divide among heirs
Liquidity and simplicity become more valuable as you approach retirement or want to simplify your financial life.
Who Should Choose What
If you want the least hassle route to passive income Canada, start with REITs.
Choose REITs if you want (most conservative investors do)
- hands-off exposure to property income
- diversification across buildings, tenants, and often sectors
- liquidity and easier rebalancing
- simpler retirement withdrawals and planning
- simpler estate planning
Consider rentals if you specifically want control and leverage and you are willing to treat it like a business.
- you are comfortable managing people and problems
- you can tolerate cash-flow volatility
- you accept concentration risk in one market
- you have a strong financing plan for renewal periods
Bottom line: for conservative, dividend-first real estate investing, REITs are often the default fit, while rentals are a deliberate choice for investors who genuinely want the business.
