Summary
Real estate investing has long been regarded as a dependable means of accumulating long-term wealth in Canada. But there’s more than one way to invest—from traditional hands-on property ownership to passive options like real estate investment trusts (REITs). This article compares both approaches, outlining key benefits and considerations to help you choose the right strategy.
Key takeaways:
- Real estate investing can be hands-on or hands-off. Direct ownership offers control and the potential for higher returns, while real estate investment trusts (REITs) provide diversification and professional management without the day-to-day involvement.
- Direct property ownership and REITs differ in capital requirements, tax benefits and considerations, time commitment, liquidity, risk exposure, and control.
- Choosing the right strategy depends on your financial goals, risk tolerance and desired level of involvement.
Real estate is always a hot topic in Canada. It’s not just about finding a place to live; real estate has become a core part of many Canadians’ wealth-building strategies. Royal LePage research reveals that approximately 4.4 million Canadians currently own investment properties, while about 9 million express interest in becoming real estate investors within the next three years. This widespread interest reflects real estate’s established role as a cornerstone of building long-term financial growth.
When most people think about real estate investing, direct property ownership typically comes to mind. This hands-on approach involves purchasing and managing rental properties, handling everything from tenant selection to maintenance and repairs.
However, direct property ownership isn’t the only way to build wealth through real estate. There’s another, often overlooked method: investing through real estate investment trusts (REITs). These trusts own and operate income-generating properties, with day-to-day management handled by in-house teams or third-party managers. REITs can allow you to invest in real estate without taking on the responsibilities of being a landlord.
Understanding the differences between these two real estate investment strategies can help you make more informed financial decisions. In this article, we’ll explore the benefits and considerations of each approach, helping you determine which aligns best with your investment goals and lifestyle.
What are REITs—and how do you invest in them?
REITs have been available in Canada since 1993, providing investors with access to professionally managed real estate portfolios across various sectors, including residential, industrial, retail, office, healthcare, and hospitality. REITs can be structured as either public or private investments, each with distinct advantages depending on an investor’s goals and risk tolerance.
Think of REITs like a mutual fund for real estate. Just as a mutual fund allows you to invest in a diversified portfolio of stocks or bonds, a REIT lets you invest in a diversified portfolio of income-producing properties—without having to buy or manage a building yourself.
When you invest in a REIT, you’re pooling your money with other investors to own a portion of a large-scale real estate portfolio. A professionally managed team—either internal or external—oversees all aspects of the portfolio, from leasing to maintenance. In return, investors can receive regular income distributions generated from rental revenues.
This structure gives you access to a diversified portfolio of properties, markets, and asset types all through a single investment managed by real estate professionals.
Direct property ownership vs REITs: The complete comparison
While both REITs and direct property ownership offer potential rewards, investors need to consider the following key factors when assessing which approach best suits their goals and lifestyle.
Accessibility and cost of entry
The financial barriers to entry are one of the most significant differences between these two investment approaches, often determining which option is even feasible for many investors.
Many people don’t realize that REITs often have far fewer barriers to entry than direct property ownership. Public REITs may offer low-cost entry, but typically come with market volatility and less predictability. Private REITs, while often requiring a higher minimum investment, can provide greater stability, transparency, and access to professionally managed real estate portfolios.
In contrast, direct property ownership requires substantial upfront capital. While primary residences may qualify for Canada Mortgage and Housing Corporation (CMHC) insurance, enabling down payments for as low as 5%, access to CMHC insurance for investment properties varies depending on the type of occupancy.
For example, a $750,000 duplex may require only a $50,000 down payment if you live in one of the units—but could require a $150,000 down payment if purchased purely as an investment property. That’s three times more upfront capital for the same asset.
Buying commercial properties comes with even higher barriers, typically requiring 25–35% down payments plus closing costs and other expenses—often totaling hundreds of thousands of dollars.
Real estate tax benefits and considerations
When investing in real estate, both REITs and direct property ownership offer opportunities for growth and tax advantages—each with distinct benefits for Canadian investors. Both REITs and direct property ownership can generate capital gains when sold. However, it’s important for Canadian investors to know that REIT growth can be sheltered in registered accounts such as Registered Retirement Savings Plans (RRSPs), Tax-Free Savings Accounts (TFSAs), or Registered Retirement Income Funds (RRIFs). Meanwhile, direct property owners can deduct various expenses, including advertising, insurance, interest, repairs, property taxes, and utilities, as outlined by the Government of Canada.
When redeeming either a REIT investment or selling a rental property, capital gains tax applies on any appreciation. In Canada, 50% of your capital gains is added to your income and taxed at your marginal tax rate. Here’s how this works in practice if you bought a rental property at $600,000 and sold it for $1,000,000:
| Purchase price | Saleprice | Capital gain | Taxable amount (50%) |
|---|---|---|---|
| $600,000 | $1,000,000 | $400,000 | $200,000 |
Time commitment
The time and effort required to manage your investment can vary dramatically between REITs and direct property ownership, making this a critical consideration for busy professionals and those seeking a truly passive income stream.
When you own and manage rental properties, you’re signing up for more than just rent collecting. It’s an ongoing commitment. It involves active management of tenant screening, lease negotiations, maintenance coordination, and regulatory compliance. While you can hire a property management company to handle these tasks, it comes at an additional cost.
REITs, on the other hand, offer a truly passive investment experience. Professional management teams handle all operational aspects. From acquisitions and dispositions to leasing and maintenance. Allowing investors to benefit from real estate exposure without the daily demands of ownership.
Liquidity
How quickly you can access your invested funds also differs. Private REITs are generally designed for long-term holding and typically allow monthly or quarterly redemption, offering some liquidity while encouraging a longer investment horizon.
Direct property ownership, in comparison, is far less liquid. Real estate transactions can be time-consuming and involve closing costs, as well as potential market price fluctuations. In a downturn, selling a property quickly or at a favourable price can be difficult, potentially leaving owners locked into holding the asset through challenging market conditions.
Income and cash flow
Both investment approaches can generate regular income, but the predictability, frequency, and management requirements differ considerably.
REITs typically offer passive real estate income through quarterly or monthly distributions, with many offering a Distribution Reinvestment Plan (DRIP), allowing investors to automatically reinvest distributions to purchase additional units—compounding their returns over time.
Rental properties can generate monthly income through tenant rents, which can help cover mortgage payments and property expenses. However, income reliability depends on factors like vacancy rates, tenant reliability, and ongoing property maintenance requirements.
Portfolio diversification and risk management
Risk management through diversification is a fundamental investment principle. Diversification is a key principle of risk management, and both REITs and direct property ownership offer distinct approaches to building a balanced real estate portfolio.
REITs provide a straightforward approach to building a diversified real estate portfolio by spreading risk across many properties, various asset classes, and geographic regions. This broad exposure can reduce the impact of localized market fluctuations and contribute to more stable cash flow over time.
Direct property ownership involves more concentrated risk. A single vacancy, unexpected repair or local market downturn can significantly affect overall returns. However, in strong markets, investors may benefit from increased property values and higher rental income.
Level of control
The degree of influence you have over the management varies significantly between REITs and direct property ownership. As an investor, it’s important to consider how involved you want to be in the day-to-day operations of the asset.
REITs offer limited control over investment decisions. Investors cannot influence property acquisitions or sales, tenant selection, or ongoing operations. Given this limitation, it’s crucial for investors to thoroughly research the managing team’s experience and investment strategy before committing, ensuring they’re comfortable with the team’s approach to these decisions.
Direct property ownership, on the other hand, gives investors full decision-making authority. From choosing the property and making improvements to setting rental terms and selecting tenants, owners are required to take complete control of how the investment is managed and operated.
Bottom line
Real estate investment remains a powerful wealth-building tool for Canadians. With improving market sentiment and increased investor activity, the opportunity for substantial returns can be significant.
Skyline’s professionally managed funds—Skyline Apartment REIT, Skyline Industrial REIT, Skyline Retail REIT, and Skyline Clean Energy Fund have delivered historical annualized returns of 8-14% since inception.1 These private alternative investments offer geographically diversified exposure across multiple assets, with lower initial investment requirements and complete professional management.
Book a complimentary meeting with a Skyline Wealth Management expert to learn how our private alternative investments can help you access Canada’s real estate market—without the hands-on management of being a landlord.
Footnotes
1. The performance quoted represents since inception – Skyline Apartment REIT, 7.52% 1-year, 8.15% 3-year, 11.43% 5-year, 14.28% 10-year, 13.54% inception (June 1, 2006), Skyline Industrial REIT, 5.72% 1-year, 9.38% 3-year, 16.34% 5-year, 15.91% 10-year, 14.22% inception (January 10, 2012), Skyline Retail REIT, 8.28% 1-year, 7.78% 3-year, 10.24% 5-year, 12.39% 10-year, 11.80% inception (October 8, 2013), Skyline Clean Energy Fund, 8.95% 1-year, 9.41% 3-year, 9.35% 5-year, and 9.06% inception (May 3, 2018) – performance for Class A of the Fund and does not guarantee future results for Class F. Skyline Retail REIT’s figures as at January 25, 2025, all other Skyline REIT figures as at June 30, 2025. Skyline Clean Energy Fund’s figures are as at July 2, 2025.