How to Sell Your Real Estate Portfolio to a REIT

How to Sell Your Real Estate Portfolio to a REIT

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Are you one of the people who spent the last several years accruing a diverse portfolio of rental real estate? If that sounds like you, even if your portfolio only contains a few properties, now is the time to sell. No matter where you look in Canada, the price of houses is soaring into the stratosphere. What makes those high prices so interesting is that, for all the optimism swirling around in the Canadian real estate market, high prices simply cannot last forever.

Table of Contents - How to Sell Your Real Estate Portfolio to a REIT

Even if you’re not planning to take advantage of a robust real estate market, there are plenty of reasons to unload your portfolio. There are numerous tax benefits. You could use the income from the sale to relocate your real estate interests. Maybe the day-in-day-out grind of being the sole proprietor of several rental properties is getting to you. Whatever the reason, when the time comes to sell your real estate portfolio, you should consider the advantages of dealing with a real estate investment trust. Here’s why.

What is a REIT?

A real estate investment trust, colloquially known as a REIT (pronounced, “reet”), is a company that specializes in financing or acquiring real estate assets. These investment trusts make money for unitholders in one of two ways: they pay out regular dividends, plus occasional payouts based on the appreciation of the properties they hold. Financially speaking, REITs are a relatively new phenomenon in Canada. Though they’ve been active in the United States since the 1960s, REITs weren’t introduced to the Great White North until 1993. Since then, their popularity has skyrocketed for a variety of reasons:

  • They are generally considered a solid bet for risk-averse investors who want to increase their monthly income.
  • Most REITs payout distributions every month, which allows unitholders to rely on a steady supply of income as opposed to other trusts.
  • REITs are legally required to pass along the bulk of their assets to unitholders.
  • REITs pay zero corporate tax and can pass on their cash directly to unitholders without penalty.

For those reasons, thousands of investors across Canada sink millions of dollars every year into the most profitable REITs. There are benefits to selling your portfolio to a REIT, as well.

Benefits of selling to a REIT

Regardless of what you’re hoping to get out of the deal, there are some major benefits to selling your portfolio to a REIT. The first significant advantage is the fact that real estate investment trusts payout in one of two convenient ways.

The first method of payment is cash. REITs don’t often take the drawn-out payment route when they procure property. Instead, they’ll simply drop one lump sum down on the table. For people looking to get a big chunk of money right away, a REIT can be great.

The second method of payment is referred to as OP units. OP units are like shares of stock in the REIT itself. In other words, it’s like exchanging your real estate portfolio for a stake in the trust. A savvy investor can take an OP unit payout in one of two directions. They can either cash out and get the benefits of some deferred tax incentives. Alternatively, an investor who is hoping to rid themselves of the burden of dealing with tenants or procuring new property can transfer their investment to a REIT and allow the trust to continue working for them.

Some investors also enjoy the liquidity of working with a REIT. When you own real estate in the form of individual units, you can buy and sell them much more quickly than you can an individual property.

Find the right REIT

The good news for investors hoping to sell their real estate portfolio is that — due to the rising value of the property — a lot of major REITs are actively seeking new assets to acquire. You should only need to seek out and approach the right REIT for you.

When you’re searching for the perfect real estate investment trust, you want to start by approaching a trust that handles the same kind of property you deal with. For example, the wildly popular Simon Property Group is one of the most profitable REITs in Canada. Unfortunately, they deal solely with commercial property, specifically land developed for malls. If you own large stretches of commercial real estate, then the Simon Property Group could be for you. Otherwise, they won’t be interested in your assets.

Do some research to uncover a REIT that:

  • Has the assets you require for the sale of your land.
  • Specializes in your brand of real estate, be it commercial or residential.
  • Operates in or around your location.

Suppose you have built a portfolio that covers several types of real estate (i.e., single-family homes, multi-unit buildings, commercial interests and more.). In that case, it’s worth taking the time to sell your properties on an individual basis to get the most value.

Once you determine which REIT you’re hoping to entice, you should go through the same motions you would when prepping any property for sale.

Clean it and fix It

Any trust worth its salt will make efforts to visit your individual properties before they sign on the dotted line. That means your property will require a thorough cleaning, inside and out. It will also need minor repairs to get everything ship-shape. Remember that you don’t want to over-improve your property. Instead, just think about bringing it up to code.

You can also help seal the deal by making sure that your paperwork is refreshed. Make sure the home is inspected. You might consider getting a boundary survey, as well (it’s one less thing that the REIT will have to cover during their due diligence). With those simple steps, you should have little trouble ensuring that your property is ready to go when sales time comes.

REITs can be a great way to sell off properties you no longer want to manage. When you follow these basic steps, you’re sure to get a good result.

Speak to the experts for assistance

Trying to acquire a REIT on your own can be a daunting task. 

We have a Business Finance Manger with access to Private Equity Firms to help you with the sale on staff at LendCity Mortgages

Contact Us for assistance.

How Do REITs Work?


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