You want to invest in real estate, but how do you do it? A 20% down payment requires you to shell out nearly $200,000 for the average Toronto home. And once you get there, mortgage insurance, interest rates, and tenant management weigh on your investment.

Lotly was created to close the gap that prevents people from owning and investing in real estate. We support a portion of homeowners’ down payments, while the investors who supply that down payment assistance reap real estate appreciation without all the headaches of traditional real estate investing. 

But REITs offer a similarly low-stress real estate investment, right? What’s the difference between Lotly and a REIT? We’ll give you the lowdown with this guide. 

What is a REIT and how does it work?

REIT stands for real estate investment trust. These companies, often publicly traded, invest in real estate as their main order of business. 

But these aren’t your average small-time residential landlords. These companies invest millions — sometimes hundreds of millions — in all sorts of real estate, from residential apartment complexes and commercial plazas to factories and healthcare facilities. Oftentimes, they’ll specialize in a particular type of real estate. 

You’ll see many REITs on the stock exchange, and you can purchase and sell shares quickly and conveniently. 

Once you own shares, you can earn dividends — correction, you will earn dividends. That’s because REITs are legally bound to pay out most (85%-95%) of their income after expenses to investors as dividends.

What is Lotly, and how does it work?

Lotly invests in the down payments of should-be homeowners using a crowdfunded investment pool from savvy investors. Ultimately, Lotly makes real estate acquisition and investing more accessible. 

How? Lotly funds up to 15% of a homebuyer’s down payment. The homebuyer is responsible for 5% of the down payment, plus about 3% for closing costs.

Investors buy units in the Lotly fund starting from a $100,000 minimum investment. They can then be at ease knowing their investment is generating real estate appreciation. Investors get back their original investment plus appreciation whenever a homeowner decides to sell their home or refinance. 

It’s a win-win, whereby the homeowner doesn’t have to give up their first-born child for a real estate down payment and the investor doesn’t have to qualify for a mortgage, pay for home expenses, maintenance, renovations, or deal with tenants and rental arrears. 

Differences between investing with Lotly and REITs

Liquidity

Canada’s leading REITs are publicly traded, meaning you could buy and sell them within 48 hours. Lotly, on the other hand, is a longer-term investment. Once you’re in, you can’t take your money out until a homeowner sells or refinances. Still, this isn’t a negative for the risk-averse investor that wants to build appreciation!

Return on investment

The good news is both REITs and Lotly offer a sound ROI — but Lotly’s is slightly better when you consider the lower fees and the power of home equity leverage.

Let’s break it down. 

Both REIT and Lotly returns depend on the real estate market. History has shown that, on average, REITs offer a 10% annual return. Still, some years are better than others. We’ve seen REITs bring higher returns in some years, along with negative returns in others. 

Lotly has a projected 15% annual return for the next ten years. We determined this number using our proprietary data modeling of home price appreciation. We let the market speak for itself, and given the current environment and strong signals in the coming years, there hasn’t been an opportunity to invest in real estate like this in nearly 40 years!

Interest rate effects 

The Bank of Canada has taken us on a roller coaster when it comes to interest rates. Only recently did they decide to maintain the rate at 4.5%, which was still a steep jump from the rates we saw in 2021. 

Interest rate hikes directly affect the dividends you make on REITs. Why? Because rate hikes reduce the portfolio’s profits, thereby reducing the amount of money the company is legally obligated to disperse amongst shareholders. On top of that, REIT prices per share tend to increase with increasing interest rates. 

Lotly investors, on the other hand, don’t experience any effect on their investment when interest rates increase. Even if the interest rate environment causes a homeowner to refinance or sell, Lotly investors still get their investment plus appreciation. Two benefits unaffected by interest rates. 

Research and customer support

Lotly focuses on residential properties. We inform our property choices with data to ensure we put investor funds into real estate with the highest appreciation potential. 

Plus, all our investors have access to an online dashboard and a Lotly representative to walk them through the process and answer any questions along the way. 

But if you’re investing in REITs, you’re a bit of a lone wolf. Not only do you have many more options to sift through, you also have minimal customer support to help you. Will you pick residential or healthcare REITs? Mortgage or equity REITs? Office or commercial REITs? And even within those categories are thousands of portfolios and companies that you’ll have to research on your own — or hire someone to help you. 

Lotly or REITs: which is better?

Both Lotly and REITs offer investors a path to real estate appreciation without the common stresses of managing a property or mortgage. While REITs do offer more flexible liquidity than Lotly, our investors reap more benefits when it comes to ROI, research needed, customer support, and interest rate stability. 

See for yourself. Play around with our projected return calculator and visualize the money you could make.

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*Lotly GTA Fund I is closed as of December 2023. We will update you when the next fund opens.