Rental property revenue is recognized by the IRS as passive income. Anyone who has ever owned a rental property, however, is aware that it is anything from passive to be a landlord. Finding and managing renters, taking care of the bills, and keeping up with maintenance all take active management.
The good news is that folks who like the notion of making passive income from real estate but don’t want to put in as much effort to do so have options. Investing in real estate investment trusts is a simple way to jump on the passive income gravy train. Here are two of the best REITs that provide some of the advantages of rental property ownership without the work.
How to become a landlord quickly
The majority of people who own rental property begin by buying a single-family house to rent out. While running a single home doesn’t require much labor, owning a single rental property is unlikely to provide the passive income required to retire. You would need a large portfolio of properties for that, which would be more difficult to maintain.
Shares of Invitation Homes (INVH 0.72%) are a simple method to invest in a portfolio of single-family rental homes. The residential REIT is largely focused on the nation’s housing areas with the strongest growth rates, and it owns more than 80,000 rental units nationwide.
An ongoing revenue stream is provided to stockholders by Invitation Homes. The REIT now pays a quarterly dividend of $0.22 per share, translating to a dividend yield at the current stock price of 2.4%. Accordingly, the REIT would generate $24 in passive income for every $1,000 invested. Investors may rely on that sum of money each year. Contrarily, a landlord’s rental revenues might vary from month to month based on costs and may even be negative if they have a significant unforeseen expense or a vacancy.
As its profits climbed as a result of growing rental rates and portfolio development, the REIT gradually boosted its dividend. In the second quarter, lease rates across its portfolio increased by 11.8% year over year. It also spent $426 million on 955 more residences throughout the quarter.
Strong house demand and low inventory levels are expected to be Invitation Homes’ two key growth drivers. Through a number of collaborations, the firm has ensured a consistent flow of new rental properties, including one with major homebuilder PulteGroup that will provide it with 7,500 new houses over the next five years. In the next years, investors should be able to get even more passive income from Invitation Homes thanks to these growth factors.
The simple method to buy a multifamily
Multifamily housing, such as four-plexes or tiny apartment complexes, is another kind of conventional rental property investment. Owning multifamily properties sometimes entails a lot of labor in terms of managing tenants and keeping the structures in excellent condition.
Purchasing shares of a top-notch apartment REIT like Camden Property Trust (CPT -1.44%) is a simpler approach. The firm has 171 buildings with 58,425 flats spread throughout 15 rapidly expanding housing markets.
Currently, Camden pays a $0.94 per share fixed quarterly dividend. That translates to a dividend yield of 2.8% at the current stock price.
The REIT has a strong history of increasing payouts because to rising rents and its continually growing unit inventory. Due to the competitive housing market, its rentals increased by an average of 15.3% in the second quarter. Camden is now able to invest in new housing construction thanks to this. It is now investing $603 million in the construction of 1,842 flats, and there are numerous projects in the works. The REIT will also buy stabilized units; most recently, it invested $1.1 billion to buy 7,247 flats and took full ownership of them. The combination of rising rental rates and an expanding portfolio ought to make it possible for Camden to keep raising its dividend payments.
Earn real estate revenue that is genuinely passive
Even while rental homes promise passive income, you’ll really have to put in some effort to make that money. However, REITs are really completely passive investments. Even better, many provide consistent revenue as opposed to the inconsistent cash flow generated by the majority of rental properties. They are therefore a simple method of generating passive income from real estate.
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