Making passive income can give you the freedom to do what you want when you want. It frees up your time, so you don't have to work to earn money. While it does take either time or money to start making passive income, the sooner you start, the sooner you'll be on the path to having more flexibility.
One of the easiest ways to start making passive income is to invest in real estate investment trusts (REITs). These entities own income-producing real estate and must distribute a significant portion of that income to their investors via dividends each year. Here are five high-quality REITs that could help you make $2,000 of passive income each year without any work.
Building a passive-income-producing portfolio one brick at a time
It's easy to start making passive income if you have some money to invest. For example, investing $10,000 apiece in five high-quality REITs can produce $2,000 of passive income each year.
|
REIT |
Initial Investment |
Current Income Yield |
Annual Passive Income |
|---|---|---|---|
|
Realty Income (O 0.11%) |
$10,000.00 |
4.3% |
$429.00 |
|
W.P. Carey (WPC 0.16%) |
$10,000.00 |
4.9% |
$494.00 |
|
EastGroup Properties (EGP 1.48%) |
$10,000.00 |
3.3% |
$326.00 |
|
AvalonBay Communities (AVB 0.96%) |
$10,000.00 |
2.7% |
$269.00 |
|
Community Healthcare Trust (CHCT 1.01%) |
$10,000.00 |
4.8% |
$482.00 |
|
Total |
$50,000.00 |
$2,000.00 |
Data source: Google Finance.
While $50,000 might seem like a lot of money, it's the same as putting a 20% down payment on a rental property costing $250,000. The big difference is that you'd need to spend time managing that rental property, making it less of a passive investment. Further, the income from a rental property can fluctuate from month to month, depending on its expenses. On the other hand, REITs are truly passive investments. Further, they have fixed dividend payments, giving you a highly stable passive income stream.
It's also worth pointing out that, unlike buying a rental property, REITs require a very low minimum investment to start. You can invest less than $100 in REITs if that's all you have. However, the more you invest, the more passive income you'll make. For example, $5,000 spread across these five REITs would produce $200 of annual passive income. So, if you can invest $5,000 into REITs per year, you can build your passive income portfolio to $2,000 per year within a decade.
Why these five REITs?
There are over 200 publicly traded REITs, giving investors lots of options. However, some REITs do a better job growing their dividend payments, making them better choices for those seeking passive income.
Realty Income is one of the best REITs for passive income. It owns a diversified portfolio of income-producing properties, focusing on those leased to necessity retailers like home improvement stores, grocery stores, and pharmacies. Realty Income pays a monthly dividend that it has increased 116 times since its public listing in 1994.
W.P. Carey also has an excellent dividend growth track record. The diversified REIT has increased its payment every year since its initial public offering IPO in 1998. It focuses on owning mission-critical real estate leased to high-quality tenants in the warehouse, industrial, office, retail, and self-storage sectors.
EastGroup Properties is an industrial REIT focused on owning warehouses in the fast-growing Sun Belt region. The company has an excellent dividend track record. It has increased its payment in 26 of the last 29 years, including every year for the last decade.
AvalonBay Communities is a residential REIT focused on owning apartments in major cities along the coasts and faster-growing markets across the Sun Belt region. While AvalonBay hasn't increased its dividend every single year, it has grown its payout at a 5% compound annual rate overall since its IPO.
Finally, Community Healthcare Trust is a healthcare REIT that owns a diversified portfolio of healthcare-related real estate in non-urban communities. The company has an amazing dividend growth track record. It has increased its dividend every quarter since its initial public offering, delivering 27 straight quarters of dividend growth.
Earn passive income the easy way
Real estate is a great way to make passive income. REITs are the easiest way to invest in the sector because you don't have to manage the properties like you would for a rental, making them truly passive investments. Further, REITs require much less cash to start investing, enabling you to steadily build a passive income portfolio over time. Add in dividend growth, and before you know it, you'll be making a decent amount of passive income from REITs.
