There are many ways to earn "passive income," but some require more activity on your part than others. One of the more labor-intensive is to own rental properties. While rent checks may produce a nice steady income stream, maintenance problems and tenant issues can often mean that the income is not quite so passive after all.
However, a properly passive way to profit from rental income is to own shares of a high-quality real estate investment trust (REIT). One great example is Mid-America Apartment Communities (MAA 0.17%), aka MAA.
NYSE: MAA
Key Data Points
The easy way to be a landlord
MAA is a residential REIT focused on owning apartment communities. The company has 282 properties with 96,313 apartments across the fast-growing Sun Belt region. This diversified apartment portfolio provides MAA with stable rental income.
The company pays out about 58% of its income to investors via its quarterly dividend. At the current share price, MAA offers a 3% dividend yield. That's a solid yield, about double what you could collect by investing in an S&P 500 index fund. And it's a passive income stream since you don't have to put in any of the work of being a landlord to reap the benefits.
Another feature that makes owning MAA a better option than a rental property is the stability of the income stream. MAA has made 113 straight quarterly dividend payments since its initial public offering and has never suspended or reduced its dividend. By contrast, the income you might earn from owning rental properties can fluctuate from month to month depending on expenses or vacancies.
The passive income stream should keep rising
MAA has increased its payout at least annually for 12 consecutive years. It gave investors a 6.1% dividend raise in December and another 15% bump in May.
That pattern should continue, and a big reason why I think so is that demand for apartments is growing across the Sun Belt as more people move into that region. That keeps its occupancy levels high and allows it to increase its rental rates.
These market conditions are also enabling MAA to develop new apartment communities. The company recently finished four new communities that it's working on leasing up. It has another five under construction and several others in the pipeline. These additions should supply the REIT with incremental income as they stabilize in the future.
Meanwhile, the REIT is investing money to upgrade several of its older apartment complexes. It has 13,000 units that it could redevelop in the future by renovating kitchens and bathrooms and adding other new features like energy-efficiency upgrades and amenities. These refurbishments should enable MAA to charge higher rents for the improved units.
MAA also makes acquisitions when it finds attractive opportunities, including stabilized apartments and development projects. And it has been known to sell non-core assets to help fund new investments, ensuring it retains a strong financial profile to support its dividend and its ability to continue making investments.
A steady passive income producer
MAA has been a rock-solid income investment over the years, thanks to its stable and growing dividend. Given its growth catalysts and strong balance sheet, this REIT should be able to continue increasing its dividend in the future. That makes buying its stock an easy way to start collecting passive income from real estate.
