Real estate investing is a common strategy for generating passive income. However, buying a rental property is more active and often carries a high upfront cost to make the purchase and get it ready to rent.
An easier way to make passive income in real estate is to invest in real estate investment trusts (REITs). These entities own income-producing real estate and must distribute 90% of their earnings to investors via dividends. While most REITs make quarterly dividend payments, several pay their investors each month. Because of that, you can mimic the recurring rental income you'd get from owning a rental property.
For example, if you have $12,500 to invest, you can generate about $50 in annual passive income by spreading that across several high-quality REITs that pay monthly dividends. You don't need that much to start since you can purchase a few shares as you have the money, allowing you to steadily work toward your passive income goal.
Become a REIT mogul
There are over 200 REITs that invest across over a dozen property types. Only a few pay a monthly dividend, limiting options for investors seeking an income stream that can match recurring expenses. However, you can build a diversified real estate portfolio from that grouping.
Five top options to consider are:
|
Dividend Stock |
Initial Investment |
Current Income Yield |
Annual Passive Income |
Monthly |
|---|---|---|---|---|
|
Realty Income (O 0.10%) |
$2,500.00 |
4.5% |
$111.50 |
$9.29 |
|
EPR Properties (EPR 0.05%) |
$2,500.00 |
8.1% |
$202.50 |
$16.88 |
|
Gladstone Land (LAND 0.62%) |
$2,500.00 |
2.7% |
$68.25 |
$5.69 |
|
Stag Industrial (STAG 0.06%) |
$2,500.00 |
4.2% |
$105.50 |
$8.79 |
|
Agree Realty (ADC 0.19%) |
$2,500.00 |
3.8% |
$96.00 |
$8.00 |
|
Totals |
$12,500.00 |
N/A |
$583.75 |
$48.65 |
Data sources: Google Finance and author's calculations.
As that table shows, $12,500 invested across those five REITs would produce about $50 of dividend income each month.
Realty Income is a diversified REIT with over 11,700 properties across the retail, industrial, and other sectors (including office, agricultural, and gaming). Most of its portfolio is essential retail properties like grocery, convenience, dollar, and drug stores. It leases these properties under triple net agreements (NNN) that make the tenant responsible for building insurance, maintenance, and real estate taxes. Those leases supply it with steady rental income.
EPR Properties owns more than 350 experiential properties like theaters, eat-and-play venues, and other attractions. It also has a small educational portfolio. EPR leases these facilities back to the operator under triple net agreements.
Gladstone Land is a farmland REIT. The company owns 169 farms covering more than 115,000 acres that it leases back to the farmers.
Stag Industrial is an industrial REIT that owns warehouses and light manufacturing facilities. It held over 560 buildings that it leased to tenants.
Finally, Agree Realty is a retail REIT. It owns over 1,700 properties, which, like those of Realty Income, are primarily leased to essential retailers. Agree Realty also has a large ground lease portfolio, owning the land underneath an essential retail property.
A growing monthly income stream
Another thing that stands out about these REITs is that all have a history of increasing their monthly dividend payments. Because of that, investors will likely see their monthly income streams steadily rise throughout the year.
Realty Income leads the way. It has increased its dividend for 101 straight quarters, growing its payout by a 4.3% compound annual rate since its public market listing in 1994. Agree Realty also has a great dividend growth track record. Over the last decade, it has increased its payout at a 6.1% compound annual rate. Meanwhile, Gladstone Land has increased its payout 29 times in the last 32 quarters, while EPR Properties and Stag Industrial have also given their investors raises in recent years.
The REITs should be able to continue growing their dividends in the future. They all can increase their rents through escalation clauses in their leases. On top of that, they each have long track records of acquiring additional income-producing real estate. Those drivers should help grow their rental income so they can continue pushing their dividend payments higher.
A passive way to generate income from real estate
REITs make it easy to start earning passive income. You don't need much capital since you can steadily buy REIT shares as you have the cash, allowing you to grow your passive income up to your desired level. Many REITs will help you reach your goal faster by steadily increasing their dividend payments. That makes them a great way to start making money from your money.
