Owning a rental property can be very lucrative. Rental properties can generate passive income and provide tax benefits. However, there are many potential drawbacks. Rental property investments often require a large upfront investment and a lot of work, making them a potentially stressful investment.
A much lower cost and less stressful real estate investment is to buy shares of a real estate investment trust (REIT). Congress created these entities in 1960 to enable anyone to invest in income-producing real estate.
You can invest in most REITs for less than $1,000. Two great ones for beginners are Invitation Homes (INVH 1.00%) and Camden Property Trust (CPT -0.03%). They enable investors to own part of a portfolio of income-generating residential rental properties without stress.
Single-family rental income without the work
Invitation Homes is a residential REIT focused on single-family rentals. The company owns over 86,600 homes across many of the top housing markets in the country:
Image source: Invitation Homes Investor Relations Presentation.
As the slide showcases, the REIT focuses on owning rental properties in markets benefiting from above-average jobs, population, and home price growth. This strategic focus on location enables it to achieve strong occupancy levels and capture above-average rental growth rates because renting in its markets is much cheaper. That allows Invitation Homes to generate steadily rising rental income.
Invitation Homes has steadily grown its rental property portfolio by acquiring additional homes. It bought over 2,500 homes for more than $1 billion last year, funded partly by selling 726 homes for $269 million. The company buys homes from various sources, including directly from home builders. For example, in 2021, it signed a deal with PulteGroup to buy 7,500 new homes over a five-year period that PulteGroup would design and build for single-family rentals.
The REIT's growing rental income enables it to pay an attractive and rising dividend that currently yields 3.3%. Every $1,000 invested into Invitation Homes would generate about $33 of annual passive income at that rate. Unlike rental property income that can fluctuate with expenses, Invitation Homes' investors can bank on getting a consistent dividend payment each quarter. The REIT has also historically increased its dividend each year (it gave investors an 18.2% raise in 2023). That steadily rising payout makes Invitation Homes a relaxing way to collect passive income from single-family rental properties.
Rising apartment rental income without the stress
Camden Property Trust is a residential REIT primarily focused on owning apartment communities. It has a large-scale and diversified portfolio:
Image source: Camden Property Trust Investor Relations Presentation.
Like Invitation Homes, Camden Property focuses on owning rental housing in markets across the Sun Belt region, benefiting from above-average population and job growth. That has created tighter housing markets, increasing occupancy and rental rates. Those factors enable the company to generate steadily rising rental income.
The company has grown its apartment portfolio by developing new communities over the years. Camden is investing $661 million to develop six new communities, including two single-family rental communities. In addition, the company has acquired enough land to support nine more developments with over 3,350 additional rental homes. These investments in developing more rental communities will supply the company with incremental rental income.
Camden's growing rental income also allows it to pay an attractive and rising dividend. The apartment REIT currently yields 3.8%, turning every $1,000 investment into about $38 of annual passive income. Investors can count on a consistent and steadily rising payout. Camden has an excellent track record of increasing its dividend, including giving investors a more than 6% raise earlier this year.
The low-stress way to become a landlord
REITs enable anyone to generate truly passive income from real estate. They can be better investments than buying a rental property since they're stressless investments that pay predictable income. Invitation Homes and Camden Property Trust are great options for beginners. They enable anyone to get in on the ground floor of owning a large portfolio of income-producing rental properties without the stress of being a landlord.
