Investing in real estate is a great way to collect passive income. You don't need much money to get started. Anyone can invest in real estate investment trusts (REITs) and receive dividend income.
Invitation Homes (INVH 0.24%), Public Storage (PSA 0.01%), and W. P. Carey (WPC 0.42%) are great ways to begin building your real estate empire through REITs. All three should generate steady passive income from real estate that could last a lifetime.
The easy way to be a landlord
Most beginning real estate investors will purchase a single-family home they rent out to tenants. That strategy has a sizable upfront cost, including the down payment, closing costs, and any repairs and renovations. In addition, managing a rental property isn't exactly passive. You must find the tenant, address any repairs, and manage all the property's accounting. Meanwhile, the passive income can be lumpy if an unexpected expense or vacancy occurs.
Invitation Homes makes it easy to collect passive income from single-family rental homes. The residential REIT owns over 86,500 homes across 16 top U.S. markets. It focuses on metro areas where the population and job markets are growing faster than the U.S. average. That strategy keeps occupancy high while driving above-average rent growth, allowing the REIT to enjoy steadily rising rental income.
In addition to rent growth, Invitation Homes has steadily expanded its portfolio by purchasing more homes. These drivers have enabled the REIT to consistently increase its dividend. Invitation Homes increased its dividend by 18.2% earlier this year. It currently offers a 3.1% dividend yield. At that rate, it could turn a $1,000 investment into about $31 of annual passive income. Investors can bank on that income stream. It will likely keep rising in the years to come as rents grow and the REIT buys more homes.
Built on a very sound foundation
Public Storage is one of the largest self-storage REITs. Demand for storage space is very durable and growing. That enables REITs like Public Storage to benefit from high occupancy rates and rising rental rates across its portfolio.
The company owns interests in nearly 3,000 self-storage locations across 40 states and a stake in a European self-storage company. These properties generate very steady rental income to support the REIT's dividend, which currently yields 4.1%.
Public Storage invests billions of dollars each year to build and buy additional self-storage properties. It funds those deals with its industry-leading balance sheet and substantial post-dividend free cash flow. These new additions help supplement rising rental income at its existing locations. That growing income allows the REIT to increase its dividend. After a long pause, Public Storage gave its investors an impressive 50% raise earlier this year. That payout should grow in the future, albeit at a slower pace.
A very steady grower
W. P. Carey is a diversified REIT. The company focuses on owning mission-critical properties leased to high-quality tenants. It owns warehouse, industrial, office, retail, and self-storage properties.
The REIT primarily uses triple net leases, which makes the tenant responsible for maintenance, building insurance, and real estate taxes. Nearly all its leases feature some form of annual escalation clause that increases rents at a fixed rate or one tied to inflation. That enables W. P. Carey to collect steadily rising rental income.
The company invests more than $1 billion annually to acquire additional income-producing real estate. Those deals complement rent growth, giving W. P. Carey more money to pay dividends.
The REIT currently yields 6.1%. It has increased its payout for nearly 25 straight years. With a reasonable dividend payout ratio and strong balance sheet, W. P. Carey should be able to continue growing its dividend for years to come.
Durable dividend stocks
Invitation Homes, Public Storage, and W. P. Carey own high-quality real estate portfolios. That enables them to generate lots of steady cash flow to pay dividends. They also have strong balance sheets, giving them the financial flexibility to expand their portfolios. Those features should enable these REITs to supply their investors with a lifetime of passive income.