Owning rental properties can put you on the path to financial prosperity. They can generate a growing stream of passive income that could eventually surpass your expenses.

However, rental properties have their pitfalls. They often require a large upfront investment in the form of a down payment and any repairs or renovations to make a property ready to rent. Meanwhile, the income they produce isn't always passive, nor is it predictable. Unexpected maintenance issues or tenant vacancies can quickly turn an income-generating property into a money pit that can take a lot of work to turn around.

An easier way to generate passive income from real estate is to invest in real estate investment trusts (REITs). An ideal REIT for beginners who want to generate passive income from rental properties without the hassle is Invitation Homes (INVH 0.70%). A $1,000 investment or less can generate a truly passive and steady stream of dividend income.

The easy way to collect passive income from real estate

Invitation Homes is a residential REIT focused on single-family rental homes. At the end of the first quarter, it owned 86,580 homes with an average occupancy of 97.8%. It owns homes across 16 major markets, primarily in the Sun Belt region. It focuses on high-growth markets benefiting from population and job growth, which creates rising demand for rental properties.

The REIT's large-scale portfolio generates predictable rental income, which it uses to pay dividends to shareholders. The company currently pays a fixed quarterly dividend of $0.26 per share ($1.04 annually). With a recent price of around $34.50 a share, Invitation Homes has a 3% dividend yield. A $1,000 investment in Invitation Homes stock can generate about $30 of annual dividend income at that rate. 

That's truly passive income that you can bank on each quarter. The REIT has a relatively low dividend payout ratio (68% of its adjusted funds from operations in the first quarter). That gives it a big cushion for periods of increased vacancy or higher maintenance expenses. It also allows the company to retain some cash to acquire additional income-producing rental properties. Invitation Homes also has an investment-grade bond rating, giving it additional financial flexibility. These features put its dividend on a very sustainable level. Because of that, investors can sit back and collect a steady and very reliable stream of dividend income. 

Income with upside potential

Invitation Homes routinely increases its dividend as its income grows. The REIT boosted its quarterly dividend payment by 18.2% earlier this year. It has grown its payout by an impressive 333% since its public market listing in 2017. 

Two factors drive dividend growth: rental growth and acquisitions. Rents for single-family homes are growing fast due to strong demand and low availability. Lease rates on new and renewal contracts signed in the first quarter were 7.3% above the prior rents on the same properties. Rents should continue to rise. The company estimates that it's about 30% cheaper to rent than buy a home across its 16 markets, leaving plenty of room to push rents higher. 

Invitation Homes steadily acquires additional homes to grow its portfolio. During the first quarter, it purchased 194 homes for $67 million. It primarily purchased those homes directly from homebuilders through its partnerships. 

In addition to giving it more cash to grow the dividend, the company's two growth drivers help further enrich investors through stock price appreciation. As its cash flow grows, the value of the company rises. Since 2017, Invitation Homes' stock price has increased by an average of 8% per year. Add the dividend income, and the average annual total return has been 11.2%. That's a strong return from a passive real estate investment. 

The path to passive and growing income

Invitation Homes enables anyone to get on the path to financial prosperity through rental properties. Everyone with a brokerage account can buy shares (which cost less than $35 apiece) and start earning dividend income. That income should rise over time. Add rent growth, portfolio expansion, and home price appreciation, and Invitation Homes' stock price should steadily rise. The company's income and upside potential could make it a very enriching long-term investment.