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Got $10,000? Here's How to Turn it Into a Lucrative Monthly Income Stream From Real Estate

Nov 05, 2020 by Matthew DiLallo
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While real estate can be a great way to earn passive income, some options require more capital and work. For example, buying an apartment building means coming up with a sizable down payment and putting up with all the headaches of being a landlord.

An even more passive way to generate income from real estate is by investing in real estate investment trusts (REITs). For example, $10,000 invested across some of the top monthly dividend REITs could produce roughly $50 in monthly income or about $600 per year. Here's a look at one way to quickly build a monthly income stream from REITs.

An instant monthly income portfolio

While most REITs pay their dividends each quarter, several cut their investors a check each month. Five top monthly dividend REITs are STAG Industrial (NYSE: STAG), Realty Income (NYSE: O), Gladstone Land (NYSE: LAND), SL Green (NYSE: SLG), and LTC Properties (NYSE: LTC). What's noteworthy about this group is that each one focuses on a different property type. STAG owns industrial buildings, Realty Income primarily holds retail properties, Gladstone Land is a specialty REIT that owns farmland, SL Green concentrates on Manhattan office buildings, and LTC Properties is a healthcare REIT. Thus, an investor could build a diversified real estate portfolio by investing in this group of monthly dividend stocks.

Speaking of the monthly income stream, here's a look at what investing $10,000 equally across these REITs would produce each month:

REIT Current share price Current Yield Current monthly dividend Shares Purchased Monthly income generated
STAG Industrial $31.12 4.6% $0.12 64.3 $7.71
Realty Income $57.86 4.9% $0.23 34.6 $8.09
Gladstone Land $13.87 3.9% $0.04 144.2 $6.47
SL Green $42.81 8.3% $0.30 46.7 $13.78
LTC Properties $33.01 6.9% $0.19 60.6 $11.51
Total/Average $35.73 5.7% $0.88 350.3 $47.57

Data source: Company investor relations websites and Google Finance.

While $50 a month isn't enough for an investor to walk away from their day job, it's more than 10 times what a bank CD or high-yield savings account might pay these days on $10,000. Further, that income stream should grow in the coming years as these REITs increase their dividends.

A look at the income growth potential

One of the benefits of owning real estate compared to fixed-income investments like bonds is that the income tends to rise over time. For example, Realty Income has increased its dividend 108 times since its initial public offering (IPO) in 1994, including in each of the last 92 consecutive quarters.

Despite the headwinds facing the retail sector, Realty Income should continue growing its payout like clockwork. Not only has its portfolio proven its durability this year with an above-average collection rate, but Realty Income has a top-notch balance sheet. That gives it the flexibility to continue acquiring properties, which is the key to fueling dividend growth.

Gladstone Land has given its investors a raise 20 times over the last 23 quarters. Driving that growth is a steady stream of farmland acquisitions. The REIT currently expects to continue growing its dividend "at a rate that outpaces inflation," according to comments by its CFO on the second-quarter conference call. Driving that view is its ability to increase rent and make additional acquisitions.

STAG Industrial has also routinely boosted its dividend over the years. While it hasn't increased its payout as frequently as Realty Income and Gladstone Land, it has given its investors a raise each year since its IPO in 2011. Driving that growth has been the steady expansion of its industrial real estate portfolio.

SL Green also has a long history of annual dividend increases, with the REIT's current streak up to nine straight years. Driving that growth has been the strength of its high-quality Manhattan office portfolio and strong balance sheet. Those dual catalysts have enabled the REIT to grow its rental rates and portfolio via both acquisitions and development projects. While SL Green is currently facing some headwinds from COVID-19, it has the financial strength to maintain its payout during these challenging times.

Finally, LTC Properties' dividend growth has been a bit lumpier as it hasn't increased its payout since 2016. However, it has a conservative leverage ratio and a comfortable enough dividend payout ratio to help it get through the senior housing industry's current challenges, which makes up half its portfolio. Because of that, it should be able to maintain its payout during the currently tough time and start increasing it again when market conditions improve.

An easy way to start generating passive income from real estate

It's simple to start a real estate side business that generates passive income each month. Even investors who don't have 10 grand to spare can get into the sector thanks to the low up-front cost of most REITs. Because of that, an investor can slowly build up a portfolio of income-generating real estate, with this group of monthly payers a great way to begin.

Unfair Advantages: How Real Estate Became a Billionaire Factory

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But those barriers have come crashing down - and now it’s possible to build REAL wealth through real estate at a fraction of what it used to cost, meaning the unfair advantages are now available to individuals like you.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Stag Industrial. The Motley Fool has a disclosure policy.