How would you like to grow wealth steadily over time without having to lift a finger? Welcome to the world of passive income.
Many investors get to enjoy passive income in the form of the dividends stocks pay or the interest bonds pay. And if you're willing to dabble in the world of real estate, you too can enjoy your own passive income stream. If that's a route you're looking to take, here are two specific investments worth looking at.
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1. Rental properties
If you have enough cash to sink into a home -- or you're willing to take out a mortgage on one -- you could do quite well for yourself as the owner of an income property. With a long-term rental, you can sign 12-month leases or longer and look forward to that steady income stream. With a short-term rental, your income may be more choppy and less predictable -- but you could still end up with a lot of it.
Now you may be thinking, "Since when does being a landlord involve hands-off work?" And it doesn't. Being a landlord is actually quite a lot of work -- if you don't outsource it. But if you're willing to hire a property manager, you can enjoy the financial upside of owning an income property without having to deal with things like rent collection, tenant screenings, lease renewals, maintenance, and repairs.
2. REITs
Buying publicly traded REITs, or real estate investment trusts, is comparable to buying stocks. You research the company at hand, determine if its share price is attractive, and add it to your portfolio. But there's a huge upside in owning REITs, and it's getting to enjoy higher dividends than what many traditional stocks pay.
If you're not familiar with REITs, they're companies that own and operate different properties. Healthcare REITs, for example, might have portfolios filled with urgent care facilities and hospitals. Industrial REITs, meanwhile, operate properties like warehouses and fulfillment centers. And retail REITs operate shopping centers and malls -- both enclosed as well as outdoor types.
REITs are required to pay out at least 90% of their taxable income as dividends to shareholders. As such, they're a solid source of ongoing passive income. And they can help offset the losses you might see in your portfolio during periods when stock values tank.
Now within the realm of REITs, there are varying levels of upside and risk, so before you dive in, research different REIT sectors to see which ones you're interested in. From there, you can dig into individual companies to see which make the most sense to own. You can also specifically look to REITs to diversify within your portfolio. If you don't own any retail stocks, for example, you might look at buying shares of a retail REIT.
Enjoying a steady stream of passive income doesn't make you lazy; it makes you a savvy investor. And if you're looking to make money in real estate without a whole lot of effort, it pays to buy an income property that somebody else manages or fill your portfolio with REITs with a strong performance history.
