Real estate is the cornerstone of wealth generation, and as 19th century British philosopher and economist John Stuart Mill once said, “Landlords get rich in their sleep.”
Landlords don’t just collect rental income; they also reap the benefits of property value appreciation.
While it’s great to collect a monthly rental income from an investment property, being a landlord comes with its own challenges.
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For example, you need to carefully screen potential tenants, prepare lease agreements and ensure that rent is paid on time. Chasing lease payments and dealing with delinquent tenants is never fun.
Owners are responsible for the upkeep and upkeep of their properties, which may require frequent repairs and upgrades. They also must secure adequate insurance coverage for their properties and pay property taxes, which can require constant attention.
All of this can make seemingly passive income a lot less passive — and that’s if you can put together a hefty down payment, get a mortgage, and buy a house in the first place. According to Freddie Mac, the average rate on 30-year fixed-rate mortgages in the United States is currently at 7.12%.
The good news? You don’t need to become an owner to get a piece of the action.
Earn monthly rental income without becoming a landlord
Real estate investment trusts (REITs) are a way to own real estate without the hassle of property management. REITs can be thought of as giant landlords: they own income-producing properties and collect rent from tenants.
REITs are legally required to distribute at least 90% of their taxable income to shareholders as dividends, making them attractive to investors looking to earn passive income.
Many REITs trade on the stock market, so it is easy to invest in them. You can buy shares of a REIT just as you would shares of a company.
And while most dividend-paying companies follow a quarterly distribution schedule, some REITs pay their shareholders monthly.
For example, Realty Income Corp. (NYSE:O) is a REIT that calls itself “The Monthly Dividend Company.” Over its 54-year operating history, the company has declared 637 consecutive monthly dividends.
Better yet, Realty Income has increased its payouts 121 times since going public in 1994.
Today, the REIT pays monthly dividends of 25.55 cents per share, which translates to an annual yield of 5.6%.
If you want to earn $1,000 every month from Realty Income, you will need to own 3,913.89 shares of the REIT. This is calculated by dividing $1,000 by the monthly payment per share of $0.2555.
And since Realty Income currently trades at $55.15 per share, 3,913.89 shares would mean about $215,851 in stock value.
If you’re aiming for a smaller goal of earning $200 per month, you’ll need 782.78 shares ($200 / $0.2555) or Realty Income shares worth $43,170 (782.78 x $55.15) .
Like other stocks, REITs can be volatile. Despite its impressive dividend track record, Realty Income shares are down 13% in 2023.
RBC Capital Markets analyst Brad Heffern sees a rebound on the horizon. The analyst has an Outperform rating on Realty Income and a $67 price target, implying a potential upside of 21%.
This is an example of how real estate investors can earn passive income without becoming a landlord. But like any investment, REITs come with risks, and dividends are not set in stone. So always conduct thorough research and due diligence before diving in.
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This article How to Raise $1,000 in Monthly Rental Income Without Becoming a Landlord originally appeared on Benzinga.com
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