Real estate is the cornerstone of wealth generation, and 19th-century English philosopher and economist John Stuart Mill once said, “Landlords grow rich in their sleep.”
Landlords don’t just collect rental income. They also reap property value appreciation.
While collecting monthly rental income from an investment property is great, being a landlord comes with challenges.
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For example, you should carefully screen tenants, draft lease agreements, and make sure rent is paid on time. Chasing lease payments and dealing with treacherous tenants is never fun.
Landlords are responsible for the maintenance and upkeep of their properties, which require frequent repairs and improvements. They also need to maintain proper insurance coverage for their property and pay property taxes, which can require ongoing attention.
All of this makes so-called passive income very scarce – and that’s if you can put together a large down payment, take out a mortgage and buy a home first. According to Freddie Mac, the average 30-year fixed-rate mortgage rate in the U.S. is now at 7.12 percent.
Good news? You don’t have to be a landlord to get a piece of the action.
Earn monthly rental income without being a landlord
Real estate investment trusts (REITs) are a way to own real estate without the hassle of asset management. REITs can be thought of as giant landlords – they own income-producing real estate and collect rent from tenants.
REITs are legally required to distribute 90 percent of their taxable income to shareholders as dividends, appealing to investors looking for passive income.
Since many REITs are traded on the stock market, investing in them is easy. You can buy REIT shares just like you buy 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 bills itself as a “monthly dividend company.” The company has declared 637 consecutive monthly dividends in its 54-year history.
Better yet, Realty Income has increased its payout 121 times since its 1994 announcement.
Today, the REIT pays 25.55 cents per share monthly, which translates to an annual yield of 5.6%.
If you want to earn $1,000 per month from realty income, you should own 3,913.89 shares of the REIT. This is calculated by dividing $1,000 by the monthly payment of $0.2555.
And since Realty Income is currently trading at $55.15 per share, 3,913.89 shares means the stock is worth about $215,851.
If you plan for a small target of earning $200 per month, you need 782.78 shares ($200/$0.2555) or $43,170 worth of Realty Income shares (782.78 x $55.15).
Like other stocks, REITs can be volatile. Realty Income shares are down 13% in 2023.
RBC Capital Markets analyst Brad Heffer sees a rebound on the horizon. The analyst has an outperform rating on Realty Earnings and a price target of $67, indicating a potential upside of 21%.
This is an example of how real estate investors can earn passive income without being a landlord. But like any investment, REITs come with risks, and dividends aren’t set in stone. So always do your thorough research before jumping in.
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This column How to collect $1,000 a month in rental income without being a landlord It appeared at first Benzinga.com
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