The IRS recognizes income earned from rental properties as passive. But anyone who’s ever owned a rental property knows being a landlord isn’t passive. Active management is required to find and manage tenants, pay bills, and keep up with repairs.
The good news is that there are alternatives for those who like the idea of generation unearned income from real estate But I don’t want to work hard for that money. One easy way to get on the passive income gravy train is to invest in real estate investment trusts (REITs). Here are two top REITs that offer some of the benefits of owning a rental property without the hassle.
easy way to become a landlord
Most rental property owners start by purchasing a single-family home to rent. Managing a single home isn’t a lot of work, but owning a single rental property may not generate the passive income a person needs to retire. That would require an entire portfolio of properties and a lot more work to manage.
An easy way to invest in a portfolio of single family rental properties is to invitation home (INVH 0.72%). of Residential REIT owns over 80,000 rental properties nationwide and is primarily focused on the nation’s fastest growing residential market.
Invitation Homes provides a stable source of income for its shareholders. REITs are currently Dividend payment 2.4% at $0.22 per share quarterly dividend yield at the current stock price. That means that for every $1,000 he invests in REITs, he earns $24 in passive income annually. This is the funds available to investors each year. In contrast, a landlord’s rental income can fluctuate from month to month depending on expenses and can be negative if there are significant unplanned expenses or property vacancies.
REITs have steadily increased their payments as they have grown their earnings through rent increases and portfolio expansion. The overall portfolio leasing rate increased by 11.8% year-on-year in the second quarter. In the same quarter, he purchased another 955 homes for $426 million.
Invitation Homes expects its two growth drivers to remain strong, driven by strong housing demand and low inventory levels. The company ensures a steady stream of new rental homes through several partnerships, including one with national home builders. pult group that We will supply 7,500 new homes over the next five years. These growth drivers should enable Invitation Homes to continue increasing its dividend and providing even more passive income to investors in the years to come.
The easy way to own a multifamily
Another class of traditional rental property investment is multifamily housing, such as four-story multifamily homes and smaller multifamily homes. Owning a multifamily home often requires a lot of work to manage the tenants and keep the building in good condition.
An easier solution is to invest in quality apartment REITs such as: Camden Property Trust (CPTMore -1.44%)The company owns 171 properties, including 58,425 apartments in 15 fast-growing housing markets.
Camden currently pays a fixed quarterly dividend of $0.94 per share. At recent stock prices, the dividend yield is 2.8%.
The REIT has a strong track record of increasing payouts driven by rental growth and a steadily expanding apartment portfolio. Rents rose by an average of 15.3% in the second quarter thanks to a tight housing market. This will allow Camden to invest in new apartment developments. Currently, he has spent $603 million to build 1,842 apartments, with several more developments underway. The REIT also acquires stable apartments. Recently, he spent $1.1 billion to fully manage 7,247 apartments. A combination of rising rents and portfolio expansion should allow Camden to keep increasing its dividend.
Create a truly passive real estate income
A rental property promises passive income, but you actually have to work to earn that money. REITs, on the other hand, are truly passive investments. Even better, many provide a steady income, rather than the sprawling cash flow that most rental properties generate. So you can easily collect passive income from real estate.