Jing Pan
·4 min read
Real estate stands as a cornerstone of wealth generation, and as 19th-century British philosopher and economist John Stuart Mill once, said, "Landlords grow rich in their sleep."
Landlords don't merely collect rental income; they also reap the rewards of property value appreciation.
While it's nice to collect monthly rental income from an investment property, being a landlord does come with hassles.
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For instance, you must 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.
Landlords are responsible for the maintenance and upkeep of their properties, which can require frequent repairs and updates. They also must secure proper insurance coverage for their properties and pay property taxes, which can require ongoing attention.
All of this can make supposedly 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 30-year fixed-rate mortgage rate in the U.S. is now at 7.12%.
The good news? You don't have to become a landlord 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 real estate and collect rent from tenants.
REITs are legally required to distribute at least 90% of their taxable income to shareholders as dividends, making them appealing to investors looking to earn passive income.
Plenty of REITs trade on the stock market, so it's easy to invest in them. You can purchase shares of a REIT much like you would buy stocks of a company.
And while most dividend-paying companies follow a quarterly distribution schedule, some REITs pay their shareholders monthly.
For instance, Realty Income Corp. (NYSE:O) is a REIT that brands itself as "The Monthly Dividend Company." Through its 54-year operating history, the company has declared 641 consecutive monthly dividends.
Better yet, Realty Income has increased its payout 122 times since going public in 1994.
Today, the REIT pays monthly dividends of 25.6 cents per share, translating to an annual yield of 5.65%.
If you want to earn $1,000 every month from Realty Income, you would need to own 3,931.68 shares of the REIT. This is calculated by dividing the $1,000 by the per share monthly payout of $0.256.
And because Realty Income currently trades at $54.02 per share, 3,931.68 shares would mean about $212,389.38 worth of the stock.
If you aim for a smaller target of earning $200 per month, you would need 786.34 shares ($200 / $0.256), or $42,477.88 worth of Realty Income stock (786.34 x $54.02).
Like other stocks, REITs can be volatile. Despite its impressive dividend-paying track record, Realty Income shares have fallen about 15% in 2023.
Wolfe Research analyst Andrew Rosivach sees a rebound on the horizon. The analyst has an Outperform rating on Realty Income and a price target of $66, implying a potential upside of about 21.3%.
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 carved in stone. So always conduct comprehensive research and due diligence before diving in.
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This article How To Collect $1,000 In Monthly Rental Income Without Becoming A Landlord originally appeared on Benzinga.com
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