MMost of us work for money, actively exchanging our time, knowledge, or skills for money. If you don’t work, you don’t win. But what if I told you there was another way? One that does not require active participation to earn income. Instead, your money could generate even more money through passive income.
Getting passive income is one of the cornerstones of wealth creation, and fortunately it is more affordable than ever through strategic investments in things like real estate, stocks, and bonds. Most people think that you need money to start earning passive income, which is true in a sense. But you really don’t need it that a lot of money to start earning passive income today.
In fact, there are several low-cost start-up investments that can generate a lot of passive income in the future.
An affordable way to generate passive income today
Real estate is one of the best ways to earn passive income. Rental properties, in particular, are a large stream of passive income because after renting the property, the income is earned each month with a minimal share of you. However, the purchase of physical real estate requires a significant sum of money for the down payment of a loan.
Fortunately, if you have limited funds and only a few thousand or a few hundred dollars to invest, you can still participate in passive real estate investing by buying shares of a real estate investment fund (REIT). A REIT is a special type of stock that you own, rent, or actively invest in real estate and real estate-related stocks. This can range from single-family rental properties to retail malls, shopping malls, mortgages, hospitals, and self-storage facilities, among many other types of properties.
REIT is responsible for the management and leasing of its portfolio by paying dividends to its shareholders. And since REITs are required to pay at least 90% of their taxable income on dividends to benefit from special tax incentives, REITs are a super reliable passive income stream.
How much you need and how much you can earn
REITs do not require a large initial investment to start earning. Since you can buy shares of a REIT through a brokerage account, what you spend depends entirely on you. The cost of the REIT will vary greatly from company to company, but there are several REITs that can be purchased for less than $ 25 per share. Others can cost several hundred dollars per share.
For example, Invitation houses (NYSE: INVH)which invests in single-family rental housing, e National retail properties (NYSE: NNN)which owns and rents commercial space for a single tenant, can be purchased for less than $ 45 per share. Innovative Industrial Properties (NYSE: IIPR)(IIP), which buys and rents industrial real estate from licensed medical marijuana operators, is a bit more expensive, currently trading at about $ 135, but recent volatility has lowered its price by 50% to date, causing its dividend return to an attractive 4.5. % performance.
If you start with a small investment, the dividend income earned by a REIT may not seem like much at first, but dividend increases can help make your small amount much higher over time. I originally bought 32 IIP shares in 2018 for an investment of just under $ 1,000. At first, I only made $ 0.25 a share, about $ 8 a quarter. But thanks to the 12 dividend increases that have been made since my initial investment, my approximately $ 1,000 investment now earns me $ 1.75 per share or $ 56 per quarter.
It is important to emphasize that stock prices or high dividend yields should not be the only deciding factors in buying a REIT. On the contrary, the fundamentals of the company, its current operations and its future growth opportunities should be the main decisive factors. Fortunately, there are many high quality REITs to choose from that can meet almost any investment budget.
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Liz Brumer-Smith holds positions at Innovative Industrial Properties and Invitation Homes Inc. The Motley Fool holds positions and recommends Innovative Industrial Properties and Invitation Homes Inc. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.