Owning a rental property can put you on the path to financial prosperity. They can generate a growing passive income that can eventually exceed your expenses.
However, rental properties also have their pitfalls. They typically require a substantial upfront investment in the form of a down payment and any repairs or renovations to make the property available for rent. At the same time, the income they generate is not always passive or predictable. Unexpected maintenance issues or tenant vacancies can quickly turn an income-producing property into a money pit that will require a lot of work to turn around.
An easier way to generate passive income from real estate are invested in real estate investment trusts (real estate investment trust).The ideal REIT for beginners who want to easily generate passive income from rental properties is invitation home (INVH -0.03%). Investing $1,000 or less can generate a truly passive and steady flow of money dividend income.
Easy Ways to Earn Passive Income from Real Estate
invitation home is Residential REITs Specializes in single-family rental properties. As of the end of the first quarter, the group owned 86,580 homes with an average occupancy rate of 97.8%. The company owns properties in 16 major markets, primarily in the Sunbelt. It focuses on high-growth markets that benefit from population and employment growth, which creates growing demand for rental properties.
Large portfolios of REITs generate predictable rental income that is used to pay dividends to shareholders. The company currently pays a fixed quarterly dividend of $0.26 per share ($1.04 per year). Invitation Homes recently traded at around $34.50 per share, holding a 3% stake dividend yield. At this rate, a $1,000 investment in Invitation Homes stock would generate about $30 in annual dividend income.
This is true passive income that you can count on every quarter. REITs are relatively low dividend payout ratio (Adjusted 68% Working capital in the first quarter). This provides a great buffer during periods of increased vacancy or increased maintenance costs. It also allows the company to keep some cash to buy additional income-generating rental properties. Invitation Homes also has investment grade bond rating, giving it additional financial flexibility. These characteristics make its dividend at a very sustainable level. Because of this, investors can sit back and collect a steady and very reliable stream of dividend income.
income with upside potential
Invitation Homes typically increases its dividend as revenue grows. The REIT boosted its quarterly dividend payment by 18.2% earlier this year. The company’s payout has grown an impressive 333% since its public market listing in 2017.
Two factors drive dividend growth: rental growth and acquisitions. Rents for single-family homes are growing rapidly due to strong demand and low supply. Lease rates for new and renewed contracts signed in the first quarter were 7.3 percent higher than previous rents for the same properties. Rents should continue to rise. Renting is about 30% cheaper than buying in 16 markets, the firm estimates, leaving plenty of room to push rents higher.
Invitation Homes has steadily acquired more homes to expand its portfolio. In the first quarter, the company spent $67 million on 194 homes. It buys these homes directly from homebuilders, primarily through its partners.
In addition to providing more cash to boost the dividend, the company’s two growth drivers help further enrich investors through share price appreciation. As cash flow grows, so does the value of the company. Shares of Invitation Homes have risen an average of 8% annually since 2017. Combined with the dividend income, the average annual total return is 11.2%. This is a great return on passive real estate investing.
The Path to Passive Income and Growing Income
Invitation Homes empowers anyone to put themselves on the path to financial prosperity through rental properties. Anyone with a brokerage account can buy shares (costing less than $35 per share) and start earning dividend income. Revenue should increase over time. Combine that with rental growth, portfolio expansion, and rising home prices, and Invitation Homes stock should see steady gains. The company’s income and upside potential could make it a very rich long-term investment.