Investing in real estate can be an excellent way to generate passive income. The great news is that you don't need much money to get started. While buying a rental property could set you back more than $100,000 after factoring in the down payment, closing costs, and repairs, other real estate investments have a much, much lower initial investment.
Real estate investment trusts (REITs) offer some of the lowest investment minimums. For example, it costs less than $60 to buy a share of Realty Income (O +0.92%) or W.P. Carey (WPC 0.16%), which both offer attractive passive income streams. You can buy more shares as you have additional cash to invest, slowly building your passive dividend income.
The name says it all
NYSE: O
Key Data Points
Realty Income is one of the biggest REITs in the world. It owns about 15,450 properties across the U.S. and Europe. The company has a diversified commercial real estate portfolio featuring retail properties, which makes up 79.4% of its annual base rent; industrial properties, at 14.6%; gaming properties, at 3.2%; and other properties, at 2.8%. The company owns properties net leased to many of the world's leading companies.
The REIT's net leases provide it with very stable rental income. They require tenants to cover all property operating expenses, including routine maintenance, real estate taxes, and building insurance.
It currently costs about $57 to buy one share of Realty Income. From that share, you'd collect $0.2635 per share in dividend income each month, which adds up to $3.162 per share each year. That's a 5.5% dividend yield on the REIT's current stock price. The more you invest in the REIT, the more passive income you'll collect. For example, a $1,000 investment would produce about $55 of dividend income each year at the current stock price and dividend payment.
Realty Income has steadily increased its dividend over the years. The REIT has raised the payment 127 times since coming public in 1994, including the past 108 quarters in a row.
The company has grown its dividend by investing in additional income-producing properties. It's on track to invest about $3.5 billion into acquiring properties this year. Realty Income also bought fellow REIT Spirit Realty in a $9.3 billion deal. These new properties are growing its rental income, allowing the REIT to continue increasing its dividend.
Building back better
NYSE: WPC
Key Data Points
W.P. Carey is one of the largest REITs focused on net lease real estate. It has a well-diversified portfolio of high-quality properties that are operationally critical to its tenants. The REIT currently owns about 1,430 net lease industrial/warehouse properties, making up 64% of the total; retail properties, at 22%; and other properties, at 15%, all across North America and Europe. It also operates 78 self-storage properties.
W.P. Carey's stock price is also currently right around $57 apiece. The REIT pays a quarterly dividend of $0.875 per share, or $3.50 per year. That puts its dividend yield a little higher than Realty Income's at 6.1%.
The REIT is in the middle of a transitional period. It sold or spun off its office properties over the past year to focus on real estate with better long-term fundamentals, such as industrial properties. W.P. Carey also reset its dividend last year, ending a quarter century of steady growth.
The company has been slowly rebuilding its portfolio and shareholder payout. W.P. Carey has completed nearly $1 billion of new property investments already this year. It has more than $500 million of additional deals in the pipeline. It has been acquiring properties with built-in rent growth from leases featuring rents that escalate at either a fixed rate or one tied to inflation.
W.P. Carey has already increased its dividend three times since the great reset last year. It expects to continue raising its payout as it adds more properties to its portfolio and grows its rental income.
Great ways to start making passive income
REITs make it really easy to begin your journey of generating passive income. You can start small and slowly build a portfolio that produces a growing stream of passive income. Realty Income and W.P. Carey are great ways to get started because they focus on owning properties that deliver the steadiest income stream, which is to say net lease real estate, allowing them to routinely increase their dividends as they grow their portfolios.
