Would you like to grow your wealth steadily over time without having to lift a finger? Welcome to the world of passive income.
Many investors enjoy passive income in the form of dividends that stocks pay or interest that bonds pay. And if you’re ready to jump into the world of real estate, you too can enjoy your own passive income stream. If this is a route you’re considering going down, here are two specific investments worth looking into.
1. Rental properties
If you have enough money to sink into a house – or are willing to take out a mortgage on it – you could do very well as an income property owner. With a long-term rental, you can sign leases for 12 months or more and expect that steady revenue stream. With a short-term rental, your income may be more volatile and less predictable, but you could still have plenty of it.
Now you might be thinking, “Since when does being a landlord involve hands-off work?” And it is not. Being an owner is actually enough parcel labor – if you don’t outsource it. But if you’re willing to hire a property manager, you can enjoy the financial benefit of owning an income property without having to deal with things like rent collection, tenant screenings, lease renewals, maintenance and repairs.
Buying publicly traded REITs or real estate investment trusts is like buying stocks. You research the company in question, determine if its stock price is attractive, and add it to your portfolio. But there’s a huge upside to owning REITs, and it enjoys higher dividends than many traditional stocks pay.
If you are unfamiliar with REITs, these are companies that own and operate different properties. Healthcare REITs, for example, might have portfolios full of emergency care facilities and hospitals. Industrial REITs, on the other hand, operate properties such as warehouses and distribution centers. And retail REITs operate malls and malls, both enclosed and outdoor.
REITs are required to pay out at least 90% of their taxable income as dividends to shareholders. As such, they are a solid source of ongoing passive income. And they can help offset any losses you might see in your portfolio during times when stock values fall.
Now, in the realm of REITs, there are different levels of upside and risk, so before diving in, research different REIT sectors to see which ones interest you. From there, you can dig into individual businesses to see which ones make the most sense to own. You can also look specifically to REITs to diversify your portfolio. If you don’t own retail stocks, for example, you might consider buying shares of a retail REIT.
Having a steady stream of passive income doesn’t make you lazy; it makes you a savvy investor. And if you’re looking to make money in real estate without too much effort, it pays to buy an income property that someone else manages or fill your REIT portfolio with a track record. solid.