Investing in real estate can be an excellent way to generate income. However, while owning a rental property is technically a passive investment, that's not always the case. It sometimes takes a lot of work to manage a rental, including finding tenants, keeping track of expenses, and dealing with maintenance issues. Meanwhile, unexpected vacancies and expensive repairs can quickly turn an income-generating property into a money pit.
A much easier way to make passive income from real estate is to invest in a real estate investment trust, or REIT. Three great options are Invitation Homes (INVH -0.59%), Mid-America Apartment Communities (MAA -0.95%), and Sun Communities (SUI -0.88%). They offer low-cost ways to turn $1,000 into a truly passive income stream.
The easy way to invest in single-family rental properties
Buying a single-family home as a rental property is a common way many people begin their real estate investing journey. They're relatively easy to manage and aren't as cost-prohibitive as other real estate investments. However, they're not exactly passive investments and still require a pretty hefty initial investment in the form of a down payment and closing costs.
Invitation Homes is a much easier way to generate passive income from single-family rental properties. The residential REIT owns over 86,500 homes across 16 markets. That provides its investors with the benefits of geographical diversification. It focuses on high-growth markets, primarily in the U.S. Sun Belt region, where growing jobs and populations drive demand for rental housing. That enables Invitation Homes to realize strong occupancy levels and above-average rent growth.
That rising rental income helps support its dividend, which currently yields 3%. At that rate, a $1,000 investment in Invitation Homes would produce about $30 of annual dividend income. While a rental property might offer a higher income yield, it would also require a higher initial investment. Furthermore, that income stream would vary with occupancy and expenses, while Invitation Homes pays a fixed dividend that increases each year. It boosted its payout by 18% earlier this year.
The other factor driving dividend growth is acquisitions. Invitation Homes recently agreed to acquire nearly 1,900 homes for $650 million. The company's steadily expanding portfolio should allow it to continue increasing its dividend.
Passive income from apartment buildings without the hassle
Buying a small multifamily complex is another way for many people to start investing in real estate. However, that's costlier and more complex than owning single-family rentals.
On the other hand, investing in Mid-America Apartment Communities, or MAA, is an easy way to generate passive income from a multifamily investment. The REIT currently owns over 100,000 apartment units, predominantly in the fast-growing Sun Belt region. That enables it to capitalize on migration trends driving above-average rent growth across that area.
Strong rental housing demand also enables the REIT to invest in building new multifamily communities. It's currently investing $735 million across six projects to add over 2,300 new housing units. These new communities will grow its rental income in the future. In addition, it's investing money into its existing properties to renovate units and add smart home features. These investments should enable the REIT to capture higher rents.
Add in continued market rent growth, and MAA should be able to continue increasing its dividend, which currently yields 3.8%. It gave investors a 12% raise last year, its 13th straight year of dividend growth.
Go off the beaten path for passive income
Sun Communities is another residential REIT. It focuses on non-traditional rental properties like manufactured home communities, RV resorts, holiday parks, and marinas. The company currently owns 671 properties with over 180,000 developed sites and about 48,000 wet slips and dry storage spaces across the U.S., the U.K., and Canada.
These properties generate relatively stable rental income. Manufactured home communities are extremely durable investments because relocating a manufactured home is very expensive. That enables community owners like Sun Communities to raise rents even during a recession. Meanwhile, demand for RV spaces, wet slips, and holiday homes is growing.
The company supplements its growing rental income with an expanding portfolio. It routinely acquires additional manufactured home communities, RV resorts, marinas, and holiday parks. Sun Communities invested $107 million during the first quarter to buy one manufactured community and one marina. Meanwhile, it will invest money into its properties to expand capacity. It added over 110 sites to existing communities in the second quarter.
These drivers should enable Sun Communities to continue increasing its dividend, which currently yields 2.9%. It boosted its payout by 5.7% earlier this year.
Earn passive income the easy way
Owning rental properties can be a great source of income. However, it takes some work, making it a less passive one. In addition, rental properties require a hefty initial investment.
On the other hand, REITs like Invitation Homes, MAA, and Sun Communities are truly passive real estate investments. Furthermore, they're more accessible since REITs require a much lower initial investment (anyone can get started for $1,000 or less). Because of that, those looking to start making passive income from real estate should consider taking the easy road by investing in REITs.
