Investing in real estate is a well-established method of generating passive income. But it comes with some downsides. For example, you might need a significant amount of upfront money. Your rental property might not be as liquid as you'd prefer. You could also incur a myriad of recurring expenses, including property taxes, insurance, and maintenance.

Don't want the headaches of owning rental property? There's another alternative. Investing $30,000 in these dividend stocks could make you nearly $2,000 in annual passive income.

1. Crown Castle

Crown Castle (CCI -0.64%) ranks as the largest communications infrastructure provider in the U.S. The company owns more than 40,000 cell towers, roughly 115,000 small cell nodes, and close to 90,000 miles of fiber.

Since 2014, Crown Castle has been organized as a real estate investment trust (REIT). As a REIT, the company must return at least 90% of its earnings to shareholders in the form of dividends to be exempt from federal taxes. With its dividend currently yielding 6%, investing $10,000 (one-third of the initial $30,000) in Crown Castle would give you $600 in annual passive income.

Crown Castle is admittedly in a transitional period. It continues to search for a new CEO. Revenue has fallen due to the cancellation of cell tower leases related to T-Mobile's acquisition of Sprint. The company also faces litigation from activist investor Ted Miller and Boots Capital Management.

However, the demand for Crown Castle's communications infrastructure remains strong. The company expects to generate adjusted funds from operations (FFO) of between $2.98 billion and $3.03 billion in full-year 2024. That range is more than enough to fund the dividend program at current levels.

2. Innovative Industrial Properties

Innovative Industrial Properties (IIPR -3.68%) (IIP) is the only REIT focusing on the regulated U.S. cannabis industry that trades on the New York Stock Exchange. The company owns 108 properties spread across 19 states. Most of them (98.5%) are leased to cannabis operators. The weighted-average remaining lease term for IIP's properties is 14.6 years.

Few REITs can boast of as impressive a track record of dividend hikes as IIP. The company has more than quadrupled its dividend payout over the last five years. IIP's dividend yield currently stands at 7.47%. Buying $10,000 of its shares would give you $741 in annual income at that level.

Some of IIP's tenants have experienced financial challenges in recent years. The U.S. cannabis industry continues to deal with a supply glut that drove prices down. These issues have had a ripple impact on IIP.

But the future for cannabis operators could be improving. Wall Street is also generally bullish about IIP's prospects with an average 12-month price target reflecting an upside potential of nearly 25%.

3. WP Carey

WP Carey (WPC -0.58%) ranks among the largest REITs specializing in commercial real estate. It owns 1,424 properties in 26 countries. The company's occupancy rate is 98.1% with a weighted-average lease term of 11.7 years. WP Carey's top tenants include U-Haul, the State of Andalucia, and Apotex Pharmaceutical Holdings.

The REIT had a great streak of dividend increases going until it slashed the dividend by nearly 20% in late 2023. However, I think this cut puts WP Carey's dividend program on a more solid footing going forward. With the dividend now yielding 6.19%, an investment of $10,000 would generate $619 in annual passive income.

Commercial real estate has been a rough market to be in since the COVID-19 pandemic lockdowns. WP Carey spun off its office properties into a separate REIT as part of a strategy to exit this market. I think that's a smart move. The company should be in a solid position to invest in more properties in 2024 and grow its adjusted FFO.

Two risks to note

Investing $30,000 in these REIT stocks ($10,000 in each) could enable you to make $1,960 in passive income over the next 12 months, just a little under the $2,000 mark. However, there are two risks to note.

First, it's possible that one or more of these REITs could cut their dividends. I think the chances of this happening, though, are low -- especially with WP Carey already reducing its dividend payout last year.

Second, the stocks could fall so much that they wipe out any dividend income you receive. This is always a risk with investing in dividend stocks. On the other hand, should the Federal Reserve reduce interest rates later this year, it could provide a strong catalyst that causes all three of these stocks to jump.