Investing in rental properties is one of the many ways to generate passive income. However, like everything else, this investment strategy has its benefits and drawbacks.

A big negative is the large up-front investment needed to purchase a property and make it ready to rent. With the average home price in the country approaching $500,000, it can cost more than $100,000 to purchase a rental property when factoring in closing costs, down payment, repairs, and marketing costs.

Thankfully, you don't need anywhere near $100,000 to start investing in rental properties. A much lower cost (and even more passive) approach is to invest in a real estate investment trust (REIT). Many REITs have share prices of less than $100 and pay dividends on a quarterly or monthly basis. Invitation Homes (INVH -0.59%) and Equity Residential (EQR -1.09%) are great rental property alternatives.

Your rental property replacement

Invitation Homes is a residential REIT focused on single-family rental properties. The company owns or manages over 100,000 homes across more than a dozen major U.S. markets. It focuses on areas benefiting from above-average population and job growth. That drives housing demand, keeping occupancy levels high across its portfolio, allowing it to steadily increase rents.

You can buy a tiny sliver of Invitation Homes' massive rental property portfolio for around $35 per share. The company pays a quarterly dividend of $0.28 per share ($1.12 annualized). That gives it a dividend yield of more than 3%. Put another way, every $100 you invest in Invitation Homes stock should generate a little more than $3 of dividend income each year. The more you invest, the more income you'll collect.

The REIT has steadily increased its dividend over the years, driven by rising rents and a steadily expanding portfolio. It recently agreed to buy 500 more newly built homes from high-quality builders in three top markets across the Southeast. It also invested in a portfolio of homes that it will manage for its joint venture partners.

The company has a strong balance sheet, which allows it to continue investing in more rental properties. As an investor, you'd benefit from Invitation Homes' management expertise, geographically diversified portfolio, and growing dividends.

A leading landlord

Equity Residential is one of the country's largest apartment REITs. It owns nearly 300 apartment communities with almost 80,000 units across several major markets, predominantly in coastal cities like New York City and Seattle. It also has a growing presence in faster-growing Sun Belt markets like Atlanta, Dallas, and Austin, Texas.

You can buy a small slice of Equity Residential's vast apartment portfolio for around $65 per share. The REIT currently pays a quarterly dividend of $0.675 per share ($2.70 annualized). That works out to a more than 4% dividend yield at the recent share price, implying you'd collect over $4 of annual dividend income for every $100 you invest in its shares.

Equity Residential has increased its dividend over the years, driven by rent growth and its steadily expanding portfolio. The REIT is benefiting from strong apartment demand in its core markets, where it's often much cheaper to rent than buy a home.

The landlord has been selling off older properties (it sold three in the first quarter for $248.5 million) to fund new investments. For example, it began construction on a new 440-unit property in Boston, which should cost around $232.2 million. That's one of several properties it's building, which include many new developments in its expansion markets across the Southeast.

As a leader in multifamily, Equity Residential provides investors access to a high-quality portfolio of professionally managed apartment communities that should supply steadily rising income to pay dividends.

REITs make it easy to start collecting passive income from real estate

REITs are a great way to get in on the ground floor of investing in real estate. They're low-cost and completely passive investments. Because of that, anyone can invest in REITs and start collecting a growing stream of passive income.