There is nothing quite like earning passive income. Getting a check month after month and year after year without having to do the work to earn it is a beautiful thing. As the broader market gets hammered, reliable passive income streams are more valuable than ever. And luckily, with the current market volatility, it’s also a good time to pick up passive income generating investments for a bargain price.
If you’re on your way to building passive income, here are two ways to generate $1,000 or more in passive income every month.
Rental income can be an extremely reliable source of passive income. The key is finding a rental property that generates enough cash flow, or rental income, to not only pay for the property’s expenses — such as a mortgage, property taxes, insurance, or maintenance — but also to provide some extra cash each month. Additionally, because you can hire a professional property manager, you don’t have to be the one vetting tenants, showing the property, collecting rent, coordinating repairs, or doing other administrative tasks necessary to own a rental property. You can simply enjoy the rental properties’ monthly cash flow in addition to potential appreciation and certain tax benefits.
For example, let’s say you find a rental property just above the average house price of $300,000. You pay $60,000 or 20% and rent the property for $2,600 per month. After paying the $2,150 it costs to own and maintain the property each month, you have a net cash flow of $450. Depending on the rental property in question, the cost of holding the property and the potential rent, you can earn more or less. But it’s doable to generate hundreds of dollars of cash flow from a single rental property.
For those of you who have a bunch of cash to work with and are in a good financial position to qualify for a mortgage, rental investments can be a great option. However, for those who aren’t quite there yet, or simply prefer not to have to own real estate, there is another option.
Monthly dividend REITs
Real estate investment trusts (REITs) are a unique type of stock that invest in real estate and real estate-related securities, such as mortgages or residential or commercial leases. To receive certain tax benefits, REITs must return 90% of their taxable income in the form of dividends. That means they can provide access to real estate’s reliable income streams while still being able to pay their own reliable income streams in the form of dividends.
Most REITs pay quarterly dividends, but a handful pay monthly dividends. retail REITs Realty Income (NYSE: O) and Agree Realty (NYSE: ADC); STAG Industrial (NYSE: STAG), which invests in warehouses and fulfillment centers; and EPR Properties (NYSE: EPR), which owns and operates a variety of entertainment venues, are four great monthly dividend-paying REITs that currently offer an average dividend yield of 4.86%. That means that if you invest $100,000 in the three companies, you can expect to earn about $405 a month in passive income.
Also, investors have the additional opportunity to increase dividends in the future, which increases your returns and ultimately how much passive income you earn each month. Realty Income, for example, has increased its dividend 115 times since 1994, putting it in the exclusive category of Dividend Aristocrats. And Agree Realty has already increased its dividends four times since switching from quarterly to monthly payments in 2021. Dividend increases aren’t guaranteed, but they’re common, especially for these four REITs. Investment returns on a REIT can be slightly lower than on a rental property REIT, but REITs offer a number of other advantages such as liquidity, accessibility, diversification across different markets and industries, and access to higher-quality institutional real estate that would often be unattainable outside of a REIT. The key is to buy and hold the REIT or rental property for the long term.
With this long-term investment approach, you will achieve maximum returns and let your passive income grow without the need for additional investments.
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