Love Passive Income? Here’s How to Make Plenty of it as a Real Estate Investor
Written by Amy Legate-Wolfe at The Motley Fool Canada
One of the best ways to earn a lifetime of passive income is through real estate. I’m sure many of us know about it whether we invest or not. But not everyone can afford to become a real estate investor.
In fact, there are many headaches that come with getting into real estate beyond the initial price. There’s the upkeep, the management, finding residents, and then the possibility of what we’re going through now with a housing crisis.
Hence the way of doing it most Passive income from real estate comes through Real Estate Investment Trusts (REITs).
cost-benefit
The first benefit of choosing REITs over passive income real estate is the initial cost. You can put down a $30,000 down payment and then have a mortgage that you’ll have to take care of for years. Even if your tenants cover the mortgage, there is always a risk that your property will be vacant for a while. Then these costs are at your expense.
Meanwhile, REITs only have the initial investment you decide to make and no more. It is then managed by a team of professionals who can manage the properties instead of you. And if you decide you need the cash, just take it out. It’s easy and a lot less stressful.
The tax benefit
If you own a property, there will certainly be tax implications that come with it. I won’t go into everything here but suffice it to say if you own more than one property the government will tax you for it.
Meanwhile, owning a REIT could create tax free passive income. This is done by investing in a Tax Free Savings Account (TFSA). Not only are you creating passive income, you are creating income that the government can’t tax even a penny on.
Create more Cash
Here’s the other thing. We’ll break down the numbers here and see that you could actually make if you invested $30,000 in real estate today compared to the same amount in a REIT more money by investing in the REIT.
Let’s say you invest in Toronto. The average cost of a home in 2021 was just under $1.1 million. Meanwhile, the median home cost in 2002 was $275,231. That’s gains of $824,769 — a compound annual growth rate (CAGR) of 7.17% over the past two decades.
However, this adds up to your costs of owning the property, including property taxes, government taxes and general upkeep. These can add up quickly, and even rising rental costs don’t always mean you walk away with tons of cash in your pocket.
Let’s say you wanted to make that $824,769 from a REIT instead. You can find a far more stable option in a stock Granit REIT. It operates industrial properties and currently has a dividend yield of 4.64%. One that has risen at a CAGR of 3.96% over the past decade. Also, shares have grown at a CAGR of 10.81% during that time!
bottom line
If we put all this together, you could do it far more from Granite REIT with far fewer Risk. You would surpass the amount you made from your property in 27 years and reach $859,224. And remember, that’s without adding another penny beyond $30,000! There are also no mortgage payments and no property taxes – no taxes whatsoever.
Meanwhile, you would bring in passive income to reinvest at $1,420 as of now. Frankly, when it comes to passive income, REITs are just a no-brainer compared to real estate.
The post Love passive income? Here’s How to Make the Most of It as a Real Estate Investor appeared first on The Motley Fool Canada.
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Stupid contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends GRANITE REAL ESTATE INVESTMENT TRUST. The Motley Fool has a disclosure policy.
2022