Love Passive Income? Here’s How to Make Plenty of It as a Real Estate Investor
Real estate investing has long been a proven route to wealth, but it can also require a lot of upfront investment and then time and/or money to manage those assets.
Then there’s passive income, the cash flow you receive for your investments, which requires nothing more from you than owning the assets. Real estate investment trusts (REITs) are a particularly easy way to take advantage of these benefits.
These income-generating property pools are required to return at least 90% of their taxable income to shareholders, and there are about 220 publicly traded REITs that also offer the benefits of liquidity and transparency that come with owning publicly traded stocks.
Here are two that I own and add to regularly when I can. Each operates in a different sector, which adds some diversification to all of the other attributes mentioned above.
1. Real Estate Income
real estate income (O -0.54%) is a poster child for passive income. This giant retail REIT bills itself as “The Monthly Dividend Company,” and has done just that for 625 straight months and counting. And it has delivered an average annual total return of 15.1% since its listing on the NYSE in 1994.
Realty Income thrives on the more than 11,400 properties it owns in every US state, Puerto Rico, Spain and the UK. The portfolio is more than 98% occupied and is also growing rapidly. The company plans to spend $6 billion on acquisitions in 2022 alone, and with a customer list full of recession-resistant retailers, that flow of passive income is likely to just keep going.
Currently, shares of Realty Income sell for about $74 per share and pay a monthly dividend of $0.2475 per share, for a yield of about 4%.
2. Life Storage
life store (LSI -0.64%) is a leading self-storage company that went public in 1995 as Sovran Self Storage; It operated under the Uncle Bob’s Self Storage brand name until changing to its current name following the acquisition of LifeStorage LP in 2016.
This industrial REIT has grown with the industry and today operates more than 1,100 facilities covering 67 million square feet in 36 states. The business includes both captive stores and a thriving third-party management platform.
Monthly leases and steady demand should allow Life Storage to quickly increase rents while growing revenue, as does the growth of the portfolio itself, including the 13 stores it bought and the 17 it added to its management platform in the second quarter Has.
As far as dividend payouts go, Life Storage has increased its dividend for three straight years, including a recent 8% increase to $1.08 per share. The stock is now yielding about 3.3% at a share price of about $134.
O Total Return Level data from YCharts
As the chart above shows, Realty Income and Life Storage have the S&P500 in total return for quite some time, and there is good reason to believe that this outperformance will continue. Total returns, of course, combine stock price growth and dividend payouts, which helps make this performance of these two real estate investment options doubly impressive.
Marc Rapport has positions at Life Storage Inc and Realty Income. The Motley Fool recommends Life Storage Inc. The Motley Fool has a disclosure policy.