Earn Monthly Rental Income (Without Becoming a Landlord)
July 13, 2017
Collect Rent Checks Starting July 17
Admit it: we’ve all thought about putting down a chunk of cash and buying a rental property. But while we could all use the extra money, becoming a landlord is no walk in the park. You have to mow lawns, fix broken pipes, and collect security deposits.
And we’ve all heard those landlord horror stories of renters trashing apartments, causing thousands of dollars in damages. How many of us want to spend our golden years chasing down rent from deadbeat tenants? Ugh, forget that!
There is, however, a better way. Thousands of Americans rely on these investments for regular distributions without dealing with renters. In fact, I’ve exploited this method myself to pad my income.
I’m talking, of course, about becoming a virtual partner through real estate investment trusts, or REITs. These firms buy properties, collect rent from tenants, and pass on the profits to owners. And for investors looking for reliable income, there might be no better business in the world. Here’s why.
You have a lot fewer hassles, for starters. Management handles all of the day-to-day operations. They find the tenants, fix the toilets, and collect the rent checks, not to mention do all of the other dirty jobs that come with owning a property. Owners just have to sit back and wait for the distributions to arrive in their brokerage accounts.
They come with built-in diversification, too. If your only tenant misses a payment, it can put you in a tight bind. REITs, however, often own vast real estate empires, with hundreds of properties and thousands of renters.
Furthermore, these deals can be quite lucrative. Most landlords crack open the bubbly if a tenant signs a one-year lease (and actually pays on time). If a renter stays a year or two longer, all the better.
Many REITs, though, specialize in commercial and industrial properties. These renters typically sign 10-year leases or longer. The landlord can literally circle the dates on the calendar for when they’ll get paid years in advance.
Needless to say, these tenants have a lot more rent money than the broke students answering ads on Craigslist. You’re talking about well-known American businesses like McDonald’s Corporation (NYSE:MCD), Home Depot Inc (NYSE:HD), and Wal-Mart Stores Inc (NYSE:WMT). These companies are rock-solid from a financial perspective and aren’t going out of business anytime soon. For owners, this translates into a steady income stream.
Because of how these partnerships get structured, the government requires REITs to pay out most of their profits. In exchange for jumping through this legal hoop, these firms pay no corporate income taxes. As a result, you can often find REITs yielding five up to even nine percent.
| Name |
Type
|
Yield
|
Next Payment
|
| Essex Property Trust Inc. | Apartments | 2.3% | October 14 |
| HCP, Inc. | Healthcare | 4.6% | August 23 |
| Realty Income Corp | Commercial | 4.7% | August 15 |
| Apple Hospitality REIT Inc | Hotels | 6.5% | July 17 |
| Government Properties Income Trust | Office | 9.3% | August 22 |
Source: Various Company Filings
Many REITs pay out monthly, so mixing and matching a few different trusts together can create a tidy flow of distribution checks. As you can see in the chart above, it’s easy to create an income stream that pays out every few weeks.
The Bottom Line on REITs
It’s no secret that owning rental properties can make for a lucrative source of retirement income. But for those of us who don’t want to deal with tenants, becoming a virtual partner through REITs is a great alternative. It’s why I own a number of these firms myself.
Of course, there’s more you need to know before getting started in this niche. My colleague Gaurav prepared a great guide to investing in these trusts. You can also find a list of some of our favorite REITs by clicking here.
