There’s nothing better than 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 thankfully, due to the current market volatility, it’s also a favorable time to scoop up passive-income-generating investments for a steal.
If you’re getting started on the path to building passive income, here are two ways to generate $1,000 or more in passive income each month.
Rental income can be an extremely reliable source of passive income. The key is to find a rental property that generates enough cash flow or income from the rent to not only pay for the property’s expenses — like a mortgage, property taxes, insurance, or maintenance — but also provide some extra money each month.
Plus, since you can hire a professional property manager, you don’t have to be the one to screen tenants, show the property, collect rent, coordinate repairs, or any of the other management responsibilities required from owning a rental property. You simply get to enjoy the rental properties’ monthly cash flow on top of potential appreciation and certain tax benefits.
For example, let’s say you find a rental property just above the median home price of $300,000. You put down $60,000, or 20%, and rent the property for $2,600 a month. After paying the $2,150 it costs to own and maintain the property each month, you net a cash flow of $450. You can earn more or less depending on the specific rental property, the cost of holding the property, and its potential rent. But it is viable to generate several hundred dollars of cash flow from a single rental property.
For those of you who do have a chunk of money to put to work and have good financial standing to qualify for a mortgage, rental investing can be a great option. However, for those who aren’t quite there yet or simply would prefer not to have to own real estate themselves, there is another option.
Monthly dividend REITs
Real estate investment trusts (REITs) are a unique type of stock that invests in real estate and real-estate-related securities like mortgages or residential or commercial rental properties. To receive certain tax benefits, REITs are required to pay out 90% of their taxable income in the form of dividends. That means they can offer exposure to the reliable income streams of real estate while paying their own reliable income stream in the form of dividends.
Most REITs pay quarterly dividends, but a handful pay dividends monthly. Retail REITs Realty Income (NYSE: O) and Agree Realty (NYSE: ADC); STAG Industrial (NYSE: STAG), which invests in warehouses and logistics centers; and EPR Properties (NYSE: EPR), which owns and operates a variety of entertainment venues, are four great monthly dividend-paying REITs that offer an average dividend return of 4.86% right now. That means that with a $100,000 investment in the three companies, you can expect to receive about $405 of passive income per month.
Plus, investors have the added opportunity of dividend increases in the future, boosting your rate of return and, ultimately, how much passive income you earn each month. Realty Income, for example, has raised its dividend 115 times since 1994, putting it in the exclusive category of Dividend Aristocrats. And Agree Realty has increased its dividends four times already since making the switch from quarterly payments to monthly payments in 2021. Dividend raises aren’t guaranteed, but they are common, especially among these four REITs.
Investment returns may be slightly lower with a REIT than a rental property, but REITs offer a slew of other benefits like liquidity, accessibility, diversification across different markets and industries, and access to higher-quality institutional-grade real estate that often would be beyond reach outside of a REIT. The key is to buy and hold the REIT or the rental property for the long haul. Taking this long-term approach to investing yields maximum returns and allows your passive income to grow without requiring additional investments.