Owning a rental property can be very lucrative. Rental properties can generate passive income and provide tax benefits. However, there are several potential drawbacks. Rental property investments often require a large upfront investment and a lot of work, making them a potentially stressful investment.

Much less costly and less stressful Real estate investment Buying shares in a real estate investment trust (REIT). Congress created these entities in the 1960s to enable anyone to invest in income-producing real estate.

You can invest in most REITs for less than $1,000. Two are great for starters Invitation houses (INVH -0.03%) and Camden Property Trust (CPT -0.63%). They enable investors to own part of a portfolio of income-generating residential rental properties without stress.

Single-family rental income without work

Invitation houses a Residential REIT Focused on single-family rentals. The company owns more than 86,600 homes in several of the nation’s top housing markets:

A slide showing a map of Invitation Homes major markets.

Image Source: Invitational Homes Investor Relations Presentation.

As the slide showcases, REITs focus on owning rental properties in markets benefiting from above-average employment, population, and home price growth. This strategic focus on location enables it to achieve strong occupancy levels and capture above-average rental growth rates because rents in its markets are so cheap. This allows Inviting Homes to generate an ever-increasing rental income.

Invitation Homes has continuously grown its rental property portfolio by acquiring additional homes. It bought more than 2,500 homes last year for more than $1 billion, partially financed by selling 726 homes for $269 million. The company buys homes from various sources, including directly from home builders. For example, in 2021, it signed an agreement PulteGroup PulteGroup will design and build 7,500 new homes for single-family rentals over a five-year period.

The REIT’s growing rental income enables it to pay an attractive and growing dividend that currently yields 3.3%. Every $1,000 invested in inviting homes will generate about $33 of annual passive income at that rate. Unlike rental property income which can fluctuate in expenses, investors in Invitation Homes can bank on consistent gains. Dividend payment every quarter. The REIT has historically increased its dividend every year (it gave investors an 18.2% increase in 2023). That steadily increasing payout makes inviting homes a comfortable way to collect passive income from single-family rental properties.

Increasing apartment rental income without the stress

Camden Property Trust is a residential REIT focused primarily on owning apartment communities. It has a large and diverse portfolio:

A slide showing a map of Camden Property Trust's portfolio.

Image Source: Camden Property Trust Investor Relations Presentation.

Like Invitation Homes, Camden Properties focuses on owning rental housing in Sun Belt area markets, benefiting from above-average population and job growth. This has created tight housing markets, increasing occupancy and rental rates. Those factors enable the company to generate steadily increasing rental income.

The company has grown its apartment portfolio over the years by developing new communities. Camden is investing $661 million to develop six new communities, including two single-family rental communities. In addition, the company has acquired enough land to support nine additional developments with more than 3,350 additional rental homes. These investments will provide the company with incremental rental income to develop additional rental communities.

Camden’s growing rental income also allows it to pay an attractive and growing dividend. The apartment REIT currently yields 3.8%, turning every $1,000 invested into about $38 of annual passive income. Investors can count on constant and steadily increasing payouts. Camden has an excellent track record of increasing its dividend, including giving investors a more than 6% increase earlier this year.

A less stressful way to become a landlord

REITs enable anyone to generate truly passive income from real estate. They can be a better investment than buying a rental property because they are stress-free investments that pay predictable income. Invitation Homes and Camden Property Trust are great options for beginners. They enable anyone to get in on the ground floor of owning a large portfolio of income-producing rental properties without the stress of being a landlord.

Matthew DiLalo has positions at Camden Property Trust and Invitation Homes. The Motley Fool has had posts on and recommended Camden Property Trust and Invitation Homes. Motley Fool has a disclosure policy.

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