Rental properties are a lot of work. Leaky plumbing is just the beginning. Tenants calling at all hours, damage to property, managing timely rent payments, and arranging utility bills are all par for the course.
The upside is earned income from rentals are classified as passive income from the IRS. Though, if you’ve been down in the trenches managing rental properties, you know well that there is nothing passive about it.
However, there is a better way to earn passive income without all the headaches associated with being a landlord, and that is by buying REITs. And here are two top ones to consider:
Camden Property Trust
If you have ever watched Grant Cardone, you probably got convinced that buying single family rentals is not the way to go but buying multifamily units is the way to get started on the property ladder.
The thesis goes like this. Why manage a single property for a single rental stream when you can put a property manager in place to manage tens or hundreds of units and scale up your income?
The problem for a regular individual is cobbling together the initial downpayment that could stretch into the hundreds of thousands or millions of dollars?
Is there a better way?
Yes, buy a REIT. But which one?
Camden Property Trust owns over 170 properties encompassing over 58,000 apartments. The company pays its shareholders a dividend yield of 2.8% and has a stellar history of boosting payouts.
Economic trends are very much in favor of Camden now with rents up over 15% in Q2. Best of all for shareholders, the company is reinvesting cash flows and plans to build over 1,800 further apartments, which are forecast to cost over $600 million.
As rents rise and the company’s portfolio expands, expect Camden to further hike payouts to dividend investors.
If Grant Cardone didn’t convince you that multifamily units are the way to go, and you’re persuaded to the value of single family rentals, but don’t want to actively manage them yourself, consider Invitation Homes.
Like Camden, Invitation Homes has a broad portfolio, featuring 80,000 rental units. The company serves fast-growing markets also.
Analysts are very bullish on the company with the consensus target pegged at $44 per share, almost 30% higher than the current share price. That optimism stems from a combination of low inventory levels and a partnership with PulteGroup to supply over 7,000 new homes in the next 5 years.
The company pays a yield of 2.44% to shareholders, which is not eye-popping but beats the volatile cash flows experienced by most active managers of single family units, who suffer dips when tenants leave and repairs are needed.
There’s lots of reasons to be optimistic about the future. Over the past 5 years, regardless of pandemic challenges, Invitation has managed to stay in the black on the key top line metric, growth:
- 2017: 14.3%
- 2018: 63.4%
- 2019: 2.4%
- 2020: 3.3%
- 2021: 9.4%
Expect management to stay the course and continue to expand the portfolio, and hike dividends along the way, which in turn will deliver shareholders handsomely.