There's a common misconception that you need a lot of money to invest in real estate. While it's true that buying a rental property has a high upfront cost (because of closing costs, the down payment, and any needed repairs), that's not the only way to get in on the ground floor of investing in real estate.
In 1960, President Eisenhower signed a bill that opened the door to real estate investing to anyone. The Real Estate Investment Trust (REIT) Act of 1960 allowed all Americans to participate in the wealth-creating benefits of commercial real estate. Before that, only wealthy individuals and institutions could afford to invest in these income-producing properties.
You don't need much money to start investing in income-producing REITs. Many have a share price below $100. Three great options for beginning investors to consider are Equity Residential(NYSE: EQR), Realty Income(NYSE: O), and Stag Industrial(NYSE: STAG).
A top-tier landlord
Equity Residential is one of the largest apartment landlords in the country. The residential REIT has investments in more than 300 properties with over 80,000 units across Boston, New York, Washington, D.C., Seattle, San Francisco, Southern California, Denver, Dallas, Atlanta, and Austin. The company focuses on owning higher-end properties that attract affluent renters.
Equity Residential currently trades around $65 per share. The REIT pays a $0.6625 per share quarterly dividend ($2.65 annualized), giving it a 4.1% yield at the recent share price. Every $100 invested into Equity Residential would produce about $4.10 in annual dividend income. While that might seem unappealing initially, the income from this investment would grow as you buy more shares and the REIT increases its dividend.
Equity Residential has grown its payout at a 6.4% compound annual rate since 2011, including by 6% earlier this year. Dividend growth drivers include rising rental income at existing properties and investments to expand its apartment portfolio. The REIT has focused on expanding its portfolio into faster-growing cities in the Sun Belt region in recent years to capitalize on higher rent growth. Equity Residential has a top-notch balance sheet, giving it the financial flexibility to continue making new investments to grow its apartment portfolio.
An elite real estate income producer
Realty Income owns a large and growing portfolio of commercial real estate. The REIT had over 13,100 properties across North America and Europe, primarily in the retail (82.5% of its annualized base rent), industrial (13.1%), and gaming (2.7%) sectors. It owns single-tenant properties net leased to high-quality operators under long-term agreements.
Shares of Realty Income currently sell for around $55 apiece. The REIT pays a monthly dividend of $0.2555 per share ($3.066 annualized), giving it a 5.4% dividend yield at the recent price.
Realty Income has an exceptional track record of increasing its dividend payment. It has raised its dividend 121 times since its public market listing in 1994, including in the last 103 consecutive quarters. The REIT has grown its payout at a 4.4% compound annual rate. The company's main growth driver is acquiring additional income-producing real estate.
A steady grower
Stag Industrial owns a diversified portfolio of industrial properties, including warehouses and light manufacturing facilities. The industrial REIT owns over 550 properties across 41 states.
The REIT's stock price is currently around $35 per share. It also pays a monthly dividend. The current rate of $0.1225 per share ($1.47 annualized) gives it a 4.1% dividend yield. Stag Industrial has increased its dividend every year since its public market listing in 2011.
Stag Industrial's main growth driver is acquisitions. The REIT has acquired an average of $750 million of income-producing industrial real estate over the last eight years. It also benefits from rising rents. Rates on its long-term leases typically rise by more than 2.5% per year. Meanwhile, strong demand for industrial real estate in recent years has enabled it to capture significantly higher rental rates as legacy leases expire and it signs new contracts.
Easy ways to start investing in real estate
REITs enable anyone to begin building an income-producing real estate portfolio. You can start by investing less than $100 into a high-quality REIT like Equity Residential, Realty Income, or Stag Industrial and generate income almost immediately. You can slowly grow your real estate empire as you have cash to invest. Those new investments and rising dividends will steadily increase your passive income from real estate.
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Matthew DiLallo has positions in Realty Income and Stag Industrial. The Motley Fool has positions in and recommends Stag Industrial. The Motley Fool recommends Realty Income. The Motley Fool has a disclosure policy.
