How to Make Passive Income in Real Estate With Just $1

A common misconception about real estate is that it takes thousands of dollars to be able to invest in it, but believe it or not, you can make passive income from real estate with as little as $1 by investing in REITS…yes, you read that correctly!

Listen, I completely understand that this may seem impossible, but I can assure you that it is in fact possible. BUT before I explain what a REIT is PLEASE don’t take whatever I say in this blog as financial advice!!! I’m just a 20-year old that enjoys talking about personal finance. If you would like to invest in REITs after reading this blog, please be sure to spend time doing your own research.

Ok! Now that I’ve gotten that out of the way, let’s go back to where we were at…A REIT is an acronym that stands for Real Estate Investment Trust. REITs are companies that own properties that generate income across various real estate sectors such as residential and commercial. What makes REITS very simple to invest in is that they’re available to trade on the stock market. But you’re still probably wondering, how in the world can you invest in REITs with just one dollar? Well, many stock brokerages nowadays such as Robinhood allows you to own a fraction of a share. So let’s say that a company is trading for $10 per share and you invest $1 into that company, this means that you would own a tenth of a share of that company.

Okay, now that you know that it’s possible to be invested in real estate with as little as $1, let’s go over the pros and cons of investing in REITs.

The Pros

The one thing that I love the most about REITs is the high dividend yield that they tend to have. If you don’t already know, a dividend is money that’s typically paid quarterly by a company to its shareholders because they’re just so dang profitable! And the reason why REITs pay high dividend yields is that they are required to pay 90% of taxable income to their shareholders.

Another thing that makes REITs a solid investment is that they are very liquid meaning they can easily be bought and sold. REITs also allow you to diversify your portfolio if you don’t have the money to purchase residential or commercial real estate.

The last thing worth mentioning about REITs is that since they are traded on the stock market, the price of their shares can go up, but don’t forget that they can also go down.

The Cons

Ok, I don’t want to hype REITs up too much now because there are some drawbacks to REITs that you should know about with one of them being Uncle Sam’s favorite thing in the world and that’s taxes! The dividends that you get paid from REITs tend to be taxed much higher than the dividends that you get paid from all other stocks. I’m nowhere near a professional on taxes, so I would get in touch with one to learn more about this.

And one other thing that you should take into consideration when deciding on whether or not to invest in REITs, especially nowadays is that they’re sensitive to interest rates being raised. With inflation out of control, the federal reserve is planning to raise interest rates a couple of times this year, which could potentially cause the price of REITs to tank. But hey, that would be the perfect opportunity to buy the dip as some investors say.

Conveying the Power of Investing in REITs

To give you an idea of how much passive income you can make from REITs let’s say that you invested $1,000 into Vanguard’s Real Estate ETF, which is composed of over 168 different REITs and its ticker symbol is VNQ.

With the dividend yield on VNQ being 2.39%, you would receive a whopping $23.90 per year!!! Ok…I know that doesn’t seem like a solid return on your investment, but keep in mind that the price of the REITs that VNQ is composed of will appreciate over time. And it’s also worth mentioning that the dividend yield can increase as well.

My Top Three REITs

And just so you know that I put my money where my mouth is, here are three REITs that I’m invested in…

Simon Property Group (SPG) - the current dividend yield is 4.02% and I’ve averaged a 111.96% return on my investment.

Realty Income (O) - the current dividend yield is 4.19% and I’ve averaged a 12.31% return on my investment.

Welltower (WELL) - the current dividend yield is 2.91% and I’ve averaged a 47.09% return on my investment.

An Entryway to Investing in Real Estate

In all honesty, you’re not going to become a millionaire by investing in REITs, at least not as quickly as you want. The appeal to investing in REITs is that it’s a very simple way to earn passive income.

The way to REALLY build wealth is by investing in real estate and REITs can help you learn about the ins and outs behind doing that. I plan on creating a blog in the near future on all of the ways that investing in real estate helps you in building your wealth, so if you’re interested in knowing about that be sure to be on the lookout for that! Thanks so much for taking the time out of your day to educate yourself on a new method to make passive income through REITs.

Citations

Ashworth, Will. “5 Types of REITs and How to Invest in Them.” Investopedia, Investopedia, 30 Dec. 2021, www.investopedia.com/articles/mortgages-real-estate/10/real-estate-investment-trust-reit.asp.