News

Earning passive income can put you on the path to financial freedom. Over time, it could grow to cover your expenses.

Investing in real estate is one of the many ways to start generating passive income. There are lots of options within that sector. The easiest for beginners is to invest in real estate investment trusts (REITs). Most REITs pay higher-yielding dividends that steadily rise over time, making them ideal passive income investments. Here are five great ones to invest $5,000 into right now:

Data source: Google Finance. Note: Dividend yields as of June 27, 2024.

Here's a closer look at these income-generating REITs.

An agreeable income stream

Agree Realty is a REIT focused on freestanding properties net leased or ground leased to financially strong retailers. Those leases provide it with very stable rental income that tends to rise each year. It pays less than 75% of that income to investors via dividends each month.

The REIT has increased its dividend at a 5.6% compound annual rate over the past decade. That steady growth should continue as Agree Realty expands its portfolio of income-producing real estate. It expects to invest about $600 million into new properties this year. It should have a long growth runway ahead. Most retailers are still widening their footprints and often monetize their real estate via sale-leaseback transactions to fund their continued growth. Agree Realty tends to work with expanding retailers, which supplies it with a steady stream of new investment opportunities.

A bright future

Mid-America Apartment Communities, or MAA, is a leading residential REIT focused on owning apartments in the fast-growing Sun Belt region. Due to population migration, housing demand has been rising steadily across the South. This has benefited existing communities (high occupancy levels and steadily rising rents) while opening the door to developing new communities.

MAA's occupancy was 95.3% in the first quarter, while rents rose 1.5%. Those levels were below its recent averages due to an increase in new apartment supplies across its markets. As those markets absorb that new supply, which should occur later this year and into 2025, occupancy levels and rents should improve. Meanwhile, the company has five new communities under construction and expects to start four to six more over the next two years. These drivers should enable the REIT to continue boosting its dividend as it has in each of the last 14 years.

Cashing in on robust demand for industrial real estate

Stag Industrial is an industrial REIT focused on warehouses and light manufacturing facilities. Those properties supply it with steadily rising income to pay its monthly dividend.

Demand for industrial real estate has been robust since the pandemic. Accelerating e-commerce adoption, changing inventory management practices, and onshoring manufacturing have increased the need for these properties. That's driving robust rent growth for Stag as legacy leases expire (new and renewal leases signed in the first quarter were 30.5% higher on a cash basis than the prior rates on the same space). The company also continues to acquire additional income-producing industrial properties (it expects to buy $350 million to $650 million in properties this year). These factors should enable it to steadily raise its dividend.

Back on a growth trajectory

W.P. Carey is a diversified REIT that focuses on owning single-tenant industrial, warehouse, and retail properties net leased to high-quality tenants. The company also operates a portfolio of self-storage properties. These properties supply it with stable and growing income, with the majority of its leases tied to inflation.

The REIT recently sold or spun off most of its office properties to focus on property types with better long-term fundamentals. With that strategic shift came a dividend reset.

However, W.P. Carey has started rebuilding its portfolio (it committed to investing $700 million into warehouse, industrial, and retail properties this year) and its dividend (two increases already in 2024). The company has lots of financial flexibility to continue enhancing its portfolio, which should grow its cash flow and dividend.

An exciting income grower

Vici Properties focuses on experiential real estate, such as casinos, bowling entertainment centers, and other leisure and entertainment properties. It leases these properties back to the operators under long-term net leases, which supply it with very stable and growing rental income.

The REIT has expanded briskly. It has increased its dividend at a 7.9% compound annual rate since 2018, driven by a steady stream of new investments. Vici Properties has acquired several gaming and non-gaming properties, completed a transformational merger with another gaming REIT, and invested in multiple development projects. It partners with leading experiential business operators, which provides it with new investment opportunities. Recent deals include funding enhancements at The Venetian Resort Las Vegas and developing a new Margaritaville Resort in Kansas City.

Great ways to turn cash into income

REITs enable anyone to start earning passive income from real estate. Most offer attractive dividend yields and tend to increase their payouts each year. As a result, the more money you invest in REITs, the more income you should be able to make in the future.

Should you invest $1,000 in Agree Realty right now?

Before you buy stock in Agree Realty, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Agree Realty wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $757,001!*

Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.

See the 10 stocks »

*Stock Advisor returns as of June 24, 2024

Matt DiLallo has positions in Mid-America Apartment Communities, Stag Industrial, Vici Properties, and W. P. Carey. The Motley Fool has positions in and recommends Mid-America Apartment Communities, Stag Industrial, and Vici Properties. The Motley Fool recommends W. P. Carey. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.