Anyone could use some extra passive income. You can become a passive landlord right away! You only need to invest passively in real estate. You can earn monthly income without lifting a finger.
To invest passively in real estate, buy units in a real estate investment trust (REIT); It is very much like buying shares of a company. Here are some REITs with secure monthly cash distributions you can consider today!
stock of miscellaneous H&R Rite (TSX:HR.UN) is on the recovery path. It still has gained almost 40% to return to its recent net asset value of $22.24.
Last month, it reported first-quarter results, which saw funds from operations (FFO) of about $120 million — a 12% decline year over year. FFO per unit came in at $0.40 – a drop of 11%. This translated into an FFO payout ratio of around 44%. This is a low payout ratio for a REIT, especially since FFO per unit is projected to return to normalized levels in 2022.
The low payout ratio provides a margin of safety to protect the monthly dividend, which may put further pressure on near-term FFO. In Q1, its retail portfolio rent collection stood at 92%, while its office, residential and industrial rent collection remained flexible at 99%, 96%, 100%. In the near future, due to the impact of the pandemic, attached mall rental collection may become untenable, as people prefer to shop at open air shopping centres.
The Monthly Earnings stock gives a cool 4.3% in writing. The good news is that it can improve its cash distribution to a more normalized level as the FFO improves. Buyers today are probably looking at a forward yield of around 8%, but it could take a few years for its cash distribution to recover to that level.
The H&R REIT’s industrial assets were among the most defensive in its entire real estate empire. Unfortunately, they contributed only 6% of its rental income.
It’s not like that Granite REIT (TSX: GRT.UN), which is 100% an industrial REIT. In fact, Granite owns about 115 properties in seven countries, including Canada, the United States, Germany, the Netherlands, and other parts of Europe.
Here are the company’s recent results. For Q1, it reported net operating income growth of 20% to $81.5 million compared to Q1 2020. FFO increased marginally by 0.5% to $57.1 million. FFO per unit declined 11% to $0.93. Excluding refinancing costs, the FFO per unit would have decreased by just 5% to $1.00. The Granite REIT had an adjusted FFO payout ratio of about 78%, and its occupancy remained strong at 99.1%.
Notably, Granite is the REIT’s largest tenant. magna, which contributes about 35% of its annual rental revenue.
Granite REIT Good for an initial yield of around 3.7%. In addition, it has increased its cash distribution every year since 2011. It looks like it may continue this tradition over the next few years.
Get $500 per month tax free
in between H&R REIT With a forward yield of 8% and that of granite 3.7%, the stable yield would be about 5.8%. Achieving $500 of passive income a month at 5.8% requires a total investment of $103,448 divided equally between the two REITs.
If you maxed out your TFSA and invested in quality stocks since the account’s inception in 2009, you would be sitting on more than $103,448.
The TFSA is a great place to buy and hold REITs. First, REITs can provide assured monthly income. Second, they pay cash distributions that are taxed separately from qualified Canadian dividends. And it saves a lot of hassle just to have a REIT in a TFSA.
Specifically, in unregistered accounts, the REIT’s return of the capital portion of the distribution is tax deferred until the unitholders sell or the adjusted cost basis becomes negative.
REIT distributions can also contain other income, capital gains and foreign non-business income. Other income and foreign non-business income are taxed at your marginal tax rate, while capital gains are taxed at half your marginal tax rate.
Talking about earning $500 a month in passive income…
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This article represents the opinion of the author, who may disagree with the status of an “official” recommendation of Motley Fool Premium Service or Advisor. We are motley! Questioning an investment thesis – even our own – helps us all to think critically about investments and make decisions that help us become smart, happy and prosperous, so We occasionally publish articles that may not conform to recommendations, rankings or other content.
silly contributor ke ngo Have no position in any of the stocks mentioned. The Motley Fool recommends Granite Real Estate Investment Trust and Magna Intl.
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