Who wouldn’t like an extra $100, $500, or even $1,000 per month? How does that sound?
Nothing beats passive income. There’s something incredibly intoxicating about making money while you sleep. It’s the difference between the ultra-rich and the rest of us.
Even the greatest investors of all time didn’t start out rich. In fact, many of them started out just like you or me. First, they worked on getting $100 a month in passive income. And then $500, then $1,000. After that, the sky truly is the limit.
It may seem impossible, but it isn’t. Here’s how anyone can collect $1,000 per month using a high-quality REIT like Artis Real Estate Investment Trust (TSX:AX.UN).
When looking for the ultimate passive-income machine, I focus on the following things:
- Great assets
- A sustainable payout
- Demonstrated growth
- A reasonable price
Artis has all of these things going for it, and so much more.
Let’s start with the company’s assets. Artis owns nearly 27 million square feet of commercial real estate. Approximately half of its net operating income comes from office space with the remainder split between retail and industrial property.
One of the things I really like about the company is its U.S. exposure. It has buildings in four states — Colorado, Minnesota, Wisconsin, and Arizona — which account for approximately a third of net operating income.
The best part about having assets in both Canada and the United States is the growth potential it provides. If the Canadian real estate market proves too competitive, funds can just be used to expand in the U.S.
The company just recently bought an office tower in Madison, Wisconsin, which it acquired for a 7.5% cap rate. That’s a far better deal than office buildings in most Canadian markets.
Another nice thing about Artis is that it trades at a very reasonable valuation. Although full-year results aren’t out yet, the company is on pace to generate $1.56 per share in funds from operations for 2016. Shares currently trade at $12.48, giving the company a price-to-funds-from-operations ratio of just eight. You won’t find many REITs cheaper than that.
Artis’s strong earnings also bode well for its attractive distribution, which currently sits at 8.7%. The yearly payout is $1.08 per share, giving it a payout ratio of just under 70%. This is one of the lowest payout ratios in the entire sector.
Start earning serious income
Artis is clearly a good investment opportunity. But just how much do you need to invest in it to start earning serious monthly income?
Artis pays $0.09 per share each month, which means you’d need to own 1,112 shares to crack $100 per month. That works out to an initial investment of $13,877.76.
There are a lot of us who don’t just have $14,000 kicking around, but it’s a very obtainable goal if we break it down. If somebody puts away $500 per month and shovels it into Artis shares, it would take just 28 months to start earning $100 per month. This assumes Artis shares don’t move in the meantime, of course. If they go lower, it just accelerates the process.
Next, let’s look at how much capital it’ll take to earn $500 per month. It would take 5,556 Artis shares to earn that amount — a total investment of $69,338.76.
And finally, the big one. It would take 11,112 Artis shares to earn $1,000 per month — a total investment of $138,677.76.
When comparing that to traditional real estate, it’s no contest. A REIT investor can collect better income than someone who buys a physical property and do less work in the process. Who doesn’t like that?
The bottom line
Artis Real Estate Investment Trust has everything income seekers are looking for. It boasts a high, sustainable yield, solid assets, decent growth potential, and one of the best valuations in today’s market. It’s the kind of company that makes the perfect long-term hold in a portfolio.
There’s just one thing to worry about. How will you spend your succulent dividends?
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Fool contributor Nelson Smith owns Artis Real Estate Investment Trust shares.