For the average person, the best path to a real estate empire is clear. Rather than venturing out into the property market and buying a condo or two, the better choice is to load up on a handful of Canada’s top real estate investment trusts (REITs).
REITs offer so many advantages. A big one is instant diversification. Remember, a few REITs give you a small ownership stake in thousands of different properties spanning various different regions. REITs also offer ample liquidity, a truly passive income experience, access to some of the top minds in real estate, and certain tax advantages.
Now compare that to buying a physical property. You have to research the market, look at many properties, deal with tenants and the many headaches that come with that, fix the odd overflowing toilet, and make sure the property’s records are maintained come tax time.
Yes, you can outsource many of these tasks, but with that comes fewer profits. Most landlords just do these tasks themselves, basically creating a part-time job.
So much for passive income, eh?
If you’re looking to start your REIT passive income journey today, I have just the stock for you. Let’s take a closer look.
A safe long-term trend
Another big advantage of REITs is that they allow investors to put their cash to work in assets that they could never afford to buy on their own.
Take the health care sector as an example. Even buying a single medical office building, seniors living complex, or hospital is unobtainable for the average Canadian investor. Heck, it’s even impossible for the average Canadian 1%-er.
Northwest Healthcare Properties REIT (TSX:NWH.UN) gives investors a diverse portfolio of medical real estate in just one simple REIT.
It’s a worldwide company with assets like medical office buildings in Canada, hospitals in Brazil, hospitals and medical office buildings in Germany and The Netherlands, and a collection of hospitals and seniors living facilities in Australia and New Zealand. In total, the portfolio spans 169 properties and nearly 14 million square feet of gross leaseable space.
Northwest has plenty of growth potential, too. It has some $500 million worth of in-house expansion projects planned. The company also has relationships with top hospital operators in both Australia and Brazil, and will undoubtedly have the opportunity to acquire assets from these companies again.
Finally, it has entered into a joint venture with an institutional investor in Australia that helps the company to quickly expand in that nation.
The company has been putting up excellent results lately. Normalized adjusted funds from operations (AFFO) over the last year have been $0.92 per share, representing solid growth from the previous year.
Shares currently trade hands at $11.64 each at writing, giving the stock a reasonable price-to-AFFO ratio of 13.2. Shares also trade slightly under net asset value, which the company pegs at $12 per share.
Collect $500 per month
Northwest Healthcare Properties pays a dividend of $0.06667 per share each month, which works out to a generous 6.9% yield. The payout ratio is in the 85% range, an acceptable level for a REIT.
To get $500 per month from this stock, an investor would need to need to purchase exactly 7,500 shares of Northwest Healthcare Properties. That would set you back $87,300, excluding any additional fees like commission on the transaction.
For less than $100,000 out of your own pocket, you could have a sustainable source of passive income. Imagine how that would change your life.
If $87,000 is a little out of your price range today, maybe work toward getting $100 in passive income from this REIT every month. You can do so by investing $17,460 into Northwest Healthcare Properties shares. That’s less than the price of a new car.
The bottom line
The best part about an investment in Northwest Healthcare Properties is that it’s truly passive. All you need to do is sit back, relax, and let those dividend cheques roll in. Advantages like a diverse portfolio and having the company’s smart management team work for you are just a bonus.
Now all you need to do is add in a few more REITs to start creating your own passive income empire.
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Fool contributor Nelson Smith owns shares of Northwest Healthcare Properties REIT. Northwest Healthcare Properties REIT is a recommendation of Stock Advisor Canada.