Need Passive Income? Turn $5,000 Into $40 Every Month

Investing in high-dividend REITs can help you generate a stable stream of recurring income with just a small amount of capital.

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You may need a significant amount of capital to create alternative income streams. For instance, those looking to earn rental income may have to invest around $600,000, which is the average house price in Canada. Comparatively, the average rental price in Canada is around $2,000.

So, the average annual rental yield is around 4% for residential apartments, which is not too enticing, given elevated inflation levels. Further, homeowners will have to spend a portion of their rental income on maintenance, repairs, renovations, and taxes while having to accommodate for periods of non-occupancy.

Moreover, a majority of homeowners fund their purchases via mortgage loans, increasing their cost of purchase significantly.

Yes, cities such as Toronto and Vancouver have seen a massive surge in home prices over the last 20 years, allowing several Canadians to build long-term wealth. But the recent uptick in interest rates and high inflation may now drag residential prices lower in 2023.

If you still want exposure to the real estate sector with a small amount of capital, consider investing in quality real estate investment trusts, or REITs. Let’s see why.

Invest in Northwest Healthcare REIT stock

A REIT that owns, manages, and develops real estate with a focus on verticals such as healthcare, research, and life sciences, Northwest Healthcare (TSX:NWH.UN) has more than $10 billion of assets under management. It operates in some of the most desirable urban centres globally, providing investors access to a diversified portfolio of recession-resistant healthcare assets.

With a presence in eight countries, including Canada, the U.S., the Netherlands, and Australia, Northwest Healthcare’s property portfolio ranges from core infrastructure hospitals to multi-tenant medical office buildings and specialty clinics.

Northwest Healthcare ended 2022 with 233 properties, up from 197 properties in 2021. Its gross leasable area also increased from 16.4 million square feet to 18.6 million square feet in this period. With an occupancy rate of 97%, the weighted average lease expiry for the REIT stands at 14 years.

The REIT’s focus on acquisition allows it to pay investors a monthly dividend of $0.067 per unit, translating to a tasty yield of 9.45%. So, an investment of $5,000 in this REIT can help you earn close to $40 in monthly dividends.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
Northwest Healthcare REIT$8.47590$0.067$39.53Monthly

Since its initial public offering in 2010, Northwest Healthcare stock is down 17%. However, after adjusting for dividends, total returns are close to 114%.

The Foolish takeaway

Investing in REITs such as Northwest Healthcare offers you the opportunity to create a passive stream of recurring income due to its high dividend yield. But REITs fund a majority of their acquisitions with debt. So, the net income of Northwest Healthcare and its peers may take a hit due to rising interest expenses.

For example, the mortgage and loan interest expense for 2022 stood at $148.6 million compared to $58.2 million in the year-ago period. So, mortgage-related expenses accounted for more than 40% of revenue for Northwest REIT, resulting in a pullback in share prices.

Analysts tracking the Canadian REIT expect shares to rise 46% in the next 12 months. After accounting for dividends, total returns will be closer to 55%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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