Having $75,000 to invest opens up various avenues for generating passive income, even if it might not be quite enough to dive into the real estate market without taking on a significant mortgage.
However, if you’re looking to create a stream of passive income without the complexities of property management, there’s a viable alternative through the stock market.
This strategy hinges on a couple of assumptions. Firstly, it presupposes that you possess the risk tolerance necessary for investing in potentially volatile exchange-traded funds (ETFs). Secondly, it assumes you have sufficient room in your Tax-Free Savings Account (TFSA) to accommodate the $75,000 investment.
Both are crucial considerations, given that the investment option involves exposure to market fluctuations and the tax-free nature of the income relies on utilizing TFSA space.
With these prerequisites in mind, let’s explore how you can potentially transform that $75,000 into an average of $465 per month in tax-free income.
Buy the right ETF
The perfect ETF candidate for this income-generating strategy, in my view, is the Middlefield Real Estate Dividend ETF (TSX: MREL).
This ETF is specifically tailored for investors seeking monthly income, offering a way to essentially act as a landlord without the traditional hassles associated with property ownership, such as lack of liquidity and limited diversification.
MREL’s portfolio is primarily composed of real estate investment trusts (REITs), with a significant allocation towards various sectors: 24% in multi-family residential, 22% in retail, and 19% in industrial properties.
A substantial portion of the ETF’s holdings are Canadian REITs, accounting for 71% of the portfolio, with U.S. REITs making up another 25%. This geographical distribution further diversifies the investment while still focusing on markets with which Canadian investors may be more familiar.
As of the market close on February 6, MREL trades at exactly $12 per share and boasts an impressive yield of 7.55%. However, determining your potential monthly income from this investment involves more than just looking at the yield; some calculations are necessary to understand exactly how this translates into a monthly income figure based on the $75,000 investment.
Calculating potential income
Assuming MREL’s most recent January monthly distribution of $0.075 and the current share price at the time of writing of $12.00 remained consistent moving forward, an investor who buys $75,000 worth of MREL could expect the following quarterly payout:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| MREL | $12.00 | 6,250 | $0.075 | $468.75 | Monthly |
This is pretty good passive income! But consider if you really need the $468 monthly. If you can delay your gratification, you could grow that $75,000 over time by investing in stocks (and the Fool has some excellent suggestions below.
