Have $75,000 to Invest? Make an Average of $100/Week Tax Free

This REIT ETF in a TFSA can produce some lucrative monthly income potential.

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Personally, I lean towards growth investing, so if I had an extra $75,000 lying around, my instinct would be to channel it into low-cost index ETFs. This strategy aligns with my long-term goal of capital appreciation.

However, I understand that many of you have different financial objectives and may be more interested in generating passive income from your investments. With that in mind, today’s guide is tailored for those looking to turn their investments into a steady stream of income.

In this guide, I’ll show you how to leverage $75,000, a Tax-Free Savings Account (TFSA), and a Real Estate Investment Trust (REIT) ETF to create an average of $100 a week in passive income.

The necessary prerequisites

Firstly, to achieve our goal of $100 per week, we’re looking at needing an annual income of $5,200 (since $100 multiplied by 52 weeks equals $5,200).

When we apply this to a $75,000 investment, we’re aiming for an annual yield of approximately 6.93%. This yield is the target rate at which your investment needs to perform to generate the desired income in the absence of any capital appreciation.

Next, let’s talk about taxes. Taxes can significantly impact your net income from investments. To mitigate this, utilizing a Tax-Free Savings Account (TFSA) becomes essential.

Assuming you have the available contribution room, investing the $75,000 in a TFSA will allow your investment income to grow tax-free, ensuring you get to keep more of what you earn.

Lastly, it’s important to consider the distribution frequency of your investments. While most dividend-paying stocks distribute earnings quarterly, for consistent weekly income, we’d ideally need more frequent payouts.

However, since there are currently no ETFs in Canada that distribute income on a weekly basis, we’ll focus on ETFs that offer monthly distributions. These monthly payouts can still support a strategy aimed at generating regular passive income, allowing for a more predictable cash flow.

The ETF to use

For the purpose of generating steady passive income, I’m particularly fond of Middlefield Real Estate Dividend ETF (TSX:MREL), which pays a 7.41% yield and has monthly distributions.

This ETF is like becoming a landlord, minus the hassle and hard work that typically come with property management. It’s an attractive option for those looking to tap into the real estate market without directly owning property.

MREL holds a diverse portfolio of REITs from both Canada and the U.S., with a significant emphasis on the multi-family residential, retail, and industrial sectors.

By investing in MREL, you’re essentially buying into a slice of the income generated from a variety of real estate assets, benefitting from the potential for both income and capital appreciation.

Assuming MREL’s most recent March 15th monthly distribution of $0.075 per share and the current share price at the time of writing of $12.12 remained consistent moving forward, an investor looking for at least $433 of monthly income (roughly $100 weekly) from $75,000 would need to buy this much MREL:

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
MREL$12.126,188$0.075$464.10Monthly

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 Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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