Do you want to earn passive income? Don’t let that get in your way.

MMost of us work for money and actively trade our time, knowledge or skills for cash. If you don’t work, you don’t earn anything. But what if I told you there was another way? One that does not require active participation in order to generate income. Rather, your money could generate even more money through passive income.

Earning passive income is one of the cornerstones of building wealth, and thankfully, it’s more accessible than ever through strategic investments in things like real estate, stocks, and bonds. Most people think that in order to earn passive income, you need money, which in a way is true. But you don’t really need it the lots of money to start passive income today.

In fact, there are several low-cost upfront investments that can generate a ton of passive income later.

An affordable way to generate passive income today

Real estate is one of the best ways to generate passive income. Rental properties in particular are a great source of passive income as income is generated each month after the property is rented out with minimal participation on your part. Buying physical real estate, however, requires a significant sum of money for a down payment on a loan.

Luckily, if you’re short on cash and only have a few thousand or a few hundred dollars to invest, you can still engage in passive real estate investing by buying shares in a real estate investment trust (REIT). A REIT is a special type of stock that actively owns, leases, or invests in real estate and real estate-related stocks. This can range from single family rental properties to malls, malls, mortgages, hospitals and self-storage facilities, as well as myriad other types of real estate.

The REIT is responsible for managing and leasing its portfolio and paying dividends to its shareholders. And since REITs must pay at least 90% of taxable income in the form of dividends to benefit from special tax incentives, REITs are a highly reliable source of passive income.

How much you need and how much you can earn

REITs don’t require a large upfront investment to start earning. Because you can buy shares in a REIT through a brokerage account, how much you spend is entirely up to you. The cost of the REIT varies widely from company to company, but there are several REITs that can be purchased for less than $25 per share. Others can cost hundreds of dollars a share.

For example, invitation houses (NYSE:INVH)investing in single-family rental housing, and National Retail Real Estate (NYSE: NNN)which owns and leases single tenant retail space, both can be acquired for less than $45 per share. Innovative industrial properties (NYSE: IIPR)(IIP), which buys and leases industrial real estate to licensed medical marijuana operators, is slightly more expensive, currently trading around $135, but recent volatility has pushed its price down 50% year-to-date, pushing its dividend yield to attractive levels 4.5 % yield has increased.

When you start out with a small investment, the dividend income from a REIT may not seem like much at first, but dividend increases can help your small amount grow much larger over time. I originally bought 32 shares of IIP in 2018 for an investment of just under $1,000. In the beginning, I was only making $0.25 per share, about $8 per quarter. But thanks to 12 dividend increases since I first invested, my investment of around $1,000 now earns me $1.75 per share, or $56 per quarter.

It’s important to emphasize that stock price or high dividend yields shouldn’t be the only deciding factors in purchasing a REIT. Rather, the company’s fundamentals, its current operations and its future growth opportunities should be the deciding factors. Luckily, there are plenty of quality REITs to choose from that can cover almost any investment budget.

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Liz Brumer-Smith holds positions in Innovative Industrial Properties and Invitation Homes Inc. The Motley Fool holds positions in and recommends Innovative Industrial Properties and Invitation Homes Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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