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The importance of portfolio diversification leads many traditional investors to add real estate to their portfolios while motivating real estate investors to dabble in the stock market. Did you know you could kill two birds with one stone and set yourself up to earn passive income by investing in real estate exchange-traded funds (ETFs)? Keep reading to learn how to earn $1,000/year in passive income while diversifying into ETFs.
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What is a Real Estate Exchange-Traded Fund?
A standard real estate investment trust (REIT) pays investors dividends based on property appreciation and rental income from a diverse portfolio of properties. One of the main draws of REIT investing is the idea of having an asset portfolio in multiple markets. It allows investors to buy one publicly traded share and get a diversified slice of all the assets in the REIT. ETFs take the concept of portfolio diversification to the next level.
Instead of buying individual real estate assets, real estate ETFs buy shares in multiple REITs. Then, the ETF sells its shares to individual investors, who can become part owners in dozens of different REITs (or more) at the same time. Real estate ETFs also operate in several different sectors, meaning you might be able to find one that’s concentrated on your preferred sector.
More importantly, ETFs pay out dividends just like REITs. If the ETF is well-run and market conditions are favorable, they can deliver solid passive income. That’s all while being easily liquidated on public exchanges. There is also the possibility of share value appreciation, meaning ETFs offer investors two ways to build wealth. Just be mindful that even a highly diversified ETF investment carries risk, as do all investments.
How to Make $1,000/Year in Passive Income on Real Estate ETFs
Dividends and passive income opportunities are among the main draws of ETF investing, but never forget that dividends are not guaranteed. With that caveat in mind, here are two real estate ETFs currently paying high dividends and how much you would need to invest in either to earn over $1,000 in annual passive income.
iShares Residential and Multi-Sector ETF (NYSE:REZ)
iShares Residential and Multi Sector ETF (NYSE:REZ) offers investors a diversified tranche of real estate stocks and REIT shares across several sectors. Specifically, the fund has REIT shares in residential, health care and storage facilities. All three of these real estate sectors are in high demand from consumers and have a history of paying returns to investors.
Ratings firm Morningstar has given iShares Residential and Multi-sector ETF a 4-star rating when compared to 224 other ETFs based on adjusted risk and return. According to Yahoo Finance, iShares is trading for $81.34 and paying a dividend yield of 2.65%. Here’s how to earn $1,000 in annual passive income by investing in iShares.
Based on its share price and current dividend, iShares Residential and Multi-sector ETF pays a dividend of $2.16 per share. You would need to purchase 464 shares of this ETF for a total price of $37,823.10. That would yield $1,002.31 in annual passive income.
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JP Morgan Realty Income ETF (NYSE:JPRE)
JP Morgan Realty Income ETF (NYSE:JPRE) ETF has the cache with the JP Morgan name. Its holdings include solid-performing REITs like Equinix, Prologis, Welltower and American Tower Corp. According to Yahoo Finance, the total assets under management are $379.25 million and Morningstar has given JP Morgan’s Realty Income ETF a 4-star rating. The current share price is $47.97 and the dividend yield is 2.42%, per Yahoo Finance.
Here’s how to earn $1,000 in annual passive income by investing in the JP Morgan Realty Income ETF. Based on its share price and current dividend, JP Morgan Realty Income ETF pays a dividend of $1.16 per share. To achieve $1,000 in annual passive income, you would need to purchase approximately 863 shares at a total price of $41,398.11. This would yield $1,001.68 in annual passive income.
In both cases, the buy-in is relatively expensive compared to the dividend yield, although the opportunity to benefit from share value appreciation still exists. With that said, several well-respected REITs offer dividend yields in the 2-3% range. However, both the iShares and JP Morgan Realty Income ETFs offer the advantage of being highly diversified, theoretically lowering your exposure risk to market downturns.
The larger takeaway for investors is that real estate ETFs might be worth considering if you are looking for a real estate offering with a dividend yield but are worried about putting too many eggs in one basket. Keep this in mind when planning the next addition to your portfolio.
Are You Missing Out On Higher Yields?
The current high-interest-rate environment has created an incredible opportunity for income-seeking investors to earn massive yields, but not through dividend stocks… Certain private market real estate investments are giving retail investors the opportunity to capitalize on these high-yield opportunities and Benzinga has identified some of the most attractive options for you to consider.
For example, the Jeff Bezos-backed investment platform just launched its Private Credit Fund, which provides access to a pool of short-term loans backed by residential real estate with a target 7% to 9% net annual yield paid to investors monthly. The best part? Unlike other private credit funds, this one has a minimum investment of only $100.
Don’t miss out on this opportunity to take advantage of high-yield investments while rates are high. Check out Benzinga’s favorite high-yield offerings.
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This article Want to Diversify Your Portfolio and Earn $1,000/Year in Passive Income? Check Out These Real Estate ETFs originally appeared on Benzinga.com