Realty Income Corp: Earn Monthly Rental Income (Without Becoming a Landlord)
October 3, 2016
Collect Monthly Income From Realty Income Corp?
Today, I want to share my favorite way to invest in real estate: Realty Income Corp (NYSE:O).
Most folks don’t even know this firm exists. The company, though, has been paying investors monthly rent checks for decades. Better yet, shareholders in this stock never have to deal with tenants.
But if you want to start collecting this lucrative income stream, then you have to move quickly, because the next round of checks are scheduled to be paid out on November 5. Let me explain.
Invest in Real Estate (Without Dealing with Tenants)
Rentals gush profits. Tenants fork over rent every 30 days and your property values go up a little each year. Rentals make money in so many ways, it’s no wonder that more wealth has been made in real estate than all other asset classes combined.
Being a landlord, though, can also be a pain in the butt. Never mind the landlord horror stories; we’re talking tenants trashing apartments and leaving thousands of dollars in damages. Thankfully, there’s another way to invest in real estate without fixing toilets, mowing lawns, or collecting security deposits.
Put simply, I’m talking about partnering with Realty Income Corp.
Realty allows regular folks to invest in real estate without the hassle of dealing with tenants. The firm buys properties, collects rents, and pays out the profits.
The company, however, doesn’t own regular houses. Instead, Realty Income Corp buys retail and commercial buildings across the country. The firm owns over 4,600 properties across 49 states. (Source: “Company Overview,” Realty Income Corp, last accessed October 3, 2016.)
This has a lot of pluses over buying rentals yourself. First and foremost, you don’t have to deal with tenants. Realty hires managers to deal with the day-to-day issues, so the entire process is on autopilot.
Rentals, in contrast, are a hassle: you have to find tenants, collect the rent checks, and make sure your property is maintained. And that’s not to mention the risk of a renter trashing your place, then dealing with a court system that totally favors tenants.
Second, Realty Income is publicly traded. That means it’s just like owning any dividend stock; units are liquid and can be bought and sold with the click of a mouse. By comparison, rentals aren’t easy to sell. If you need cash fast, it can take months to complete a deal, and middlemen (realtors, lawyers, the government) will also take a big commission during the process.
Third, Realty Income is diversified. Say you buy a rental and your only tenant can’t make rent. Now, you’re missing out on 100% of your income. That’s a big problem. Realty, however, has 246 commercial tenants across 47 industries. If one can’t make rent, no big deal, as it’s only a small fraction of the trust’s income.
As a result, Realty Income is one of the most dependable income sources around. Since going public in 1994, the company has paid a dividend to investors every month. Today, shares pay an annual distribution of $2.39 each, which comes out to a yield of 3.6%.
That payout will likely keep growing. Revenues are poised to increase by seven percent to 10% in 2017, thanks to rent hikes and stable occupancy rates. Most of that extra cash flow will likely be passed on to investors.
Of course, Realty Income Corp is no slam dunk. Online shopping is crushing brick-and-mortar shops. You only need to look at Amazon.com Inc.’s (NASDAQ:AMZN) share price to see the success of e-commerce. Jeff Bezos is crushing retailers, and commercial landlords by extension.
Higher interest rates would also hit shares. If investors can earn higher returns in government bonds, they won’t be willing to pay up for riskier stocks. The end of cheap money could also crimp business, once again dipping into the profits of property owners.
I’m not too worried, though. Realty Income’s tenants are mostly grocers, dollar stores, and gas stations. These industries are somewhat immune to the e-commerce threat. Higher rates would take the wind out of Realty Income’s stock price, but it wouldn’t likely do any worse than normal rental properties.
Earn Rent Checks Starting November 5
The best reason to like Realty Income Corp? You can start cashing in right away. Stock trades take only three days to settle, but breaking into real estate can take months of work.
Realty Income’s next round of dividends are scheduled to be mailed out in a few weeks. To be eligible, you have to become a shareholder of record by October 27. After that, you can begin earning rent checks each month starting November 5, 2016.
