Thinking of investing $100,000 in rental properties? Consider this passive income option instead.

Buying a rental property offers the promise of passive income. In theory, tenants will pay more than enough rent to cover the property’s expenses, allowing the landlord to pocket the difference as passive income. In addition to this income, rental property owners can enjoy tax benefits and real estate appreciation.

However, rental properties do have their drawbacks. The initial cost can be well over $100,000 when you factor in the down payment, closing costs, and repairs needed to make the property rental-ready. Meanwhile, revenues is not always passive since you have to manage the property and the tenants. On top of that, an unexpected vacancy or repair can turn a rental property from an income source into a money pit.

There are many alternative ways to generate passive income from real estateA simple option is to invest in a real estate investment trust. real estate investment trust (REIT). These low-cost vehicles allow anyone to earn income secured through real estate. Here are two of the best REITs to consider.

The Lazy Way to Own a Home

Many real estate investors start out by owning residential rental properties. They buy single-family homes or duplexes and rent them out to tenants.

While being a landlord can be profitable, an easier way to generate passive income from rental properties is to invest in a Residential REIT. There is many great onesincluding Camden Real Estate Trust (NYSE: CPT). The company owns 171 communities with more than 58,000 rental units in 15 major U.S. markets. It focuses on markets where employment and population are growing at rates above averageThis stimulates demand for housing, which keeps occupancy high and rental rates rising.

Camden’s rental property portfolio provides with steadily increasing revenues to pay dividends. The REIT currently pays a quarterly dividend of $1.03 per share ($4.12 per year). With a share price recently around $110, Camden has a dividend yield of approximately 3.8%. At this rate, Every $1,000 invested in Camden would generate approximately $38 in annual passive income.

REIT Dividend Payouts Expected to Increase Steadily in the futuredriven by rent growth and the company’s portfolio expansion. Camden has four new communities under development, including its first two purpose-built single-family rental communities. It has land to build nine more communities, giving him plenty of space to continue growing.

Building to produce liabilities income

One of the great advantages of REITs is that they open the door to investment in many sectors. types of rental properties. For example, Real estate income (NYSE: O) has a diversified portfolio of commercial real estate, including retail, industrial, gaming and data center properties. The REIT owns 15,540 single-tenant properties in all 50 states, the United Kingdom and six other European countries.

The story continues

These properties provide it very stable rental income that it uses to pay dividends. Realty Income pays a monthly dividend of $0.263 per share ($3.156 per year). With the stock price recently around $53, the dividend yield was about 5.9%.

Realty Income has an exceptional history of increasing its dividends. Since its IPO in 1994, it has increased its dividend 126 times, including for the past 107 consecutive quarters.

The main factor behind this growth is a regular acquisition program. The REIT regularly purchases properties from its operators sale and leaseback transactions. It will also acquire other REITs and finance development projects. Given that there are trillions of dollars of commercial real estate it could acquire in the future in its main markets, it has a long runway of growth ahead of it.

Simple Ways to Generate Passive Income from Real Estate

Buying rental property can be a great way to earn passive income. However, there are drawbacks to this approach, including a high upfront cost and the need to manage tenants and repairs. REITs provide passive income without these drawbacks, making them ideal options for many beginners. Realty Income and Camden Property are among the best, making them excellent REITs buy if you are looking for passive income.

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Matt DiLallo has positions in Camden Property Trust and Realty Income. The Motley Fool has positions in Camden Property Trust and Realty Income and recommends these companies. The Motley Fool has a disclosure policy.

Thinking of Investing $100,000 in Rental Properties? Consider This Passive Income Option Instead. was originally published by The Motley Fool