The great Australian dream has always been to own property – but what if investing in Australian real estate investment trusts (A-REITs) could make you $1,000 per month in passive income instead?
The opportunity in Australian REITs
REITs have the benefit of offering investors a high yield, which is derived through the rent collected by the property manager from the investments within the portfolio.
These high distribution yields are mandated by the corporate structures of REITs, which usually mandate a very high payout ratio (> 90%) but don’t afford the potential added benefit of franking credits.
For the keen-eyed Fool, the current landscape in A-REITs may present some great value opportunities to build out a portfolio and net a cool $1,000 of passive income per month.
The best value A-REITs shares on the market
In my opinion, there are some absolute bargain buy A-REITs at the moment within the S&P/ASX 200 (INDEXASX: XJO) index following a turbulent start to the year in the Aussie property market and a lot of negative commentary and data coming out of the retail sector.
The likes of Mirvac Group (ASX: MGR) has seen its security price increase over 40% so far this year as it has put doubts around residential real estate and a faltering apartment market aside to continually grow its opportunities.
While Mirvac is yielding a cool 3.61% per annum, I also think some diversification never goes astray in any portfolio and your A-REIT passive income portfolio should be no different.
In my view, Vicinity Centres (ASX: VCX) is looking relatively cheap at $2.45 per stapled security given its less-than-stellar start to the year, with the current valuation unchanged from 5 years ago and down 5.8% in the last 12 months.
While A-REITs aren’t known for their capital growth, that valuation is still disappointing relative to its ASX peers. However, Vicinity still offers 6.6% p.a. to its investors, which may compensate for the lack of growth and I think its prospects within the retail sector remain relatively intact.
A simple 50/50 split between these two securities and a starting portfolio of $250,000 would net a cool $1,063.54 per month by my calculations, a more than handy passive income on the side.
While most of us don’t have that sort of cash to splash on REITs, with a little help along the way from capital growth and a few years of re-invested distributions we can lower that starting principal significantly and have you well on your way to being a passive landlord.
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Motley Fool contributor Lachlan Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.