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How to Collect Rent without Buying a Home

Updated on April 28, 2015

Collecting Rental Income

When interest rates were down, a lot of us were convinced to buy property to rent out. Every month we would collect rent from our tenants to pay down a mortgage and any fees associated to owning the property. After deducting the expenses, there was rental income to be earned.

Owning rental property meant you were diversifying. Other than working at your 9-to-5 job, you were earning income from property that you had rented out. And if you had played your cards right, you would have bought the property with a small down payment and the rest borrowed from the bank.

Collecting rental income is one of the best ways to earn a living. It cancels out all the late calls from frantic tenants that complained about backed up toilets and lack of hot water. But when things are going well, collecting rent can be a blissful and gratifying experience.

More Property means More Income

With some money and experience under your belt, you may be inclined to add to your inventory by purchasing more homes. As long as interest rates are down, why not? You are secured at your 9-to-5 job and your boss is talking about a future raise with you. The only problem is that you may be increasing your debt ratio and you are getting nervous about it. You like the benefits of owning real estate, being a landlord and collecting rent but there is a price to pay.

Is there an alternative to explore?


Do you own rental property?

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Top REIT's to Buy:

Another way to earn income from collecting rent is to invest your money in REIT's or Real Estate Income Trusts. There are two very good REIT's that I want to introduce you to.

First of, RioCan Real Estate Investment Trust (website) is the largest real estate investment trust in Canada with ownership interests in over 350 retail properties throughout North America. If you're driving around city centres or in the suburbs, keep an eye out on strip malls and shopping malls.

With Rio Can, you can buy shares to the REIT that trades on the Toronto Stock Exchange (TSE). Owning shares before the ex-dividend date will earn you a monthly dividend of about 0.1175 cents per share.

Second, Dream Office Real Estate Investment Trust (website) owns and operates high-quality business premises in key markets across Canada. This REIT is also traded on the Toronto Stock Exchange and pays a monthly dividend of 0.1866 cents per share.

Investing in REIT's is like getting together with people and pooling your money together to buy up properties to rent out. The rent and leases collected each month are split among investors.

Collect Rent from one of Rio Can's property by reading...
Collect Rent from one of Rio Can's property by reading...

Planning Step

Now that we have identified two REIT's to buy, lets see how many shares we can buy with $100,000.00. To keep things simple, lets split our purchase in two and spend $50,000.00 for each REIT.

Based on today's stock prices, at $50,000.00 / $28.00 for Dream Office, we will have about 1,785 shares. For Rio Can, at $50,000.00 / $29.80, we will have 1,677 shares.

Both REIT's are monthly dividend payers so each month, I can expect $331.00 and some change from my Dream Office shares and $197.00 from my Rio Can shares. The total is $528.00.

Which is Better?

 
Rent
Dividends
Profit
$500
$528
Pro
Home price may appreciate.
Stock price may appreciate.
Con
Bad tenants.
Stock price may depreciate.
Expenses
Monthly Condo fee.
One time commission fee.
A quick and dirty comparison between owning a home to rent out vs owning REIT's.

Summary

A lot of people have opted out of owning property and bought dividend paying stocks instead. The ones I have talked to, have been landlords before and they hated it. Most of them have stories to tell about bad tenants, late rent, backed up toilets and calls in the middle of the night complaining about the leaky faucet, smell or rats running around.

Owning a portfolio that pays you a monthly dividend is like collecting rent but without the headaches of being a landlord. There are a lot of responsibilities that come with owning property and if the money is the same, I know I would choose the stock route to save myself of the trouble.

PLEASE NOTE: This is not an individual investment recommendation and I am not a registered broker or investment adviser. This post is meant for informational purposes only. Please do your own homework before investing.

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