The average rent in the United States is $1,958, according to NerdWallet, but did you know you could completely cover this cost by investing in a real estate investment trust (REIT) that pays dividends?
It takes a lot of capital to do so, but if you can swing it, you can essentially live rent-free.
How it works
Let's say you find a single-family home that costs the national average of $1,958 per month. Based on that monthly rate, you will need annual dividend income of $23,496 to cover your rent.
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To cover your rent, you could invest in American Homes 4 Rent AMH, which owns and manages a portfolio of over 59,000 single-family homes, making it one of the largest homeowners in the United States. Its portfolio spans 21 states in the Southeast, Midwest, Southwest, and Mountain Regions, encompassing markets like Orlando, Tampa, Dallas, Houston, Nashville, Denver, Phoenix, Salt Lake City, and Seattle.
American Homes 4 Rent currently pays a quarterly dividend of $0.22 per share, which equates to $0.88 per share annually and gives it a yield of about 2.56% today.
To earn $23,496 annually from American Homes 4 Rent, you'll need to buy about 26,657 shares, which will cost about $917,800 based on its closing price of $34.43 on February 16.
To calculate this, you take your desired annual income, which is $23,496 in this case, and divide it by the dividend yield when expressed as a decimal, which is 0.0256 in this case. So, $23,496 / 0.0256 = $917,812.50.
Important note: this calculation does not include participating in a dividend reinvestment program, or DRIP for short, since you will be taking the payments as cash to use to cover your rent.
American Homes 4 Rent has also shown a dedication to growing its dividend, which will help if your rent goes up. It has raised its annual dividend for three consecutive years, and its strong financial performance in 2023 could allow this streak to continue in 2024.
Again, it takes a lot of capital to generate enough dividend income to cover your monthly rent, and you may want to consider diversifying across several REITs to minimize your single-stock risk and sleep well at night.
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