Live in Your Apartment Rent-Free Using This Hack

The average rent for an apartment in the United States is $1,702, according to RentCafe, 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 an apartment that costs the national average of $1,702 per month. Based on that monthly rate, you will need annual dividend income of $20,424 to cover your rent.

Don't Miss: 

• Investing in real estate just got a whole lot simpler. This Dara Khosrowshahi-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100. 
• Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." Here are 3 high-yield investments to add significant income to your portfolio.

To cover your rent, you could invest in AvalonBay Communities AVB, which owns or has ownership interests in 299 apartment communities containing 90,669 apartment homes across 12 states and the District of Columbia, including 18 communities under development.

AvalonBay currently pays a quarterly dividend of $1.70 per share, equating to an annualized dividend of $6.80 per share and giving it a yield of approximately 3.84% based on its closing price on February 16. 

To earn $20,424 annually from AvalonBay, you'll need to buy about 3,003 shares of the company, which will cost about $531,891 based on its closing price of $177.12 on February 16.

To calculate how to cover your monthly rent with a REIT, you take your desired annual income, which is $20,424 in this case, and divide it by the dividend yield when expressed as a decimal, which is 0.0384 in this case. So, $20,424 / 0.0384 = $531,875.

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.

AvalonBay is also a serial dividend raiser, which will help if your rent goes up. AvalonBay has raised its annual dividend 11 times in the last 13 years, including a 3% increase last month, making it qualify as both a high-yield and dividend-growth stock.

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.

Read Next:

• Commercial real estate has historically outperformed the stock market, but few investors have the capital or resources needed to invest in this asset class. A platform backed by industry giant Marcus & Millichap is changing that, allowing individuals to invest in commercial real estate with as little as $5,000. 
• Collecting passive income from real estate just got a whole lot simpler. A new real estate fund backed by Dara Khosrowshahi gives you instant access to a diversified portfolio of rental properties, and you only need $100 to get started.

Image Credit: Shutterstock