In this episode of the AIPIS show, host Jason Hartman challenges the common notion of "passive income" in real estate investing, arguing that no investment is truly passive. He compares three primary avenues—dividend‑paying stocks, REITs, and direct ownership of single‑family rental homes—highlighting the varying degrees of passivity and the risks each carries. Hartman walks through the math needed to generate $1,000 a month at a 3% annual yield, showing that roughly $400,000 of capital is required, and notes that REITs and dividend stocks are tax‑disadvantaged compared to direct income property, which enjoys the most favorable tax treatment in the U.S. He discusses how the COVID‑19 pandemic exposed vulnerabilities in commercial REITs that own office and retail space, suggesting a shift toward housing as a more resilient asset class. Hartman emphasizes that direct ownership offers a "multidimensional" return profile—providing income, appreciation, tax benefits, and other cash‑flow streams—unlike the one‑ or two‑dimensional returns of stocks or REITs. Listeners are directed to a free 28‑minute video on his website that teaches how to analyze real‑estate deals and read pro forma statements. The episode closes with standard subscription and disclaimer notices.
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This show is produced by the Hartman Media Company. For more information and links to all our great podcasts, visit hartmanmedia.com. Welcome to the AIPIS show for accredited income property investment specialists and those who aspire to be if you're a real estate, mortgage or financial professional, this is the place for you. We'll explore innovative investment analysis, sales, marketing and income generating strategies for the most historically proven wealth creator income property. Learn from the experts as they show you how to build a better business and a better life.
Would you like to earn $1,000 per month in passive income? Is it better to take $200,000 and buy single family homes directly? Or better to take $200,000 and put it into a REIT, a real estate investment trust? Let's explore which one is better and let's also talk about how you can potentially get $600,000 in equity. So let's first talk about this whole fantasy. It's a fantasy of passive income. As I've been saying for almost 17 years now, there is no such thing as passive income. Everything requires attention if you want to have safe, secure investments that offer good returns. So let's throw out the passive income myth. Now there is a spectrum. Some things are more passive than others. But nothing is 100% passive. Not even a bank account. Certainly not a stock or a syndication or a real estate investment trust or or owning real estate directly. So a lot of people approach passive income in one of these three areas. They like to say it's passive income. Again, I said it's not, but let's go with their sort of generic phrase. And they look at dividend paying stocks, they look at real estate investment trusts because that REIT is somewhat similar to dividend paying stocks. Or they look at direct ownership, direct investment into real estate, owning rental homes, short term rentals, long term rentals, whatever. And there are varying degrees of passivity in here, but again, really no such thing as a passive investment. So with dividend paying stocks, you might expect quarterly payouts on those dividends. Of course you'll have the choice whether you want to reinvest the dividends or take the dividends and and pay tax on them when they're paid. But again, we are looking for 3% dividend yield and focusing on these quarterly payments because we want to see if we can achieve that $1,000 per month. Not exactly passive income. So let's just look at the math real quickly. If we want to make $12,000 per year and we've got something that yields 3% annually and how much do we have to invest? We have to invest $400,000. Now remember, there are always tax implications. And on these types of assets that we're talking about those first two, not the direct ownership of real estate, these are tax disadvantaged investments. Whereas income property is the most tax favored asset class in America and taxes are the single largest expense almost any of us have in our lives. When investing, we've got to remember that nothing is guaranteed. There's an old saying that the only thing guaranteed are death and taxes, and you've probably heard that one before. So companies, funds, REITs, dividend paying stocks, they can lure investors in with a promise of returns. But remember, they can change those returns or the market can change them for them. For example, during the pandemic, look what happened to commercial real estate. And commercial real estate is what Most of these REITs own. They own shopping centers, office complexes, and those two asset classes in the commercial real estate field got devastated as people were shopping online and they weren't going to the office. And I think we're going to see a lot more carnage come out of that. So that's why I've always liked housing, especially direct ownership of housing. But remember, everything is subject to change based on the manager, the promoter and or market conditions. So when someone is looking at a REIT investment, just like when they're looking at a stock, remember that these can be totally different types of properties. Very common REIT type investments are commercial properties which include many different asset classes or segments within commercial real estate. But most of them I'd say being office shopping centers or retail. Office and retail, but of course you can have data centers, self storage facilities, apartment complexes. Really any type of property can be in a REIT. So remember, most REITs and you can of course do your own research, but if they pay 4 to 7% annual yield, then you're going to need a quarter of a million dollars or maybe more to achieve that goal of $1,000 per month in income. One of the many things I and our investor clients love about income property it is that it is a multidimensional asset class. So you earn your return on investment in many ways, not just one or two. Some investments are one dimensional, some are two dimensional. So one dimensional investment would be buy low, sell high. Pretty simple, right? Precious metals, cryptocurrencies, non dividend paying stocks. Right. One dimensional and that is not good. Two dimensional would be a REIT or a dividend paying stock, something that pays some income along the way. But income property, the direct ownership of it is a multidimensional asset class. You earn your return in so many different ways. Now, this is a whole other discussion because there's a lot to it, but I highly encourage you to just go to my website, jasonhartman.com and write. On the front page of the website you can watch a free video. It's about 28 minutes long or so, and it will explain how to analyze a real estate deal and how to read a pro forma. It's completely free. Thousands and thousands of people have told us great things about this video that can really help you analyze a deal, help you standardize your data so that it really becomes very simple for you to analyze a deal.
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