HOW I’D TURN $7,000 INTO $1,200 ANNUAL TAX-FREE INCOME

Turning a $7,000 investment into $1,200 of annual tax-free income may sound too good to be true — and in the short term, it is. That’s a whopping 17.1% yield, which you won’t find in any safe, reliable investment. If someone promises you guaranteed high returns like that, be cautious. Often, high yield comes with high risk, including the possibility of losing your initial capital.

But don’t write off the dream just yet. With patience, consistent investing, and the right tax shelter, that $1,200 annual income is absolutely achievable. Here’s how.

The power of compound growth

The key to transforming $7,000 into a $1,200 annual income lies in compounding and consistently investing. Rather than looking for a single investment to deliver an outsized return, think of it as building a snowball. Start small, reinvest your income, and over time, your portfolio will grow into something substantial.

Let’s assume a reasonable and relatively safe yield of 5%. To generate $1,200 per year, you’d eventually need a portfolio worth $24,000. If your $7,000 investment grows at a compound annual return of 10%, it would take roughly 10 years to reach that amount.

Do you want to get there faster? Contribute $7,000 annually to your portfolio and reinvest all income. With consistent contributions and a 10% return, you could reach your goal in about three years. This shows how important disciplined saving is, especially in the early stages of your investment journey. Over time, your growing investment base will do most of the heavy lifting.

Make it tax-free: Use a TFSA

The best part? You can earn that income completely tax-free by holding your investments in a Tax-Free Savings Account (TFSA). Any capital gains, interest, or dividends earned inside a TFSA are sheltered from taxes — even when you withdraw them.

This means your $1,200 annual income is more efficient than your job’s income that’s taxed. You get to keep every penny.

A real example: Granite REIT

One of my top candidates for achieving this income goal is Granite REIT (TSX:GRT.UN). As of writing, it yields a solid 5.1% at a unit price of $66.50. Analysts see about 21% upside from current levels, adding potential capital appreciation on top of a steady income stream.

Granite REIT owns and operates a portfolio of 143 logistics and industrial properties across North America and Europe, totalling over 63 million square feet. It has successfully reduced its tenant concentration risk — Magna International, once 93% of its portfolio, now accounts for just 19%.

This REIT is focused on high-demand sectors like e-commerce and warehousing and boasts a weighted average lease term of over five years, which ensures stable, predictable cash flows.

Here are some recent financial highlights:

• Funds from operations (FFO) of $91 million in Q1 2025, up 10% year over year
• Diluted FFO per unit of $1.46, up 12%
• AFFO payout ratio dropped to 60% from 67%, indicating improving the sustainability of the cash distribution

On top of that, Granite REIT has a 10-year cash distribution growth streak averaging 4.1% annually — a sign of long-term strength and commitment to income investors.

The Foolish investor takeaway

Reaching $1,200 in annual, tax-free income from a $7,000 starting point is all about realistic expectations, steady contributions, and smart investing. By leveraging the TFSA and selecting income-generating assets like Granite REIT, you can build toward your financial goals faster — and tax-free.

It’s not a get-rich-quick scheme, but it’s a proven path to long-term wealth.

The post How I’d Turn $7,000 Into $1,200 Annual Tax-free Income appeared first on The Motley Fool Canada.

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• If I Could Only Buy and Hold a Single Monthly Payer, This Would Be it
• How I’d Invest $10,000 in These 3 Monthly Paying Dividend Stocks

Fool contributor Kay Ng has positions in Granite Real Estate Investment Trust. The Motley Fool recommends Granite Real Estate Investment Trust and Magna International. The Motley Fool has a disclosure policy.

2025-05-22T19:43:55Z