In 2006 I started tracking my alternative income on this website and continued it for years. Life intervened, as it does, and I stopped.
In January 2017, I publishing monthly reports again. Since most of the reports are very similar, I decided it would be best to create this FAQ for new readers. This will give you the background information to get you up to speed. This helps regular readers zero in on the monthly update of “what’s new.”
Q. What is “Alternative Income?”
A. I coined “alternative income” in 2006 to be purposely vague.
I needed something to cover the small amount of blogging income I was making. On one hand, blogging is not passive income – it’s work. On the other hand, there’s a residual nature to the income. If I go on vacation for a couple of weeks, I still make money from the previous articles I’ve written.
Alternative income was more passive back in 2006 before social media, podcasting, and video. Today it seems like every blogger talks of hustling (as in moving quickly, not grifting people) and “being everywhere.” I’m sticking to my dinosaur roots as the only one dumb enough to just keep writing blog posts without cool, “pinnable” images.
Alternative income is best described as income where you don’t directly trade your time for money. Some common alternative income sources include collecting rent, dividends, royalties, and blogging. It’s very subjective. Your definition of alternative income may be a little different than mine. That’s okay, many people have different definitions for “retirement”.
I believe we all get the concept. That’s the important part.
Q. How Do You Make Alternative Income?
A. Currently, it’s blogging, dog sitting, and two types of investments: rental properties and securities (stocks/bonds). I’m extremely likely to add another type of alternative income by the summer. It’s already in the works. After that I really need to get started in writing a book to increase royalties that way.
Q. How Do You Spend Your Time?
A. This is important. Someone with few dependents or responsibilities can focus their energy more on creating alternative income sources. If you have to work 2 full-time jobs just to pay rent and childcare, it is going to be difficult to create alternative income.
My first priority is to be a stay-at-home dad. My military wife works long days on top of getting an online MBA (to add to her Pharm.D.) from a prestigious school. For promotion, she’s strongly encouraged to take on a number of other committee head positions. Yes, she “brings home the bacon.”
The kids are in school/camp during the day, which gives me time to do the basic family errands (shopping, cooking, dishes, laundry, walking the dog, etc.). There’s this blog, dog sitting business, and managing the rental properties. In the middle of 2018, I took on two ongoing freelance jobs that take about 20-25 hours of week of my time. The hours are flexible and the pay is good.
It’s hard for me to put a specific label on what I am. I can’t label it myself. However, as you can see I’m not under a palm tree sipping a Mai Tai… well not always.
There’s more detail on my Now page.
Q. Can you Tell me More about Your Blogging and Dog Sitting Income
A. I don’t publicly break out the difference between blogging income vs. dog sitting income. One impacts the other. When I have a lot of dogs, I don’t have as much time or the focus to blog. When I’m blogging a lot, it’s usually because I don’t have too many dogs to sit.
Dog sitting can be high in the summer as people go on vacation. Blogging can be low in the summer with internet traffic low… as people go on vacation. They end up complimenting each other quite well. It’s almost like a school teacher opening up an ice cream shop.
Q. Dog sitting income doesn’t seem like alternative income to me.
A. That’s not even a question!
It is true that both seem like trading time for money. However, this is one area where alternative income is subjective.
Sitting dogs itself isn’t a time-intensive job. While there is more overhead than you might think between booking dogs and meeting dogs for suitability, we do often have regular clients that are very easy.
The important differentiation with dog sitting is that I can “double-dip” and earn money from something else (such as blogging) at the same time. It’s very different than being an Uber driver. Double-dipping doesn’t work there as the police tend to frown on blogging and driving.
If you are interested, I wrote a very detailed article on how to make money dog sitting.
Q. Blogging doesn’t seem like alternative income to me.*
A. Again, that’s not a question.
Like dog sitting, blogging isn’t directly trading time for money either. If I write an article for the blog today, I don’t necessarily get any significant money for it. The money I make from blogging now is a direct result of having built a reputation and a collection of nearly 2500 articles over 13 years of blogging.
Q. What’s the background on your rental properties
A. We have three rental properties in our real estate accidental “empire”. (“Empire” is in quotes for a reason – it is a joke.) They are all on 15-year fixed mortgages. This means that we don’t make money on them now, but we are paying down those mortgages more quickly than most people. In 2027, we should be able to collect an estimated income of $40,000 a year (in today’s dollars, after expenses) on them.
Q. How do you calculate rental property alternative income
A. Most landlords just calculate how much money they make after their expenses. That’s the easy way.
However, most landlords choose a 30-year fixed to keep their expenses low. We wanted to pay them off quickly. Thus our mortgages are high and we don’t make money on a monthly basis.
I came up with an alternative calculation that effective gives us the percentage of the rent that is ours. That is opposed to the percentage of the rents that are the bank’s. Imagine that you and a friend bought a $200,000 property and each owned 50%. If the property brought in $1500 a month in rent after expenses, each person gets $750 a month. This is what I do.
I add up all the properties’ equity (what we own) and estimated value. (Zillow is very accurate for these condos.) I calculate the percentage of the property that we own by dividing the equity to that estimated value.
Then I calculate the rents of all the properties as if they were owned free and clear. I subtract the expenses (condo fees, maintenance, etc.). I then multiply the percentage of the property that we own by that adjusted profit number.
If you are confused this article on calculating cash flow of cash flowless real estate explains it in more detail.
Q. What about inflation of the real estate? Won’t that eat into the buying power of $40,000
A. Since rents are typically rise in line with inflation over the long term, we don’t have to adjust the numbers for the future. We’ll raise the $40,000 rents now to $80,000 at some point in the future, but it will still have roughly the same $40,000 buying power of today.
Q. How do you calculate dividend alternative income?
A. We don’t focus on putting our money in dividend stocks, but I’m going to pretend that we do for sake of this exercise. In reality we a vast majority in index funds, but I do some stock picking with a small percentage of our portfolio. Though the index funds do pay dividends, it’s not their core goal.
We can pretend that I moved all the money into a dividend focused portfolio. I estimate that we could easily earn 2.50% in dividends. This gives us a conservative number that we could expect to have.
However, since almost all this money is in retirements accounts, we can’t access it in a practical way without tax penalties. We’re going to ignore this for the sake of the report. In the end we need to capture around 20 years of mostly maxing out retirement contributions and compound interest.
Q. What’s “very close to passive income
A. This is the income that is almost universally considered passive income. For us that would include just the rent payments and dividends. Maybe someday it will include royalties or book sales. I’m not counting blogging or dog sitting income in this.
* While on the topic of blogging, I’d like to add that it isn’t all about the money. I highly recommend personal finance blogging. I wouldn’t aim for creating the greatest blog in the world. Instead, I’d think of it as a way to keep yourself accountable. That’s worked for me. Here’s how to get started blogging with any type blog you might be interested in.