Alternative Income Update: February 2018

I usually try to get this report out by the middle of the month. I just might be a little early side this month. Even if you see this being posted after the middle of the month, it’s likely that’s just due to the publishing schedule.

In February, The Big Sick from January continued. No, we didn’t all fall into comas. Instead at least 3 of the 4 of us passed around each of the flu, colds, and ear infections. The flu even came at us a second time. I’m writing this on March 8 and I still have a cold. For awhile, the doctors were just throwing pills at us like Dr. Mario.

The good news is that I seem to be the last sick person (knock on wood), and I’ve been functional the last few days. It’s not perfect, but I can work with this.

Between being sick and February being a short month, my expectations were low.

Let’s dig into the details:

Alternative Income Update: February 2017

For those that don’t know the term, “alternative income”, I started using it 11 years ago to be purposely vague*. I needed something to cover blogging income. Blogging income can be very erratic, but there’s a residual nature to it as well. Some popular bloggers are still struggling to categorize it. I think alternative income was more passive back in 2007 before social media, podcasting, and video. Today it seems like every blogger talks of hustling (as in moving quickly, not grifting people) and by that they mean “being everywhere.” I feel like the only one dumb enough to just keep writing blog posts… blog posts that often don’t have cool “pinnable” images.

In general, I call alternative income everything that comes from passive investment and these side hustles. The best way to think of it is income where you aren’t directly trading your time for money. This report is about all my alternative income. To include my investments into that paradigm, I have to fudge the numbers a bit. You’ll see what I mean as we go along… or you can see a more detailed explanation back in January, 2017.

The last month I reported, January, my alternative income added up to $5,315. (I know I really need to set up a chart. I am certainly living up to my Lazy name here.) January was a slight below average dog sitting month. The summer tourist season are really the best months. Blog income was terrible. With the flu, I couldn’t write much or even invoice people for work that I had already done.

In any case, January is ancient history now, so let’s move on to more recent history… February.

Lazy Man’s Alternative Income – February 2017

In looking at our alternative income, I break it down to 3 main sources… each with their own caveats.

1. Blogging + Dog Sitting Income

My “real world” friends have asked me, “What do you do?” I’m not a fan of the question… because it’s simply rude. I feel it’s used to size up or pigeonhole someone. My responses of “software engineer” has received very differently reactions than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do. What are those things:

I suppose the best answer is that I’m a stay-at-home dad. The kids go to school for about 6 hours a day. So my “non-Dad stuff” is 30 hours a week. That gives me time to do some basic family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.) and dog sitting and blogging fills in the gaps.

At blogging conventions a popular question is “Are you a full-time blogger?” I say yes, but then explain that I spend very few hours blogging. I don’t think most people grasp the concept of not having a full-time job, but still having a full slate of activity. I’m doing much, much more now than I ever did at a full-time job. If you really cared to read much more this gives you even more on that. I think everyone assumes that Boss Lazy Man will tell Employee Lazy Man to take the day off from the blog to do non-blogging stuff. That’s not really how it works. People with standard jobs have a lot of insulation where they can say, “See, my boss says that I’m not available.”

I’ve spent too many words on it, but if you want to read more of what I’m doing check out my “Now” page.

I don’t break out 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… and there isn’t some other great catastrophe going on. (Sometimes it feels like life is a series of catastrophes. Fortunately, for me, they’ve been minor. I’m sure I’m not alone in feeling that it’s just one thing after another derailing your progress.)

You may be asking right now, “Isn’t alternative income about NOT trading time for money?” Isn’t dog sitting and blogging TRADING time for money? That’s a solid point. However, I don’t do it directly. Let me explain:

Sitting dogs itself isn’t a time-intensive job… at least with the number of dogs I typically have. However, there is considerably more overhead than you might think between booking dogs and meeting dogs for suitability. The important differentiation with dog sitting is that I can “double-dip” and earn money from another side hustle, such as blogging, at the same time. It’s very different than being an Uber driver. The police tend to frown on blogging and driving. (Hmmm, maybe if I had a voice recorder and translation software I could compose some rough drafts. Nah… I’m sure clients wouldn’t want to climb over my kids’ child seats. Also the recent MIT report shows that Uber drivers make far below minimum wage.)

If you are interested in dog sitting, I wrote a very detailed article on the subject: Pros and Cons of Dog Sitting on Rover.

Blogging is much more time-intensive than sitting dogs. However, it isn’t directly trading time for money either. If I write an article for the blog today (such as this one!), 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 11 years of blogging.

February was an average month for sitting dogs. It is usually one of our better months, with people traveling for school vacations. However, we almost no dogs during that time. I don’t know what is going on with that.

Blogging bounced back a lot from January’s lows. I had a good amount of advertisers approach me and it seemed to work out well.

While on the topic of blogging, I’d like to add that it isn’t 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.

In January, these two categories added up to an all time low of $2,439.48. But for February it is…

Total Blogging + Dog Sitting Income: $2,933.77

February is a shorter month, so 20% growth in fewer days is moving in the right direction. Unfortunately, it’s still a good deal below last year’s pace. I’m going to ask you to pick up the slack and spread articles through social media and get clicky on my site. I’m joking.

2. Rental Property Income

Here is where I need to fudge the numbers. Sorry, but it’s necessary.

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 9 years, we should be able to collect an estimated income of $40,000 (in today’s dollars, after expenses) on them.

So here’s why I have to fudge the numbers. For the purposes of this report, I think it doesn’t make sense to count the properties as zero income. I don’t want this report to push me towards a bad decision. It might make me sell them and invest the money differently to make it better. If someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). It’s an extreme example, but it shows how the short-term plan should be pushed aside for the benefit of the long-term plan. If I don’t fudge the numbers, the $10 is the better deal.

Here’s how I’ve decided to fudge the numbers.

I add up all the properties equity and values. Zillow is fairly accurate for these condos as it has a lot of data points to work with. Next I calculate an equity-to-value ratio. In short, this is the percentage of the property value that we own. I then calculate the rents of all the properties if they were owned free and clear. Thus we can say that we are “banking” (in a completely fudgy sense) a percentage of the rent that we would expect to have in the future.

If you are confused (and you probably are), calculating cash flow of cash flowless real estate explains it in more detail.

Here are the numbers for February. We have 45.13% of equity in our properties with an estimated combined rent of $3,325. (This number is after insurance, property taxes, and condo fees.) We were able to raise the rents earlier this year a little bit as the rental market has been good and we turned over to new tenants.

If you multiply $3,325 by 45.13% you get $1,501. At the beginning of 2017, we only had a ratio of 36.4% of lower rents which lead to a number $1,174.74. So in 17 months, we’ve seen the number grow around $325/mo. As the years march on, the ratio will grow to 100% of the rent, which is moving up from $3,325 a month (due to inflation). That’s what gets us to that annual $40,000 I mentioned above.

In the previous report, the rental property income was $1,442. This number usually moves slowly, but with increased rent it went up $59/mo., which is great! This number only changes if one of two things happen: 1) The value of the properties go up a lot. 2) We change the rents. I don’t control the housing market. Tenants are typically locked in for at least a year. The monthly paying off of the mortgages creates a little equity over time.

My hope is that by the end of this year, we’ll be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income.

Total Rental Property Income: $1,501

3. Dividend Income

Like the rental property “income”, I’m going to play a game with the numbers. You can decide if the game is fair. I always appreciate comments!

We don’t focus on putting our money in dividend stocks, but I’m going to imagine that we do. Instead we have it in index funds for the most part. Though the index funds do pay dividends, it’s not the core goal. Also, the money I’m talking about here is in our retirement accounts, so it isn’t something that we would tap as “income” anyway.

Even though all this money is in retirement accounts, we could pull the money out and use it. We’d get tax penalties so we won’t do that, but like the mortgages on the rental property there’s real value here that needs to be accounted for. My goal here is to capture the nearly 20 years of mostly maxing out retirement contributions.

Just like the rental income, we can “pretend” what the portfolio would earn if we moved all the money into dividend stocks or indexes. For the sake of pretending, I estimated that we could earn between 2.30% and and 2.70% in dividends on the portfolio. Most people estimate a 4% safe withdrawal rate, but withdrawal is not our plan here.

I am purposely keeping a wide range because I honestly don’t know what kind of dividends to expect. Also, it conveniently makes it difficult for people to reverse engineer and figure out our retirement portfolios (not that it is a big secret).

Each month, I’ll pick a random number in that range to derive this number. Since it’s “pretend” dividends anyway, there’s nothing lost in being a little vague. The focus is on calculating something that could be accurate if we needed it to be.

February was actually a very good for our portfolio. I’ll be writing more on this below, because it seems our portfolio behaved differently from other bloggers. Many blogger reported their portfolio going down in February, but ours went up. This lead us to increase our fudged divident income to

Total Dividend Income: $1,447

On a monthly basis this doesn’t jump up very much. However, it seems to steadily climb as the market climbs. If I was only reporting this number, I’d just throw it out there once a year, because it isn’t exciting to see it grow $13/mo. (But hey, that’s free Netflix for life!)

Very Close to Passive Income

I’m starting a new category here, but it isn’t exactly “new.”

Most people consider rental property income fairly passive income. It’s not. However, for sake of argument, can we agree it is “more” passive than “blogs and dogs”, right? I hope so.

I’m going to combine “rental property income” with “dividend income” to create “very close to passive income.”

It’s interesting to me that these two numbers are so close. I think of it as putting them in an arena to fight out which is strong.

Very Close to Passive Income: $2,947

That’s grown from a combined $2,354 in January 2017. Since then, this has gone from an estimated annual income of $28,252 from these sources to $35,366. Go markets go! Right?

These should continue to rise as we continue to put more money in our retirement accounts (while compound interest does its thing) and the real estate numbers grow from paying off mortgages and raising rents.

Final Alternative Income

Adding up “dogs and blogs” to the “very close to passive income” and this month I had $5,880.77 in monthly “alternative” income. That would be $70,569.24 a year. It was trending towards over $100,000 a couple of months ago. I’ve got some serious work to do to turn this around. That won’t happen in March as the kids have two weeks off of school and we are hacking Disney World. I haven’t figure out how to make money sitting dogs when I’m not at home for quite awhile.

Even though the numbers used to be better, I can’t be too ashamed of those numbers. In the long term, we can probably get by on half of that, and it doesn’t include any of my wife’s bread-winning pharmacist income or her potential military pension.

Just like every month, I’m still hoping to writing a book to boost my alternative income. That won’t happen in March as I mentioned before. So I won’t even pretend like I usually do that I’ll make progress on this. I had always planned it to be an eBook, but if any readers out there know a publisher, I’d appreciate the hook-up. I think I can make a compelling argument for a book that you’d see in a bookstore… that is if bookstores still exist by the time I’m done writing it.

Net Worth Update

Since I don’t share real numbers of our net worth, this isn’t very exciting. That’s why it’s just a footnote here.

I truly believe that net worth is one of the most important numbers in personal finance so it is worth sharing in some way. Showing relative growth is still fun.

I use Personal Capital to track my net worth and it makes everything easy. It’s free and you should give it a try. (If you sign up with that link, I might get a few dollars from them.)

In February, our net worth grew 0.93%. Translated over a full year that would be nearly 12% (mighty math powers!). While some may be accustomed to 20-25% annual returns between the stock market and new investments, I’m still pretty happy with the nearly 12%. Some bloggers lost more than $80,000 or even just $58,000.

So why didn’t I lose money? I think it’s because I track from the 5-8th of each month to the 5-8th of the next month to make sure all the rent checks are in. The stock market has been on a crazy roller coaster, so those 5-8 days can make all the difference.

In any case, our net worth for the year so far is 4.67%. That’s close to 19% for the year, which is very close to what we’ve been seeing. So far in March, as I get ready to publish this (on the 12th), it looks like we’ll see another jump. The markets will do whatever they do, and while I write about the short term here, I’ll focus on the long term.

How was your February? Let me know in the comments.

* If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to you.