I usually try to get this report out by the middle of the month. For once it looks like I’m a little early!
For us, the big news of the month was supposed to be questions about the government shut down. We were concerned whether my active duty wife would get paid. We avoided that, but it was almost like jumping out of the pot into the frying pan. My wife got hit by the surprise and sudden pay cut affecting public health workers.
I’ll let you interpret Washington Post’s title however you want:
we had a ton of condo assessments last year, so our emergency fund isn’t what we’d want it to be. It’s one thing to plan a year’s worth of expenses, but it’s another be surprised with a few letters that you need to cough up the cash for more than a year’s living expenses.
January also featured the family cycling through all that flu you’ve reading about. It seemed like everyone got it twice. Since it was spread out, it seemed like it was the whole month.
Warning, this is going to be ugly.
Enough excuses. Let’s dig into January’s report:
Alternative Income Update: January 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.
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 work 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, December, my alternative income added up to $8,032. (I know I really need to set up a chart. I am certainly living up to my name here.) December was a great dog sitting month. The Christmas holiday is great like that. Blog income was around the average.
In any case, December is ancient history now, so let’s move on to more recent history… January.
Lazy Man’s Alternative Income – January 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 my life is a series of catastrophes. Fortunately, they’ve been minor… for the most part.)
You may be asking right now, “Isn’t alternative income about NOT trading time for money?” This IS trading time for money. 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.)
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.
January was a poor month for sitting dogs. There are few travel holidays. We had one steady dog, a dog that we’ve had since November because his owner keeps getting serious medical illnesses. We’d give the owner considering the circumstances, but caring for a 200lb Rottweiler isn’t easy. This dog is very kind-hearted and well-trained… but patting him brings a “purr” that looks like the worst nightmare you have ever had about a vicious dog. Some movie studio is missing out. Since it’s been months since he was with his owner, I feel like he’s losing his training.
Blogging was a big drop-off in January. That was to be expected because of the sicknesses. I couldn’t write as much as I would want to and traffic dropped to its lowest in quite some time.
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 December, these two categories added up to $4,869.60. But for January it is…
Total Blogging + Dog Sitting Income: $2,439.48
That’s almost a drop of exactly 50%. There’s nothing much more to say other than it was a mess.
Fortunately, I’ve already invoiced quite a bit in February. The invoices haven’t been paid, but I’m optimistic they will be.
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 December. We have 43.36% of equity in our properties with an estimated combined rent of $3,325. (This number is after property taxes and condo fees.) We were able to raise the rent a bit as the rental market has been good and we got some new tenants.
If you multiply $3,325 by 43.36% you get $1,442. At the beginning of last year, we only had a ratio of 36.4% of lower rents which lead to a number $1,174.74. 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 within a $100 of that annual $40,000 I mentioned above.
In the previous report, the rental property income was $1,397. This number usually moves slowly, but with increased rent it went up $45, which is quite a bit. 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.
We would have done better than the 43.36% which was almost the same as last month, but Zillow dropped the value of the properties.
My hope is that by the end of this year, we’ll be looking at having 50% of the equity with $3500 in rent or $1750 a month in fudged alternative income.
Total Rental Property Income: $1,442
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.
Like almost everyone, our portfolio was doing incredibly well in January, up 7% or more. However, I calculate the numbers on the 5th or a little after to get all the rent checks in and cleared. By the time, I was running the numbers on the fifth, our portfolio had given up all those sweet, sweet, January gains. It was almost 0% change across the board. My wife calculated her numbers (I don’t have access to some of the government retirement accounts) a little later, so her numbers were a little lower.
Total Dividend Income: $1,434
This number is down a few dollars over the last month. I don’t you there was almost no change.
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: $2,876
That’s grown from a combined $2,354 last January. Since then, this has gone from an estimated annual income of $28,252 from these sources to $34,513. These should continue to rise as we continue to put more money in our retirement accounts and the real estate holdings grow.
Final Alternative Income
Adding up “dogs and blogs” to the “very close to passive income” and this month I had $5,315.48 in monthly “alternative” income. That would be $63,785.76 a year. It was trending towards over $100,000 last month. I’ve got some serious work to do to turn this around. Still, I can’t be too ashamed of that number. 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. 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.
In January, our net worth grew 1.62%! However, this almost a fraudulent statement. The gain was almost entirely due to Zillow drastically raising the value of our primary residence. That’s money we can’t access without a loan and money we can’t spend. Many bloggers don’t include the value of their home in their net worth. However, I think it’s important because if you own a home, that’s a big expense that you’ve eliminated. We’re almost at the point where we could sell our primary residence and pay off the 3 rental properties. We could live in one (mortgage-free) and use the income from the other two mortgage-free properties to cover most of our remaining expenses.
I’m not saying we would do that, but it’s a nice feeling as a near worst-case scenario.
In any case, our net worth for the year so far is 5.09%. That’s very good for 2 months. I don’t think we’ll keep up that pace, but I don’t think we need to.
How was your January? Let me know in the comments.
* If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to you.