Alternative Income Update: July 2018

July is in the books. Now it’s the time of the month that I pause and think, “I can’t remember what I ate for dinner last night… how am I going to remember last month?” LOL.

I think July, 2018 will always be known as the month of fighting for air conditioning. We had central installed in 2013 and I think we’ve had to have it repaired around 5 times now – an average of about once a year. We had Restivo’s by about 3 times in July and finally by the end of the month, they were able to get the system they installed working as multiple parts failed this time.

It was also a month where my 5-year old went to a wilderness camp while my 4-year old went to a more traditional camp. That meant for a bit more driving and an earlier pick-up (day ending at 3PM instead of 4:30PM). These are also my wife’s busiest months. When she had time off we tried to make the most of it. Summer in Newport, Rhode Island is a special time and it really feels like you are living the island life.

Let’s get to the good stuff. (Regular readers may notice that I have a template for this article, but new readers will need all this information for it to make sense.)

Alternative Income Update: July 2018

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. My kids say dinosaurs are cool, so maybe dinosaur bloggers are cool?

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, June, my alternative income added up to $7,403.28. June was the best month of the year, despite the fact that I was away on vacation or on adventures with kids for half the month. I had also started a freelance customer support gig that wasn’t included in the numbers (but certainly takes time).

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

Lazy Man’s Alternative Income – July 2018

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 a very short list 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 studies show that Uber drivers make far below minimum wage when accounting for their expenses.)

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 usually much more time-intensive than sitting dogs. (The summer months are the exception). 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 12 years of blogging.

Like June, July was a great month for sitting dogs. The locals took advantage of kids being out of school, while the strong tourist season brought in more business. July has always been one of the best months, so this was no surprise.

Blogging income was solidly above average in July. There was a minor hit as my advertising company noted that budgets at the end of Q2 (June) are historically more than the start of Q3 (July)

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.

In June, these two categories combined for a year high of $4,280.06. But for July it was…

Total Blogging + Dog Sitting Income: $3,953.29

As you can tell the needle didn’t move much. That’s great considering everything else on my plate.

In addition to the dogs and blogs, in July I added some straight-up, freelancing work. I’m not including it as it is plain old, regular income. I feel it is important to mention it, because it’s another thing that I’m focusing on. At the end of the month, more ongoing freelance work fell into my lap. Between the two gigs, it could be as much annually as the dogs and blogs.

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 a year (in today’s dollars, after expenses) on them.

So here’s why I have to fudge the numbers. For the purposes of this report, 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 just to make the numbers look better. For example, if someone offered you a million dollars in 10 years or $10 per year right now, you’d wait for the million (I hope). However, for this report, the $10 per year would give you better numbers.

It’s an extreme example, but it shows how sometimes the short-term plan is the enemy of the long-term plan.

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

I add up all the properties equity and values. Zillow is 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 vs. the bank. Then I calculate the rents of all the properties as if they were owned free and clear. Thus we can say that we are “banking” (in a completely fudgey sense) a percentage of the rent that we would expect to have in the future (rents are typically in line with inflation in the simplest sense).

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

Here are the numbers for July. We have 49.64% of the 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.

Ugh… so close to 50%. We’ve made more progress in this than I thought we would this year.

If you multiply $3,325 by 49.64% you get $1,650 in “fudged” monthly alternative income. At the beginning of 2017, we only owned 36.4% of the properties and they had lower rents. The math worked out to $1,174 back then. So in 18 months, we’ve seen the number grow $476/mo. As the years march on, the ratio will grow to 100% of the $3,325 monthly inflation-resistant rent. That’s what gets us to that annual $40,000 I mentioned above.

In the previous report, the rental property income was $1,614. This number usually moves slowly, but a $36 montly jump is huge. This number only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. I don’t control the housing market, so I can’t change much here. Tenants are typically locked in for at least a year. The monthly paying down of the mortgages creates some equity each month.

In July, Zillow upped the value of the properties significantly. We are finally starting to see a recovery since the crash in 2009, but there’s still a ways to go for it to get to the highs of 2006.

Slow and steady wins the real estate race. In previous reports, I hoped that by the end of this year, we’d be looking at having 50% of the equity with $3,325 in rent or $1662.50 a month in fudged alternative income. I’ll knock on wood, but we might blow it away if the housing market continues to appreciate. Maybe we can get to 53% for $1762.25 for fudged money.

Total Rental Property Income: $1,650

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 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. I’m also fudging the numbers in another way. The money I’m referring to here is in our retirement accounts, so it isn’t something that we would tap as “income.”

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. However, like the mortgages on the rental property, there’s real value here that I feel should 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 2.50% in dividends. Most people estimate a 4% safe withdrawal rate, but withdrawal is not our plan here. We are only thinking about the cash that these investments could yield to pay for our living expenses.

July was another solid month for our portfolios. The stock market did it’s thing in going up. We did our thing in putting more money into it. The end result is:

Total Dividend Income: $1,526

Last month, it was $1509, so we gained $17 of theoretical monthly money from theoretical dividends. Like the rental property number, slow and steady wins this race. This keeps moving in the right direction.

Very Close to Passive Income

Most people consider rental property income fairly passive income. It’s not, because you have to deal with tenants. However, when things are going well, there might only be “work” every couple of months. For sake of argument, I think we can agree it is “more” passive than writing blog posts and sitting dogs. I spend a lot more time on the later than the former.

Of course dividend income is completely passive, so I don’t need to argue much there.

This “very close to passive income” category is a combination of “rental property income” with “dividend income.” (Yes, that’s a lot of quotes.)

It’s interesting to me that these two numbers are so close for us. It’s like the stocks vs. real estate debate, but for our personal finances. I think of it as putting them in an arena to fight out which is the strongest. The dividend income started out the year with a big, nearly $50, lead. In June the real property income is up over the dividends by $105.

The stock market goes up and down which makes the dividends fluctuate as well. The rental property income keeps going up, because the mortgages are always getting paid down every month. The stock market can more a lot faster than the housing market. In any case, I like having both of them working for us.

July’s Very Close to Passive Income: $3,176

Last month it was $3,123, so it’s up another $53! 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 $38,115. Investing (in this bull market) is awesome! It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, looking forward to 9 years from now when the investment properties are paid off and how the stock market might grow (assuming a conservative 4%), this number could reach 80K a year. I estimate our long-term expenses to be around $35,000 a year (with the house paid off).

Yes we ignored some minor (but important) details. Details such as our investments being in retirement accounts and an unwillingness to sell some rental properties to pay off others. It’s possible that these two could cover our future expenses (without drawing down on principle).

Final Alternative Income

Adding up “dogs and blogs” to the “very close to passive income”, this month we on the investment stuff had $7,129.29 in monthly “alternative” income. That would be $85,551.48 a year. I’m excited even if it is a little fudgey math.

That largely hypothetical $85,551 a year on investments, writing on a blog, and taking care of dogs is fantastic. In the long term, we can get by on half of that income, and it doesn’t include any of my wife’s bread-winning pharmacist income or her potential military pension if she retires next year.

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. Seriously… it seems everyone in personal finance is getting a book deal except for me. 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.

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 can be useful, I think? (Let me know in the comments.)

I use Personal Capital to track my net worth and it makes everything easy. It’s free and you should give it a try. For full disclosure, I might make a few dollars if you do.

In July, our net worth grew 0.73%. Yay! That’s a year to-date-gain of 9.42% in our net worth this year. As a reminder, percentages can be weird… Imagine with someone with a net worth of $100 finds a $100 bill on the ground. Instantly it doubles his net worth. As the numbers get bigger, I’d expect percentage to come down.

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