It is a little past the middle of the month, which means I’m a little late in reviewing my alternative income for the last month. Many bloggers publish their monthly updates a few days after the month is over. As a landlord, I have to get all the checks and have them deposited before I start to compile the numbers. That usually takes about a week. We tend to concentrate my our vacations to the summer time, so it took a little longer to get checks and cash them.
For those that don’t know the term, “alternative income”, I invented it to be purposely vague. In general, it is income that comes from passive investment and side hustles. I like to think of alternative income as anything where you aren’t directly trading your time for money.
To work my investments into the alternative income 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.
If you’ve been following this series, I haven’t been happy with the way I’ve been fudging the rental income. This month, I’ve got two new calculations that I like better. I could use your help in the comments deciding between them.
Last month, May, my alternative income added up to $8,145, which was a record for the year. May was a big step forward for dog sitting (Memorial Day!) and the blog had a lot of other advertisements.
Lazy Man’s Alternative Income June 2017
In looking at our alternative income, I break it down to 4 main sources… each with their own caveats.
1. Blogging + Dog Sitting Income
Some “real world” people ask me, “What do you do?” This is my best answer. I’m not a fan of the question, because it is difficult to answer. I also feel the question is often used to pigeonhole someone. Maybe I’m over-analyzing, but my response of “software engineer” seems to be received differently than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do.
The shortest answer to the question may be that I’m a stay-at-home dad. The kids go to school/camp/daycare for a few hours, but I usually have some other family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.) to run during that time. It can take hours for me to just catch up on all email related to 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 much, much more now than I ever did at a full-time job. 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. People with standard jobs have a lot of insulation where they can say, “See, my boss says that I’m not available.”
Getting back to alternative income, I don’t break out the blogging income vs. the 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.
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 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 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.)
Blogging is much more time-intensive. However, it isn’t directly trading time for money either. If I write an article for the blog today, I don’t necessarily get any money for it. The money I make from blogging now is a direct result of having built a reputation over 11 years of blogging.
June was a very good month on both fronts considering the circumstances. For some strange reason, my son’s school ended 2 weeks before camps started. For most of those two weeks, I was 100% focused on full-time child care. We chose a few days to take a local vacation. It wasn’t an ideal vacation overall and (a small) part of that was that I had no real internet access. As I wrote in the preview last month, “Hopefully, I can cram a month’s worth of work into 10 days. If not, June may be a decent test of how passive this type of income is (or isn’t).”
Due to the vacation, dog sitting was extremely quiet in the middle of the month. The last week of the month was very, very busy. I’d like to say that lead to something unexpected, but it was essentially an average month. Summer is a busier time, so I’d be typically look for very good months, but I’ll take it.
Blogging in June also went well. I didn’t have time to write very much, so I wasn’t expecting much. It turned out to be an above average month. That might be due to the slow start I had at the beginning of the year with the change in theme design. The average month was really brought down there.
In May, the two categories added up to $6,272.43. So for June it is…
… before I reveal the June number, I’d like to give a little preview of how July is going. The first two weeks have been difficult because of Independence Day and my wife and my 10th anniversary. We took another local vacation (this time without the kids) to celebrate that. July is looking to mirror June a bit, but I think I can beat it if I hunker down a bit.
Total Blogging + Dog Sitting Income: $5,536.18
It’s down from May, but all things considered I have to be very happy with that number.
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 on 15-year fixed mortgages. This means that we don’t make money on them now, but we are quickly paying off the mortgages. I noticed that they aren’t appreciating at all this year, but they did well last year. In 10 years or so, we should be able to collect an estimated income of $38,000+ (in today’s dollars, after expenses) on them.
In previous updates, I imagined that we refinanced the properties to 30-year fixed mortgages so that we would make money on them now. There were two problems with that idea. As mortgage rates change (they are higher now), the idea of refinancing them actually becomes a penalty. Also as I pay off the mortgages, refinancing makes very little difference. If you are down to your last $5,000 in payments, refinancing means next to nothing.
As I wrote in the beginning, I have two new calculations for this update.
The first calculation is making the assumption that I sell the rental property with the most equity and use that to pay off the mortgages on the other two. Unfortunately, it’s only enough to pay off 1.5 of those mortgages. From Zillow, I could sell the first rental property for X and the other two properties add up to Y. Those Y rental property would likely bring in $1800 a month if we owned them free and clear. Unfortunately the sale of X is only worth only about 55% of Y. If you take 55% of $1800, you get $990. In reality, I could only buy one of the properties in Y free and clear by selling X, but I’d have some left over money unaccounted for. So my fudging here is to use that $990 number.
I don’t blame you if you didn’t follow that. I needed a spreadsheet to keep the numbers straight. I hope it does make some sense. This is an improvement over the previous model because as the properties gain value, they build more equity. Also every month, the mortgages on Y are getting smaller. It doesn’t rely on unpredictable mortgage rates.
For this calculation, I add up all the properties equity and values (Zillow is very accurate for these condos as it has a lot of data points to work with). I then calculate an equity-to-value ratio (which is the opposite of loan-to-value ratio). In short this is the percentage of the value that we own. I then calculate the rents of all the properties if they were own free and clear as this will be the alternative income when they are paid off.
Fudging the numbers, we essentially have that equity percentage of those rents/alternative income. So we have around 41.1% of an estimated rent of $3200, which comes out to $1,323.88. At the beginning of the year, we only had a ratio of 36.4% which lead to $1174.74. As the years march on, this ratio will grow to 100% the rent, which will be should be more than $3200 (due to inflation).
I prefer method 2 because it seems easier to understand. It also takes all the properties and their rents into account. The caveat is that it isn’t like we have this money as income now.
Which method do you like better? Either is better than the old refinancing method, right?
Total Rental Property Income: $1323.88
3. Dividend Income
Like the rental property “income”, I’m going to play a game with the numbers.
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.
However, nearly 20 years of nearly maxing out retirement contributions is significant. It will be counted some day, right?
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.
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.
The stock market has been doing very well, so the pretend income here has gone up a bit.
Total Dividend Income: $1,234.26
Final Alternative Income
This month I had $8,094 in monthly “alternative” income. Last month, I had $8,145. The methodology of how I calculate real estate bridged some of the gap of the blog/dog sitting earnings. At some point, I’ll go back and restate all the numbers with the new real estate methodology. That is, if I continue to use it. (And again, please, please, PLEASE give me your thoughts.)
Because I wasn’t able to do much work for half of the month, I’m going to categorize this as a big win.
I’m still working on 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 when I’m done writing it.
Bonus! Net Worth Update
(Can I call this a “Bonus” when I’ve done it for a few months now?)
Since I don’t share real numbers of our net worth, this may not be very exciting. Still net worth is one of the most important numbers in personal finance. Showing relative growth should be of some value.
In June, our net worth grew exactly 1.34% which is great for a single month. With half the year over, we have increased our net worth around 11%. That’s largely due to the stock market, real estate appreciation, and paying off debt.
These gains can’t go on forever, but we’ll let the market forces roller coaster do it’s thing and enjoy the ride.
Until next month, think long-term my friends.