It’s my favorite time of the month. Yes, the time when all the rent checks are in and deposited and I get to look at our net worth and see it grow by around 1.5% as it has done for quite a few years now.
Err, hold the phone on that last one. I ran the numbers on the 6th after some talk about a trade war with China. The stock market tanked and our net worth did a little too. That’s cool, because it already recovered a bit. In the grand scheme of things the daily snapshot is just a blip on the radar.
March was notable because we went to Disney World. My kids have two weeks off of school in March, which means the focus shifts on vacation and 24-hour kid care.
Let’s dig into the details:
Alternative Income Update: March 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.
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, February, my alternative income added up to $5,880. (I know I really need to set up a chart. I am certainly living up to my Lazy name here.) February was a slightly below average dog sitting month for a school vacation period. The summer tourist season are really the best months. Blog income rebounded from a terrible January, though we were still fighting the flu.
In any case, February is ancient history now, so let’s move on to more recent history… March.
Lazy Man’s Alternative Income – March 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 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 12 years of blogging.
March was a poor month for sitting dogs. There were no school vacations (except for our own weird school) and we were the ones doing the traveling. I haven’t figured out how dog sit in Rhode Island when our family is at Disney. If I do though, I’ll be raking in the pennies.
Blogging jumped up a bit from February. It’s still not where it was last year, but that’s to be expected as I feel like Stella at the beginning of the movie. I’ve actually never seen the movie, I just presume that she starts without her “groove.” In any case, I’ll take any upward momentum.
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 February, these two categories combined to a total of $2,933.77. But for March it is…
Total Blogging + Dog Sitting Income: $3,640.70
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. Oh and sign up for lots of Personal Capital accounts. It’s free and I can make a little money by referring you. I’m joking, but not really.
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 vs. the bank. I then 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.
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 March. We have 45.98% 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 45.98% you get $1,529. 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 15 months, we’ve seen the number grow around $354/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 $1,501. This number usually moves slowly, but we got a $28 jump, which is very good! 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 saw our property value go up a little while some of the mortgages were paid off.
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: $1,529
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.
March was a poor month for our portfolio. The China trade war hit us at the end. It really wasn’t that bad… but we’ve become accustomed to this number always going up.
Total Dividend Income: $1,411
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. The little moves of $20 doesn’t really much especially in a retirement account context.
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”? I hope so.
I’m going to combine “rental property income” with “dividend income” to create my “very close to passive income” category.
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 the strongest. The dividend income started out the year with a big, nearly $50, lead. However, it now finds itself losing by more than $100.
Very Close to Passive Income: $2,940
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 $35,280. Investing is awesome!
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”, this month I had $6580.70 in monthly “alternative” income. That would be $78,968.40 a year. It was trending towards over $100,000 last year. I’ve got some serious work to do to turn this around. However, I need to pause and think, “Whoa! Nearly $79K a year?!?! Awesome!” (Is that too “Joey Lawrence”?)
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.
Just like every month, I’m still hoping to writing a book to boost my alternative income. Last month I said I won’t make progress on that because of the Disney trip. My March self can suck it as I DID make progress. It’s wasn’t much, but it also isn’t zero like the previous billion months. 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 March, our net worth SHRUNK -1.48%. The sky is falling!!!
Nope, it’s not. I am over-dramatizing it for effect. The loss is just about the China trade war stuff.
In any case, our net worth for the year so far is up 2.72%. Ho-hum, I like when money isn’t very interesting.
How was your March? Let me know in the comments.
* If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to you.