Alternative Income Update: March 2019

It’s past the middle of the month and that means I have the numbers (and time to process them) for last month’s alternative income.

This month I’m doing something a little different. The software engineer in me extracted 90% of the 2500 words that give background information each month and put them in a FAQ. For now, I’m including the FAQ in the beginning of the article. However, in future months, it will probably be a separate page… or maybe something that expands when you click on it. Please bear with me if there are some errors on this. It’s more complicated than it looks.

If you are a regular reader and just want to get to the numbers, there’s a link to jump you over the FAQ and to the month’s update

Before we get all the boring numbers, I need to give you March’s back story.

You’d think that the biggest thing that happened in March is that we spent two weeks in Orlando, Florida. (You’d be wrong.)

Indeed we did Disney World and Universal Studios. With two weeks, we took some much needed days off in between. Two weeks is a long time to be away with kids ages 5 and 6. I’ll write a longer article about the trip, but I’ll also share some highlights here because it was a large part of the month.

Going on vacation for two weeks is a great test of alternative income. If the alternative income stays high, I’ll probably continue to do well if I am home and earning money from hobbies.

You’d think that the biggest thing that happened in March is that I turned 43. (You’d be wrong.)

I had a great birthday, perhaps the best ever. My wife surprised me with a much-needed suit. I can finally donate the 20 year old ones that don’t fit anymore. I’m not sure where I’ll wear my new suit, but something usually comes up once a year or two.

You’d think that the biggest thing that happened in March is I received a Tweet from a HUGE celebrity who I have been a card-carrying fan club member for over 20 years. (You’d be wrong.)

I’ll be sharing that Tweet in this email.

You’d think that the biggest thing that happened in March was my wife reaching 20 years of military service and a pension worth around $55,000 a year.

This time you’d be right!

It’s obviously a huge deal – the whole inspiration for creating this blog. I’ll have more to write about this over time, but for now I’m just speechless and blessed.

Skip the FAQ and jump to the monthly update

Alternative Income FAQ

In 2006 I started tracking my alternative income on this website and continued it for years. Life intervened, as it does, and I stopped.

In January 2017, I publishing monthly reports again. Since most of the reports are very similar, I decided it would be best to create this FAQ for new readers. This will give you the background information to get you up to speed. This helps regular readers zero in on the monthly update of “what’s new.”

Q. What is “Alternative Income?”

A. I coined “alternative income” in 2006 to be purposely vague.

I needed something to cover the small amount of blogging income I was making. On one hand, blogging is not passive income – it’s work. On the other hand, there’s a residual nature to the income. If I go on vacation for a couple of weeks, I still make money from the previous articles I’ve written.

Alternative income was more passive back in 2006 before social media, podcasting, and video. Today it seems like every blogger talks of hustling (as in moving quickly, not grifting people) and “being everywhere.” I’m sticking to my dinosaur roots as the only one dumb enough to just keep writing blog posts without cool, “pinnable” images.

Alternative income is best described as income where you don’t directly trade your time for money. Some common alternative income sources include collecting rent, dividends, royalties, and blogging. It’s very subjective. Your definition of alternative income may be a little different than mine. That’s okay, many people have different definitions for “retirement”.

I believe we all get the concept. That’s the important part.

Q. How Do You Make Alternative Income?

A. Currently, it’s blogging, dog sitting, and two types of investments: rental properties and securities (stocks/bonds). I’m extremely likely to add another type of alternative income by the summer. It’s already in the works. After that I really need to get started in writing a book to increase royalties that way.

Q. How Do You Spend Your Time?

A. This is important. Someone with few dependents or responsibilities can focus their energy more on creating alternative income sources. If you have to work 2 full-time jobs just to pay rent and childcare, it is going to be difficult to create alternative income.

My first priority is to be a stay-at-home dad. My military wife works long days on top of getting an online MBA (to add to her Pharm.D.) from a prestigious school. For promotion, she’s strongly encouraged to take on a number of other committee head positions. Yes, she “brings home the bacon.”

The kids are in school/camp during the day, which gives me time to do the basic family errands (shopping, cooking, dishes, laundry, walking the dog, etc.). There’s this blog, dog sitting business, and managing the rental properties. In the middle of 2018, I took on two ongoing freelance jobs that take about 20-25 hours of week of my time. The hours are flexible and the pay is good.

It’s hard for me to put a specific label on what I am. I can’t label it myself. However, as you can see I’m not under a palm tree sipping a Mai Tai… well not always.

There’s more detail on my Now page.

Q. Can you Tell me More about Your Blogging and Dog Sitting Income

A. I don’t publicly break out the difference between 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.

Dog sitting can be high in the summer as people go on vacation. Blogging can be low in the summer with internet traffic low… as people go on vacation. They end up complimenting each other quite well. It’s almost like a school teacher opening up an ice cream shop.

Q. Dog sitting income doesn’t seem like alternative income to me.

A. That’s not even a question!

It is true that both seem like trading time for money. However, this is one area where alternative income is subjective.

Sitting dogs itself isn’t a time-intensive job. While there is more overhead than you might think between booking dogs and meeting dogs for suitability, we do often have regular clients that are very easy.

The important differentiation with dog sitting is that I can “double-dip” and earn money from something else (such as blogging) at the same time. It’s very different than being an Uber driver. Double-dipping doesn’t work there as the police tend to frown on blogging and driving.

If you are interested, I wrote a very detailed article on how to make money dog sitting.

Q. Blogging doesn’t seem like alternative income to me.*

A. Again, that’s not a question.

Like dog sitting, blogging isn’t directly trading time for money either. If I write an article for the blog today, 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 13 years of blogging.

Q. What’s the background on your rental properties

A. 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 2027, we should be able to collect an estimated income of $40,000 a year (in today’s dollars, after expenses) on them.

Q. How do you calculate rental property alternative income

A. Most landlords just calculate how much money they make after their expenses. That’s the easy way.

However, most landlords choose a 30-year fixed to keep their expenses low. We wanted to pay them off quickly. Thus our mortgages are high and we don’t make money on a monthly basis.

I came up with an alternative calculation that effective gives us the percentage of the rent that is ours. That is opposed to the percentage of the rents that are the bank’s. Imagine that you and a friend bought a $200,000 property and each owned 50%. If the property brought in $1500 a month in rent after expenses, each person gets $750 a month. This is what I do.

I add up all the properties’ equity (what we own) and estimated value. (Zillow is very accurate for these condos.) I calculate the percentage of the property that we own by dividing the equity to that estimated value.

Then I calculate the rents of all the properties as if they were owned free and clear. I subtract the expenses (condo fees, maintenance, etc.). I then multiply the percentage of the property that we own by that adjusted profit number.

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

Q. What about inflation of the real estate? Won’t that eat into the buying power of $40,000

A. Since rents are typically rise in line with inflation over the long term, we don’t have to adjust the numbers for the future. We’ll raise the $40,000 rents now to $80,000 at some point in the future, but it will still have roughly the same $40,000 buying power of today.

Q. How do you calculate dividend alternative income?

A. We don’t focus on putting our money in dividend stocks, but I’m going to pretend 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.

We can pretend that I moved all the money into a dividend focused portfolio. I estimate that we could easily earn 2.50% in dividends. This gives us a conservative number that we could expect to have.

However, since almost all this money is in retirements accounts, we can’t access it in a practical way without tax penalties. We’re going to ignore this for the sake of the report. In the end we need to capture around 20 years of mostly maxing out retirement contributions and compound interest.

Q. What’s “very close to passive income
A.

This is the income that is almost universally considered passive income. For us that would include just the rent payments and dividends. Maybe someday it will include royalties or book sales. I’m not counting blogging or dog sitting income in this.

* 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.

Lazy Man’s Alternative Income – March 2019

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

1. Blogging + Dog Sitting Income

March’s dog sitting was very poor. That’s to be expected when you spend half the month in Florida. However, even when we weren’t in Florida we didn’t have a lot of requests. It almost made me feel like the business was dying and people were going with other Rover sitters. Fortunately, we’ve seen a huge pick-up in April and it’s one of our biggest months ever.

Blogging income in March was just about average. I was surprised as I didn’t get a chance to blog much with the vacation. This is where the library of nearly 2,500 old posts seems to pay off.

In February, these two categories combined for a total of $2,850.40, a little below the average of 2018. In March, it was:

Total Blogging + Dog Sitting Income: $2,148.86

For missing nearly two weeks, that’s a pretty good number. I’m not sure too many people would be excited for what amounts to a $25K income. However, when characterized as extra money earned on vacation, it’s great. Since we are more than halfway through April now, I can forecast that it could be one of the best months ever.

Here’s a historic chart with the red line being a 3-month average:

Remember that important Tweet that I mentioned in the beginning. Here’s Steven Tyler retweeted me with some encouragement on my roller coaster fears at Universal Studios.

YOU CAN DO IT!!!! ??? ?? https://t.co/XuRoRt36ld

— Steven Tyler (@IamStevenT) March 14, 2019

2. Rental Property Income

Zillow moved the value of our rental properties down a few thousand dollars. At the same time, we were able to reduce the mortgages (like every month). That has an effect almost canceling each other out.

We now have 54.71% of the equity in our properties with an estimated combined rent of $3,325. The rent number is after insurance, property taxes, and condo fees. That’s so we can estimate what we’d really be taking home after expenses.

If you multiply $3,325 by 54.71% you get $1,819 in estimated monthly alternative income. When I started tracking this (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 26 months, we’ve seen the number grow $645/mo. That’s like giving ourselves an annual $7,740 raise until the end of time from where we were just 2+ years ago.

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 income I mentioned in the FAQ.

In the previous report, the rental property income was $1,814. This number usually moves slowly and this $5 increase was the lowest in awhile. This number only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent. Later this year, we should be able to raise the rents a bit.

Total Rental Property Income: $1,819

My wife and I had a staycation/no-kid-overnight at the historic Castle Hill hotel in Newport, RI. This was our view from the patio. The panorama image doesn’t translate well to a web page:

3. Dividend Income

March was a tremendous month for our portfolios. The stock market continued to soar from the lows in the year.

Total Dividend Income: $1,656

Last month, it was $1,567, so we gained $89 of theoretical monthly money from theoretical dividends. Amazingly, we gained exactly $89 the month before. This is an all-time new record for us. I’d like to say that we are executing amazingly, but it’s mostly the stock marketing going well. We continue to save and invest, so we’re control what we can.

It’s almost impossible to have a better birthday than I had:

It's not even 8:30 and I have already had the best birthday ever (starting early last night).

– Favorite meal at favorite restaurant
– New suit (replacing college one from 20 years ago)
– Red Sox big 9th inning rally after 1AM
– Favorite candy around a ? pic.twitter.com/bIVTXOisoI

— LazyManAndMoney (@LazyManAndMoney) March 30, 2019

Very Close to Passive Income

This is a combination of rental property income and dividend income.

The stock market goes up and down fast 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 move a lot faster than the housing market.

Having both types of income working together for us is great. The diversification gives me great confidence that we’ll be better prepared than most if there’s a market downturn in the future.

Very Close to Passive Income: $3,475

Last month it was $3,381, so it’s up $94. Last month was an all-time high, so we continue breaking records. It has grown from a combined $2,354 in January 2017. Since then, this has gone from an estimated annual income of $28,252 from these two sources to $41,697. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet. However, I’m looking forward to 9 years from now when the mortgages on the investment properties are paid off. Add in stock market growth (of a conservative 4%) and this number could reach $85K/year or more.

My kids found their favorite mouse at Disney:

It took nearly 2 weeks at Disney, but I finally found what Walt meant when he said it all started with a mouse.#Epcot #worldshowcase #japan pic.twitter.com/JKcToxrecL

— LazyManAndMoney (@LazyManAndMoney) March 22, 2019

Final Alternative Income

When you add up “dogs and blogs” to the “very close to passive income” you get:

December’s Very Close to Passive Income: $5,623.86

That would be $67,486.32 a year. I’m trying to get this number over $100,000 so it’s moving in the wrong direction. However, I think we’ll be close in April.

That largely hypothetical annual income for writing on a blog, and taking care of dogs feels a little like a dream. In the long term, we can get by on much less than $67K of income. Here’s what our expenses for the next 45 years looks like.

That doesn’t include any of my wife’s bread-winning pharmacist income, her NOW VESTED military pension or any of that freelance work I’ve been doing over the last several months. It also doesn’t include how much we could get selling our kids on the black market. (Just checking if you are reading this.)

As always, I’m still hoping to write a book someday. If you know of a publisher who I could talk to contact me. I’ve got 3 or 4 very marketable ideas in the personal finance space.

We brought the kids to see The Breakers for the first time. It’s a great field trip/history lesson just a couple of miles from our home. From a personal finance perspective, it’s fascinating what moguls could buy when there was no income tax:

Net Worth Update

This isn’t very exciting as I don’t share the exact numbers of our net worth. That’s why it’s little more than 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 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.

Due to the strong stock market and steady real estate market, our net worth went up 2.70% in March. That would have been our best growth month in 2018 and the numbers are bigger now, which makes it harder to do. For the year it’s up 19.62%, a large percentage of that was based on a website sale that I had at the beginning of the year.

I always have to remember that 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 our net worth grows larger, the percentage of growth will come down too. You’d rather have 10% growth of a million dollars than 20% growth of a hundred thousand, right?

There’s a new big wild card in calculating our net worth this month. Now that my wife’s pension is vested, it’s reasonable to include it’s value in a net worth calculation. I’ll have an article about whether a pension should be included in the future. I’ll also write about how to evaluate the value of the pension. It’s a strong pension that’s potentially worth $2 million or more. Because that would ridiculously dominate our net worth, I don’t think I’ll include it.

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