Alternative Income Update: November 2017

It’s way past the middle of December, so I’m extremely late on November’s Alternative Income Report. I’m on vacation so I’m not going to sweat it too much.

I hope everyone’s December is going very well. I think I say this everyone month, but this month was just a flash. It feels like Thanksgiving, Black Friday, Cyber Monday, etc. all bleed into December because my wife’s birthday caps it off. The holidays quickly take over and this year we’ve squeezed all the preparation into two weeks due to the vacation.

We’ll get to December next month (though I’ll give some previews of it here). This report is all about November.

Before we dig in, be warned. This is going to be:

(Please excuse my poor photography skills.)

Alternative Income Update: November 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. It’s interesting that popular bloggers like Retire By 40 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**).

In general, I call alternative income everything that comes from passive investment and these side hustles. The best way to think of it is as anything 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.

The last month I reported, October, my alternative income added up to $5,708, which continued its downward slide over the past few months. (I know I really need to set up a chart. I am certainly living up to my name here.) October was a very poor dog sitting month. There were no school vacations and no big travel holidays (Memorial Day, Independence Day, Labor Day, etc). Blog income was down as well. With my wife away on hurricane relief, I focused even more time on the kids.

On the bright side, this set a low bar for me to beat November. When you have months, it feels important to focus on something positive, right?

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

Lazy Man’s Alternative Income – October 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

Some “real world” people ask 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. Maybe I’m over-analyzing, but my responses of “software engineer” have been received very differently 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 already 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 catastrophy going on.

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, I don’t necessarily get any signficant 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.

November was a great month for sitting dogs. It was actually the best month of the year. We can thank Thanksgiving travel for most of that. However, we also had a dog stay with us for most of the month as his owner got serious medical treatment. Blogging was a very steady month for November. That’s rare and really the most interesting thing about it.

While on the topic of blogging, I’d like to add that it isn’t about the money. I highly recommend pesonal 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 October, these two categories added up to $3,354. But for November it is…

Total Blogging + Dog Sitting Income: $5,190.39

That’s a heck of a bounce-back as it’s little more than the average month.

Looking forward to December’s progress thus far, it is looking like another October-ish low month. That’s to be expected given that the second half the month is shut down between our vacation, holidays… and the first half was preparing for those.

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 10 years, we should be able to collect an estimated income of $38,000+ (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 them 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 the report better. If someone offered you a million dollars in 10 years or $10 per year right now, you’d probably wait for the million. 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. I then 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, calculating cash flow of cash flowless real estate explains it in more detail.

Here are the numbers for November. We have 43.4% of equity in our properties with an estimated combined rent of $3200. That comes out to $1,400. At the beginning of the year, we only had a ratio of 36.4% which lead to $1,174.74. It looks like we’ll be raising rents in January and February so the numbers might take a jump *fingers crossed*. As the years march on, the ratio will grow to 100% the rent, which is moving up from $3200 a month (due to inflation). That’s what gets us to that annual $38,000 I mentioned above.

In the previous report, the rental property income was $1,402. We lost a couple of dollars because Zillow valued our properties a little less. This is going to move slowly unless 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 and tenants are typically locked in for at least a year. The monthly paying off of the mortgages creates a little equity over time.

We have some tenant turnover in January, so we may see the rent here jump. Maybe by the end of next 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: $1,400

3. Dividend Income

Like the rental property “income”, I’m going to play a game with the numbers. You can decide if the game if 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.

Our investments have been doing very well over the last month. Go economy!

Total Dividend Income: $1,361

This number is up another $14 this month. It doesn’t seem like much, but adding $14 in monthly passive income is nothing to sneeze at. I’m expecting December’s update to be even better as the stock market has been on a tear.

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: $2,761

They’ve grown from a combined $2354 in January. Since then this has gone from an estimated annual income of $28,252 from these sources to $33,136.

How would your life be different with $33,136 each year in passive income? I told you it was “freaking cool”, right?

Final Alternative Income

Adding up “dogs and blogs” to the “very close to passive income” and this month I had $7,951 in monthly “alternative” income. That would be $95,416 a year. That’s a pretty good month.

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 may not be 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 November, our net worth GREW 0.88%! This year has big gains in net worth (thanks to the real estate and stock markets). For the year our net worth has increased 18.15%. With the benefit of knowing that the stock market has been doing well for December, it looks like we’ll be able to grow our net worth by 20% as I hoped. Each month, I say it can’t be true and/or can’t continue, but then it does. In December, it even accelerated… at least so far. We don’t even have any Bitcoin.

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

* If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to them.

** I really just wanted to use the word grifting there.