Is everyone having a great June? We’re currently on vacation on Block Island. I love that it’s a good place to get away from technology. However, I needed to send some pictures from my phone for this article and the lack of internet connection is making it impossible. So the best I can do for now is publish this word soup.
If pictures did work you’d see kids playing with dogs and our old dog showing a rare bark. The kids were also in school plays, musical performances, and had an art show. The school does a lot at the end of the year to show off their work. My wife did a lot of traveling in May. She was running a conference of 6000 people and got back in time to fly to D.C. with my oldest kid to see the POTUS’ Memorial Day speech.
That’s enough of the personal stuff… let’s start the Passive Income report. I used to call this the Alternative Income Report because some of this income has an active component to it. However, that idea isn’t catching on and everyone loves “passive income” better. If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you may have some questions about the math.
The way I calculate these numbers requires that little explanation – it isn’t intuitive. I do things a little differently to show the journey. For example, we don’t have real passive income from our rental properties right now. We still have mortgages to pay off. Instead, I calculate the percentage of equity we have to show where on that journey we are. Each month, you’ll see that the bank owns less and we own more. When we get to owning 100% there will be no mortgages and all that rental income can be used for living expenses. When it comes to calculating the percentage of rental income, I take the rent (minus estimated expenses) and multiply it by the portion of equity we own. Think of it like you and a friend owning a property 50/50. This would be how you’d handle it with each of you splitting the profits at the end 50/50.
Lazy Man’s Passive Income
I categorize our passive income into 3 main sources that are largely represented in my passive income pyramid. For this report, I ignore the bottom section, “career/job” – that’s not passive at all. (I do have some income in that area, but that’s not the focus of this report.) I combine dog-sitting and blogging into one section of my “somewhat active” income. They are a little passive because I can make money even when I’m not immediately tending to them. For example, I’m writing this while boarding 2 dogs right now. I leave real estate and investment income as their separate main sources of very passive income. This way if you want to only count those you can do that.
1. Blogging + Dog Sitting Income
In May we took a step back in our dog boarding income. April had school vacations so many people were traveling leaving their dogs with us. Nonetheless, May was still our second best month of the year. We did have the benefit of Memorial Day which leads to some dogs staying the long weekend at holiday rates.
We averaged two dog overnights a day, which is only slightly more than average. We did a lot of day boarding though and that helped add to the income.
Blog income was slightly below average. This is to be expected when I’m more focused on dog boarding.
In April, “dogs and blogs” combined for a total of $7,664.90. In May, it was:
Total Blogging + Dog Sitting Income: $5,079.36
That’s about 20% above the average over the last year. By any measure that’s a good month.
My kids help with the dog sitting. My 9-year-old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. He’s spending more time in front of the clients as a helper at pick-ups and drop-offs. My 8-year-old was a little slower to develop dog skills, but he’s carved out a household niche of catering to the smaller dogs – he just loves them. He’s started to recently take an interest in feeding them.
Their help means that I can pay them a legitimately earned income (a percentage of the overall dog-sitting income). Because the income is earned they can save money in their kid Roth IRAs and it will be money that they’ll never pay tax on. Learn why you should get started with a kid Roth IRA as soon as possible.
Someday, I want to get them more involved in blogging, taking pictures, and things like that. During school, they have too much to keep them busy. After school, there’s homework, becoming mini-ninjas, scouting, music, and sports to fill up their days. Being a kid is hard work!
(Note: The blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)
2. Rental Property Income
Once again the rental properties appeciated $20,000 according to Zillow. We’ve seen this quite a few months now. Zillow is usually fairly accurate because our rental properties are condos with many similar properties for comparisons.
We’ve been trying to sell one of the properties, but the old tenant wouldn’t leave. So now we have to go through an eviction process even though the buyer should already be moved in. Until the situation resolves itself, I’ll have to continue this report with the assumption that we had a tenant who was paying rent.
We went from 75.85% to 76.53% ownership of the equity in our properties. That’s another month of good gains.
If we owned the rental properties with no mortgages (100% of the equity), we’d make about $4,000 a month after insurance, property taxes, condo fees, and estimated condo maintenance.
I like to use an “expected rent” as we’re currently trying to catch up from years of very low rents. We liked our tenants (except the one that wouldn’t leave), so we’ve kept them at a discount.
If you multiply our expected net rent by $3,650 by the amount of equity we have, 76.53%, you get $2,793/mo. in estimated passive income. That’s a gain of $25 from last month.
When I started tracking this (January 2017), we only owned 36.4% of the properties and the properties had lower rents. The math worked out to $1,174 back then. So in 5.5 years, we’ve seen that number grow tremendously to $2,793. The forced savings of 15-year mortgages is extremely powerful.
Before we decided to sell the property, it was looking like we’d have $45,000/yr. of income. I’ll have to recalculate this when the sale closes. Rent is inflation resistant as we can raise rents over time. So this income will grow as things get more expensive. This was looking like enough for us to live on once our own mortgage is paid off, but I’ll have to revisit that too. Of course, that’s just one part of the plan as you can see.
Total Rental Property Income: $2,793
3. Dividend Income
For this section, I assume we will earn a 2.5% dividend yield on our holdings. That could be from a high-dividend ETF. For example, HDV is currently paying about a 3.31% yield, but it has been less in the past.
There’s a chance we could do better than this. There are some income investing ideas here. We can also look at making passive income with Dividend Kings. If we wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get a 5% average dividend yield. (That link to the newsletter has a special discount rate and in full disclosure, I make a few dollars if you sign up for it.)
Of course, we may not convert everything over to dividend income at all, it’s just a conservative way to think of our investment portfolio. If I used a 3.5% or 4% withdrawal rate, these numbers would be much bigger.
We saw a very slight gain in the stock market. For now, any kind of gain is a good gain. We’ll continue to buy in at these low prices and when the market recovers we’ll enjoy new portfolio highs. Since all of this money is in our retirement accounts, we’ll be invested for at least another 15 years.
We continue to get a profit-sharing check since I bought (a lot of) a company. The investment income from this is essentially the same as dividend income. It is taxed differently, but for this report, it makes sense to group all stock ownership in this bucket.
Total Dividend-ish Income: $3,548
Last month, it was $3,535. A gain of $13 isn’t a much. Maybe the markets will be more interesting by next month. When I started tracking this number in January of 2017 we were at $1,180/mo. It’s been a great last 5 years.
Our money has been working hard to multiply until this month. For a while, we stopped adding to our investments. Instead we had been focusing on saving money in cash for my wife to retire. Except that, now my wife got a new job and isn’t looking to retire. That’s a roller coaster of emotions. Some days she wants to retire and other days, it seems like she wants to work for many more years. Whatever she wants to do is fine with me. At least this new job is much better than the last one. She’s had time to bring the kids to school and do some things like that. Before they had a keyboard tracker on her.
Getting back to the monthly update, this monthly $3,548 would be over $42,000. As with the rental income number above, we should be able to live on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this potential income for now. (We can use the profit-sharing check as it goes straight to our checking account.) We started to see an estate planning lawyer last year, but they gave us a lot of paperwork to do before we can move forward. I haven’t had the time to convert our spreadsheet summaries to something they can use. I started the paperwork, but I don’t even know where it is now. Not great.
Very Close to Passive Income
Our “very close to passive income” is a combination of rental property income and dividend income. If we had any royalty income from books, movies, or music, I’d include that as well. I’m too tone-deaf to have a rockstar music career, but I may write a book someday. This is important to separate from the dogs and blogs’ income at the beginning. That takes some active work to keep up. Rental property requires a little work, but not nearly as much.
We made some slight gains this month. The stock market dropped and then recovered by the 8th when we took these numbers. (It has since crashed again, but we’ll see where that takes us next month.) I love having both rental property and stock market income working together for us. With the stock market dropping recently, our real estate is saving our net worth from dropping further. For much of the last decade, it was the opposite – real estate didn’t do much while stocks quadrupled. I think everyone interested in FIRE should consider having stock market and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most FIRE folks in the case of an unfortunate economic event. We’ll still likely get rent checks if the stock market crashes. We’ll still get dividend checks if a tenant is late paying for a while. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.
Very Close to Passive Income: $6,341
This would be over ~$76,000 a year of passive-ish income. We wouldn’t need to touch the investments themselves. We wouldn’t have to sell stocks or have a “withdrawal rate” – just live off dividends. We wouldn’t have to get a reverse mortgage on our home or the investment properties. Property maintenance and property taxes for rental properties are already factored in. We would still have all the underlying assets (property, stocks, etc.) and be able to pass these on to the kids for them to build on – unless we choose to draw them down for more fun, charity, or other spending.
This “very close to passive income” has grown from $2,354/mo. in January 2017. So in 5.5 years, we’ve added about $4,000 in monthly passive income. That’s nearly $50,000 – a lot more than the $34,000 I made as a software engineer out of college in 1998. This is one of the reasons why I went with the “Lazy” name, it shows that investing money can do more work (or somehow produce more value) than I did. It’s a crazy system. I’m just doing my best to work within it.
It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for the profit-sharing check), because the money isn’t liquid. We can’t spend those retirement investments or the equity we have in properties. We don’t feel “rich” by any stretch of the word, even though we are relative to many people’s circumstances. We still have some day-to-day struggles with money. These are relatively minor compared to what most people experience I imagine. That’s one reason we are selling a rental property. It will help us feel a little more financial freedom right now. We’ll still have plenty working for the future.
I used to wonder if we can get to $8,000/mo. in passive income by the start of 2025. A year ago, it was a stretch goal… now it feels like it could go either way. We’ll have to see where the numbers are when we sell off the rental property.
Final Passive-ish Income
When you add up “dogs and blogs” to the “very close to passive income” you get:
Passive-ish Income: $11,420.36
Last month it was $13,967.90. April was crazy with all the dog boarding and this was much more manageable. This was much closer to being passsive, but it still a lot of dogs
That’s over $135k a year. That (hypothetical) annual income for writing on a blog, taking care of dogs, investing, and landlording is very nice. If we manage $170,000 from all these sources we’d be doing quite well – given our necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but they are a large percentage of it.
None of the numbers here include my wife’s bread-winning day job as a pharmacist or the freelance work I’ve been doing over the last few years (which isn’t passive at all). When my wife retires we can count her vested military pension as more truly passive income. For now, those jobs (and the dog boarding) are the fuel that drives the passive income engine – it allows us to live well, pay off our mortgage, and invest. My income doesn’t match my wife’s, but the flexibility gives me the time to stretch almost every dollar in much of our spending. It also gives me the flexibility to bring the kids to school and after-school activities.
I love two things about the graph below. First, there’s a solid trend of the numbers staying high for several months now. Second, it doesn’t dip down too far. It seems like it should be at least $8,000 going forward. I don’t want to see a big market collapse, it would hurt a lot of people, but I am curious how bulletproof all these sources of income are when they work together. If this month is any indication, it’s possible to hit all-time highs when the economy isn’t doing well.
(Once again, the blue line is the monthly number. The red line is a 3-month average which helps smooth the curve.)
Net Worth Update
My net worth updates aren’t very exciting as I don’t share the exact numbers. 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 can be useful.
We saw our net worth grow 2.28% last month. That’s tremendous, but so much of it came from our the value of primary residence going up. That’s not useful for us unless we move or do a reverse mortgage. It reminds me that buying a home and locking in a mortgage in 2011 was a great idea. For the whole year, our net worth is up 3.89%. That’s really great when it seems like the economy is bad for a lot of people.
Recently for something new, I decided to share our liquid cash growth (or loss). I’ve been tracking it for some time, but never thought to share it. Many other bloggers break down their income and expenses in great detail. I’m too “Lazy” for all that, even if my credit card reports can do a lot of it. Looking at our liquid cash is a way to roughly gauge the bottom line, income minus expenses.
This month, we lost around lost $500 in liquid cash. We should try to do a little better in this area. It will have to wait another month or two because we just bought tickets for an expensive vacation later this year.
It’s important to recognize that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for almost 16 years. FIRE wasn’t a “thing” back in 2006. We naturally are further along in that journey than some younger readers who may be just starting. Some of those readers are saddled with huge student loans that we didn’t have to deal with. If you are one of these readers, I hope you won’t be discouraged by some of the numbers above. I didn’t start many of these graphs until year 10 of blogging and early retirement planning. Please try to use it as motivation for what may be possible (depending on your circumstances and market luck) over 15-20 years.
There’s a big wild card in calculating our net worth. Now that my wife’s military pension is vested, it’s reasonable to ask whether we should include it in our net worth. I decided that it does make sense to include it. She could have earned more in immediate salary if she didn’t work for the government. That would have boosted all the numbers across the board. Calculating pension value is not easy, but here’s the best way to know what a pension is worth. However, like most of the money mentioned in this article, this isn’t money we can spend right now.
How was your month? Let me know in the comments.