Alternative Income Update: August 2017
It is well-past the middle of the month, which means that I’m very late to write about my alternative income for the last month. Many bloggers publish their monthly updates a few days after the month is over. I like to wait a week for rent checks from my tenants to clear. For whatever reason, something always comes up in the next week. This time it was a combination of some legal stuff, some tax stuff, some extensive water damage at the tenant property, kids going back to school and after-school activities, and my wife’s eventual deployment (maybe)*.
Let’s just get started…
Alternative Income Update: August 2017
For those that don’t know the term, “alternative income”, I invented it 11 years ago to be purposely vague**. In general, it is income that comes from passive investment and side hustles. One way to think of alternative income 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.
Last month, July, my alternative income added up to $8,489, which a record for the year. July is always a good dog sitting month due to the Independence Day. My wife and I did take a few days off to celebrate our 10th anniversary. All things considered, it was great. When I’m on vacation, I’m not writing much, I’m not working on the blog, and I’m not sitting any dogs. It’s a good dry-run for what most people would think of as retirement. Hopefully “alternative income” makes more sense when you understand that reasonable amount of money can be earned while I’m literally at the beach.
July is in the past though. Let’s move on to errr… a different past.
Lazy Man’s Alternative Income August 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 the question is often used to pigeonhole someone. Maybe I’m over-analyzing, but my response of “software engineer” seems to be received very differently than “dog sitter.” Nonetheless, some response is required. I rotate among all the things that I do.
The best answer to the “What do you do?” question may be that I’m a stay-at-home dad. The kids go to school/camp/daycare for about 6 hours a day. That gives me time to do some basic family errands (shopping, cooking, dishes, laundry, walking my own dog, etc.).
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.”
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… and there isn’t some other great catestrophy 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 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 a little different than being an Uber driver as 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.)
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.
August was a very average month for both blogs and dogs. I realize that doesn’t make for exciting writing. However, it is strange to have both numbers so close to the norm.
August is such a bland month. Dog sitting is almost always average in August. There’s still some summer vacation, but no big holidays like July 4th or Labor Day. The best dog sitting money comes on during the big vacation holidays.
August was just an average month when it comes to blogging too. I suspect that I’m not writing enough to maintain the growth I had earlier in the year. I was hopeful that things would turn around in September. Typically internet traffic is higher when everyone gets back to work after the summer. I’ll give a sneak peak into September a little later.
[Side note: I highly recommend pesonal finance blogging. It helped me stay accountable. Here’s how to get started blogging with any type blog you might be interested in.]
In July, these two categories added up to $5,722.77. So for August it is…
… before I reveal the August number, I’d like to give a little preview of how September is going. My writing and traffic for September is down quite a bit. I’m expecting quite the fall-off for all the reasons I mentioned at the start of the article. However, we did have the Labor Day holiday, so the dog sitting income looks better.
Total Blogging + Dog Sitting Income: $4,900.25
Ouch, going back to a number that starts with “4” seems like a big hit. I had hoped that tracking this income would encourage me to grow it. Instead, it’s allowed me to reflect on all the non-money things that factor into the month.
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 quickly paying down those mortgages. 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.
So here’s why I have to fudge the numbers. I think it doesn’t make sense to count them as zero income, because it would make me want to sell them and invest the money differently to count for this. If someone offered you a million dollars in 10 years or $10 a year now, you’d probably wait for the million. It’s an extreme example, but waiting has value. If I don’t fudge the number 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 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 property value that we own. I then calculate the rents of all the properties if they were own free and clear.
Here are the numbers for July. We have 42.3% of equity of properties with an estimated rent of $3200. That comes out to $1,364.49. At the beginning of the year, we only had a ratio of 36.4% which lead to $1,174.74. As the years march on, this ratio will grow to 100% the rent, which should be more than $3200 a month(due to inflation). That’s what gets us to that annual $38,000 I mentioned above.
Last month the rental property income was $1,359.33. The extra $5 in alternative income this month is a let down. The reason it isn’t more is that Zillow knocked down the value of the properties a little bit. Just paying down the mortgages moves the needle, but the equity-to-value ratio took a hit. I’ll just move on, because this is a lot of writing for a $5 gain.
Total Rental Property Income: $1,364.49
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 had been doing well enough by Sept. 10th when I calculated all these numbers. However, it seemed to have a much better week after that.
Total Dividend Income: $1,268.25
Final Alternative Income
This month I had $7,532.99 in monthly “alternative” income, which is about $1000 less than last month. While I don’t like to see it go backwards, the investment income is slowly climbing which is a great sign. The investment income could go up quite a bit if we’re able to get new tenants at market rates. However, we have very good tenants right now… it’s worth leaving some money on the table.
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
This used to be a bonus feature, but now it’s a standard.
Since I don’t share real numbers of our net worth, this may not be very exciting. That’s why it’s little more than a footnote. I truly believe that net worth is one of the most important numbers in personal finance. Showing relative growth is still fun.
In August, our net worth DROPPED -0.75%! I’m faking shock. It’s really just a blip on the radar as the drop is almost entirely to Zillow saying our primary residence isn’t worth what it was last month. From the beginning of the year to now, we have increased our net worth around 11.44%. That’s largely due to the stock market, real estate appreciation, and paying off debt. We live frugally as well. We’d see things being going up a lot more if we didn’t have a number of big unusual expenses like condo assessments on those real estate properties.
With the way the year started, I was hoping we’d be able to grow our net worth by 20%. That may have been unrelastic, but the markets were doing so well. I’ve got no complaint in growing our net worth by nearly 11.5% in 8 months.
How was your August? Let me know in the comments.
* It seems that hurricane deployment can be rather unpredictable much like… well hurricanes. Jose doesn’t seem to want to make up his mind where he wants to go.
** If anyone can lay claim to “alternative income” before 2006, I’ll happily give credit to the person who had the same great thought I did, but before me.
