Passive Income Update: March 2020 ($7,528.18)

Last month, on March 11th, I published the previous passive income leading off with, “It seems like I start off every report by writing ‘[x] month was a difficult month.’ February was (unfortunately) no exception. My Seasonal Affective Disorder (SAD) kicked in like it usually does.”

So… ummm… March… Well, we all know how that went.

Every month I share some highlights. Some may say that’s inappropriate right now. Sharing some pictures of good family moments (especially my young kids) DOES seem appropriate because life is beautiful and we should celebrate that. We’re all hurting now and these pictures represent the very best of times. The overall reality is that homeschooling with the school’s curriculum has been a nightmare.

That’s enough lead-in… let’s get to the Passive Income report. In the past, I called it the Alternative Income report, but it seems like that term didn’t catch on. Everyone likes “passive income” better. While I transition to the new terminology, there may be some “alternative income” mentions including the FAQ. If you are a new reader, you’re going to want to refer to my Alternative Income FAQ as you’ll likely have a lot of questions. They way I calculate these numbers does require some explanation.

Lazy Man’s Passive Income – March 2020

I categorize our passive income into 3 main sources that are largely represented in my passive income pyramid. I ignore the bottom section of career/job – that’s not passive at all. I combine dog sitting and blogging into one section of “slightly active” income. I leave real estate and investment income as their own separate main sources of very passive income.

1. Blogging + Dog Sitting Income

The last month I reported, February, was a very good month. The blog income was going very well. There weren’t many dogs to sit, but we had some. In March, blog income was above average. Consider that the kids were home on their spring break for two weeks before they closed down all the schools, I’ll take any kind of win I can get. We had our last dog go home on March 14 – a full month of no dog sitting as I’m writing this. We started March off well when it came to dog sitting, so it we did okay there. However, no one books dog sitting services any more.

Before they closed the beaches, I could walk my dog and it was a great, physically distant, mental health break

In February, dogs and blogs combined for a total of $2,945.40. In March, it was:

Total Blogging + Dog Sitting Income: $3,004.18

This may be the last time I break 3K for some time. I can only do work after 9PM when the kids are in bed, and by that time, I’m a shell of a person.

Happy Birthday to me :-/ Wife got me some good steaks and we supported one of our favorite local restaurants.

In the olden days of pre-COVID-19, I would say that dog sitting is great because my kids are old enough to pitch in and help. I could pay them a legitimate earned income (a small percentage of the overall income). This allows them to save money in their kid Roth IRAs, money that they’ll never pay tax on. Now, I have to rethink that. They may play a more meaningful role in the blog going forward.

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2. Rental Property Income

Zillow estimated our rental properties were worth a little more than last month. I think Zillow hasn’t done a good job in factoring COVID-19, but I will use the numbers as I always do. So far, tenants are in a position to continue paying us. That’s a load off my mind, since we lose money on these properties every month. (We’re accidental landlords for the most part, making the best of the situation.) As with every month, we paid off a few thousand dollars of mortgage debt.

We now have 63.79% of the equity in our properties with a combined rent of $3,325 after insurance, property taxes, condo fees, and estimated maintenance. I use that number because it represents our net gain.

We were lucky enough to get one snow in Rhode Island this year. For about 90 minutes the kids went crazy on about an inch that frozen over with a little late rain. Turned out to be perfect sledding conditions.

If you multiply $3,325 by 63.79% you get $2,121 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 38 months, we’ve seen the number grow $947/mo. That’s like giving ourselves an annual $11,364 raise until the end of time. It’s a very nice gain from around 3 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 above. I may need to update that $40,000 number as well – it’s looking closer to $30,000. In either case, it should be enough money for us to live on in any kind of emergency.

In the previous report, the rental property income was $2,045. This number always moves slowly as it only changes if one of two things happen: 1) The properties go up in value. 2) We charge more for rent.

Total Rental Property Income: $2,121

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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 or from simply holding strong companies that have a long history of dividend growth. For that we’ll look at making passive income with dividend kings. If I wanted to simply retire on this dividend income, I would get Sure Dividend’s newsletter to try to get closer to a 4% 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.

Before I had to stick to the school’s home schooling curriculum, we had our own homeschooling which included a daily game of chess

The last snapshot on March 5 had a fairly significant loss. This snapshot, on April 5th, was also a big loss. At least the market, inexplicably, has gone up a lot since then.

Last month, we continued to get a profit sharing check since I bought (a lot of) a company. The business is still doing well. It’s actually almost ideally positioned due to its virtual nature. The investment income from this is essentially the same as dividend income. It is taxed differently, but for the purposes of this report, it makes sense to group together all stock ownership in this bucket.

Total Dividend-ish Income: $2,403

Last month, it was $2,991. Back then I wrote, “even in a bad-case scenario, we’d be north of $2500.” Well, we weren’t obviously. It’s still very good number. Hopefully we’ll beat COVID-19 and the economy gets back to normal. If that happens, this number will grow even stronger than before, because we continue to buy shares at depressed prices.

Here’s a couple of pictures of the kids being active. The second one is a yoga class on YouTube.

Annualized, this is $28,836. If our mortgage was paid off, we might be able to scrape by on this by itself. However, because most of our investments are in retirement accounts, we can’t use much of this income for now. (We can use the profit sharing check as it goes straight to our checking account.) We’ll let the rest of this income continue to compound for at least another 15 years, but hopefully a lot longer.

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Very Close to Passive Income

Our “very close to passive income” is a combination of rental property income and dividend income. If there were some royalty income from books, movies, or music, I’d include that here. I’m too tone-deaf to have a rockstar music career, but maybe there’s room to have a book someday.

The stock market goes up and down fast, even more so nowadays. That makes the dividends calculation fluctuate a bit. The rental property income typically keeps going up because the mortgages are always getting paid down every month. Unless there’s a housing market crash, this should continue to happen.

For a few years, I’ve been saying:

I love having both types of income working together for us. I think everyone interested in FIRE should have stocks and real estate income streams. The diversification gives me great confidence that we’ll be better prepared than most people 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 awhile. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.

Before everything was shut down, the kids got to practice a little tennis. One kid wasn’t into it much that day. I bet he’d feel differently about it now.

Here we are in an unfortunate economic event. Our stocks went down a lot, but our real estate has held steady. We’re just lucky because many tenants can’t pay. Zillow’s algorithm seems outdated. In any case, the real estate number is good this month. We’ll see what next month brings.

Very Close to Passive Income: $4,524

Last month it was $5,035, so it’s down nearlly $500! Ouch!

That’s really not bad though. After all, this “very close to passive income” has grown from $2,354 in January 2017. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for that profit sharing check). Add in stock market growth (of a conservative 4%) and this number could be real, non-fudged $100K/year. I’m especially looking forward to 7 years from now when the mortgages on the investment properties (and our primary residence) are paid off. That’s going to be a huge financial swing for us.

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Final Passive Income

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

Passive Income: $7,528.18

That’s great for everything being shut down for half a month. I’ve been stuck around the $7000 mark for quite a few months now. While I’d love to see good growth, it’s worth taking a minute to acknowlege that money isn’t everything. That’s never been more true than it is now.

This nearly $7500/mo income is $90K a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investing feels like a dream. In the long term, $90K would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years.

I always say that you never know what bad news is lurking around the corner, but this gives us the financial flexibility to fight it. With the coronavirus closing schools and my wife on the coronavirus response team, I need this flexibility to provide some semblance of education to my two kids.

None of the numbers here include my wife’s bread-winning pharmacist income, her vested military pension (more passive income), or the freelance work I’ve been doing over the last 18 months (which isn’t passive at all). That’s the fuel that drives the passive income engine.

As always, I’m still hoping to write a book someday. That would add some more passive income. My wife will probably get her book out first. She had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime next year. I would love to talk to a real a publisher, but I don’t want to take on the “job” of writing. That’s probably a deal breaker. If you know someone who I could talk to contact me.

My favorite thing about the graph below is that it doesn’t dip down too far. It’s been above $6,000 for awhile now. It seems that will be tested over the next year, maybe longer.

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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, I think.

Like almost all investors in March, our net worth took a hit. We lost 9.79% for the month. We had been mostly even before that. Losing around 10% of our net worth for the year isn’t great, but things could be a lot worse. The market recorved a lot after April 5th when I took the numbers. Also, our real estate seems to be staying steady. Diversification, so far, has been a savior. We can’t control the market (especially now!), but we can be happy that the amazing river of compound interest has been working well for us over the years.

I feel it’s important to acknowledge that everyone is in a different place in their financial journey. I’ve been blogging about personal finance for 14 years. FIRE wasn’t a “thing” back then, but it’s in the news all the time now. We naturally are further along in that journey than some younger readers who may be beginning their journey. I hope you won’t be discouraged by some of the numbers above if you are just starting out. I didn’t start many of these graphs until year 11 of blogging and year 13 of early retirement planning. Please try to use it as motivation for what may be possible (depending on your circumstances). I had a number of years where I was ecstatic simply to save ANY money for retirement.

There’s a big wild card in calculating our net worth. Now that my wife’s pension is vested, it’s reasonable to ask whether to include a pension in your net worth. I decided that it does make sense to include it. She could have earned more direct monetary compensation 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. In the end, it seems my wife’s pension may be worth $2.3 million. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

Because the pension would ridiculously dominate our net worth, I’ll note two separate numbers in my personal spreadsheet. I don’t share the numbers anyway, aside from these hints, so I don’t think it should matter much to you. It’s not like I’m suggesting that you might want to make a financial based decision on a pension.

I always end this article by asking how your last month went. That doesn’t make much sense after the March that everyone had. Feel free to use the comments to vent – it doesn’t even have to be about personal finance.