Passive Income Update: April 2020 ($6,791.93)

This report is coming in late. That’s not bad in the grand scheme of things, right? April was the first full coronavirus month. That means that we had no dog sitting income, no kids in school, no… well, you all all know the drill. We each have our things that we can’t do with the coronavirus and last April was the first full month of that for mostly everyone in the US.

To add insult to injury, it seemed to rain almost every day. We almost never got to go outside unless it was just in a car to get out of the house.

Every month I share some photo highlights. The highlights this month aren’t typical. Most are related to the kids and events in the house – just like your photo highlights likely are. Do you really want to see pictures of my blurred out kids doing work off a tablet? (Well, maybe you do. I feel like the bar of entertainment is low considering we’re in the same boat.)

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 loves 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 – April 2020

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 combine dog sitting and blogging into one section of “somewhat 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, March, we had some dog sitting. Actually we had the most dog sitting of the year, even though we only had a 1/3 of a month of it. Those were good times. Today, I sent my dog over to my elderly neighbor who asked if she could pat him. Before COVID-19, I never let him off-leash. He’s slowing down a little at 11 years old and there are no cars, so it’s a good time to test his recall. He passed with flying colors.

Unfortunately, that’s the closest to a dog sitting story I can tell. With everyone sheltered in place, dog sitters are useless. For the first time in this report, dog income came in at zero.

Blogging income was a little better, but not great. As regular readers know, distance learning for the kids isn’t working. From 6AM to 8PM, I don’t even try to work. I’m setting up school, cooking food, doing laundry, washing so many dishes, doing all the school, walking the dog with the kids to get fresh air, and fighting through the bed time routine. After that I can try to manage a couple of emails and perhaps write a paragraph or two of a blog post. Some say it will be better in the summer, but I think I’m going to have to be even more involved in keeping them active and learning. I can’t depend on camps.

Sorry, I got off track there. What I meant to say is that no one is advertising nowadays. Also, few people are searching for information about retiring early. If no one is looking for content and advertisers don’t want to advertise, the income goes in the wrong direction.

In March, dogs and blogs combined for a total of $3,004.18. In April, it was:

Total Blogging + Dog Sitting Income: $2,067.93

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.

(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

Zillow estimated our rental properties were worth a good deal 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 continue to pay 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. However, we also have 15 year mortgages in hopes of turning them into an income stream in several years.) As with every month, we paid off a few thousand dollars of mortgage debt.

We now have 63.52% 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.

If you multiply $3,325 by 63.52% you get $2,112 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 39 months, we’ve seen the number grow $938/mo. That’s like giving ourselves an annual $11,256 raise until the end of time. It’s a very nice gain from 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 with our own home paid off (plus our solar panels, frugal shopping, and military healthcare.)

In the previous report, the rental property income was $2,065. 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: $2,112

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.

The last snapshot on April 5 had a big, big loss. This snapshot, on May 5th, saw the market return. Maybe the market loves the free money that the government is giving out. Maybe it’s looking forward to vaccines and opening up the country for business. I’m scared by all this, but I can’t deny the math. The market has done very well over the last month.

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: $2,612

Last month, it was $2,403. A couple of months ago, I wrote, “even in a bad-case scenario, we’d be north of $2500.” We weren’t obviously, but we are back there now, with some room to spare. The market has gone even further up over the last two weeks since I compiled the last numbers.

Hopefully we’ll beat COVID-19 and the economy gets fully back to normal. I expect that it will take at least 2 years and probably a lot longer. However, if that happens, this number will grow even stronger than before. We bought shares of companies at depressed prices throughout this.

Annualized, this monthly $2,612 is $31,346. 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.

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 dividend calculation fluctuate a lot more than it normally would. We don’t even know if companies can reliably pay dividends anymore. Without customers, and profits, many companies have cut their dividends.

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. That housing crash may be coming, but for this month it hasn’t happened.

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.

Here we are in an unfortunate economic event. Our stocks went down a lot, but then went back up. Our real estate has held steady. We’re just lucky because many tenants can’t pay rent. Zillow’s algorithm seems outdated.

While the stock market is doing well, the real economy is terrible. No president wants to see long food lines, six figure homeland deaths, and an unemployment rate balloon to ~15%. The best answer is a bailout of nearly everyone and everything at a cost of several trillon dollars… and it may go up from there. If only the people in political power believed that an ounce of prevention is worth a pound of cure, we’d be in much better situation. It would have, figuratively, saved our bacon.

We’ll see what next month brings, but for now we have a recovery.

Very Close to Passive Income: $4,724

Last month it was $4,468. We had lost $500 a couple months ago, and got nearly $250 back. All things considered, that’s not bad at 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.

Final Passive Income

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

Passive Income: $6,791.93

That’s reasonably good for a month of everything being shut down. We’re getting back to our frugal roots, so one could argue that this lower number overall could put us in a better long-term financial position. That all depends if we continue be frugal after coronavirus, which may not be likely.

This nearly $6800/mo income is $80K+ a year. That largely hypothetical annual income for writing on a blog, taking care of dogs (not this month), and investing feels like a dream. In the long term, $80K 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, we need this flexibility to continue to educate our 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. I thought that it may be tested with the coronavirus, but maybe it won’t be after all.

(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, I think.

Like most investors in April, our net worth did very well. After losing more than 10% in March, we gained 8.84% in April. For the year, our net worth is only down 1.74%. It’s almost like the coronavirus doesn’t matter to the markets. Since I’m reporting this so late in May, I can tell you that our net worth has gone up even more. We won’t count those chickens – they haven’t hatched yet.

Our real estate value seems to be staying steady. The lesson here is that diversification helps a lot in bad times. Even when the stock market was way down, we were still grounded with our real estate. 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 (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.