Is everyone having a great May? The weather is getting good in Rhode Island. We’ve even gotten some use of our inflatable hot tub. Perhaps I’ve been using it too much because April’s passive income update is later than usual.
Each month, I look back at the pictures on my phone and try to pick out the interesting moments to share. This past month there were a lot of dog pictures. As you’ll find in a bit, dog boarding was crazy.
In other news, I’ve been having some tenant troubles. We’re selling a condo. The tenant is upset that we decided not to renew the lease. She’s decided not to her rent for the rest of the lease. She doesn’t seem to be making any plans to vacate either, so this is becoming a big problem.
Aside from that, we had a successful annual Easter egg hunt. My 8-year-old had his first traveling soccer game. (It’s amazing how much better he’s gotten in just a couple of months). In April, the 9-year-old was just getting started in baseball – he might have had one practice. I’ll update how that’s going next month.
The kids earned another belt stripe in karate. They can use kamas now. They’ll be fine if they find themselves in a self-defense situation where they have a small sickle-blade-on-a-stick weapon handy. Last year that happened to me 7 times and I regret not having the kama skills to pair with the kamas that were nearby. We’re putting karate on hold for a couple of months because baseball and soccer were just too much.
I guess it’s boring times around here. That’s a good thing, I guess. It would be fun to share that we’re doing all this extra stuff.
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
April was our best month ever for dog boarding on Rover.com. Before the pandemic, we averaged about 1 dog overnight per day. After vaccines and everyone started traveling, we averaged 2 dog overnights a day. I raised prices to match other dog boarders. In April, we averaged 4 dog overnights a day. We also had many dogs for day boarding, but I don’t keep stats on these. (My spreadsheet subtracts the check-out day from the check-in day. When these are the same day, that number is zero, so it is like we didn’t care for the dog at all, except that the money still adds up.)
At 4 dog overnights and day boarding, it wasn’t passive at all! In fact, I was stressed out most of the month because people wanted to pick up their dogs after work. That’s reasonable enough, but that’s when I had to shuttle the kids to their after-school stuff.
Blogging dropped back down to average. I’m told by the advertising nerds that budgets get reset in April, so it takes some time for the spending to come in on adds
In March, “dogs and blogs” combined for a total of $4,295.77. In April, it was:
Total Blogging + Dog Sitting Income: $7,664.90
That’s an all-time record. We could have similar or bigger numbers over the summer as that’s our busiest season. I would like to see blogging income pick up because dog boarding doesn’t scale and we are maxed out there.
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.
You can tell I didn’t get a lot of good pictures of soccer. My son is #14 off to the side of the action.
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
The rental properties had about $20,000 in appreciation this month according to Zillow. Last month it was $40,000 which was crazy, so I wasn’t prepared for another big gain. It seems like we’re back to the days of properties jumping up in value all the time. Last month, I said that we were finding that Zillow’s Zestimate for our condo may not be accurate. We were listing a condo and the real estate agent showed the comps and they were 10% less than Zillow. However, in the first few days, we got an offer that was 10% above our asking price – almost exactly Zillow’s Zestimate. So maybe Zillow does know best after all.
Each month, we pay down a couple of thousand dollars of mortgage debt. We build some equity each month aside from the appreciation.
We went from 75.10% to 75.85% ownership of the equity in our properties. That’s a month of good gains.
If we owned the rental properties with no mortgages (100% of the equity), I calculate that, after insurance, property taxes, condo fees, and estimated condo maintenance we’d make about $4,000 a month. The expected rents have gone up a lot. However, we aren’t getting those kinds of rents yet. We’re keeping them low for now. So I’m going to average what we could make and what we are making, which is about $3650. It seems like low-lying fruit that we could get there and our tenants would still be happy that they are getting a bargain.
If you multiply our expected net rent by $3,650 by the amount of equity we have (i.e. where we are on our journey to 100% equity ownership), 75.85%, you get $2,768 /mo. in estimated passive income. That’s a gain of almost $27 from last month. That’s a very solid gain for one month.
This number will change a lot when we sell our condo. Our potential rental income will go down. However, we’ll have new money to invest that will earn dividends in the next section. It’s one less property to manage, so our income will be a little more passive.
Our teenager living his best life on one of our boarder’s beds.
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+ years, we’ve seen that number grow tremendously to $2,768. The forced savings of 15-year mortgages have been a very powerful force.
When the mortgages are paid off, we would have had $45,000/yr. of income. I’ll have to recalculate that 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.
In the previous report, the rental property income was $2,693.
Total Rental Property Income: $2,741
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 3.28% yield, but it has been less in the past. We could also get that yield from simply holding strong companies that have a long history of dividend growth. 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.
The market rebound in March was short-lived. I took the numbers in this report on May 5th. The market has gotten a lot worse since then, but we’ll have to deal with that next month. It doesn’t look like the market is very good. For us, that’s fine as it has been great while we invested over the last decade. I had a larger than usual concentration of money in high-dividend index funds (the HDV mentioned above) and it is only down about 5% from its highs. I sold off a little and bought the Nasdaq index (QQQs) when it was down 30% from its highs recently.
I don’t know where the markets are going. The good news is that I don’t care too much. We’ll be invested for between 15 and 40 more years.
This bird found a nest that built outside our window in the early COVID days. It’s been sprucing up that abandoned nest
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: $3,535
Last month, it was $3,762. A drop of over $200 is a lot. I’m almost positive it will only be worse next month. When I started tracking this number in January of 2017 we were at $1,180/mo. Instead of focusing on the month’s drop, I choose to look at how much growth we’ve seen in those five 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 $3,535 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 there were some 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.
The Easter Bunny was a jerk this year – hiding eggs up in a tree.
We lost some of the gains here again this month. The stock market drop is too much for the real estate market to cover. I love having both types of 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: $6,304
This would be over ~$75,000 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: $13,967.90
Last month it was $10,798.77. This is an all-time high, but more than half of it came from dogs and blogs and the dogs were not passive this month. I’ll be happier if/when we can get to this number from investments. I enjoy working with all the dogs for now, but in the future, I’ll probably cut back.
That’s almost $170k 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 drop by 1.73% in April (including up to May 5th). That’s not great, but it’s what we signed up for when we invested in the stock market. For 2022, our net worth is up 1.58%. There are a lot of people who have a negative net worth for the year. Not that it is some kind of competition, but it is reassuring.
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 $1,500 in liquid cash. It looks like the main drop has come from the cash in our real estate LLC. We paid the tax preparer a lot and one of my tenants is a couple of months behind on rent. Some of it was just general spending as our joint account is lower than usual.
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.