Passive Income Update: February 2021

In January’s report, I mentioned that things weren’t looking much better in 2021 with the insurrection, but that seems a little on the backburner now. We’re getting a lot of vaccines in people’s arms. Things may not have run very smoothly everywhere, but it’s working and getting better. More vaccine is getting available, we’re getting more of it in people. COVID cases have dropped a lot, then plateaued, and maybe dropping again. I’m still optimistic that continued vaccines and summertime will be a more powerful combination than the variants.

The kids finished up their snowboarding lessons in February. The younger kid liked skiing better last year and the older kid liked snowboarding this year. I think I will try snowboarding next season, but I might need some lessons. The problem I have with a lot of these activities is that they don’t take adults and kids (such as a family) in the same lesson. The only instruction they had for adults was on a Wednesday evening, which wouldn’t fit my schedule.

We continued karate lessons and the kids are on the verge of their orange belt. It’s been really helpful for focus and discipline. The kids just love it too. They ran the second “parents night out” in two months, so the kids sword techniques should be getting better. If not, at least my wife and I got some time out. We went bowling a couple of times too. The alleys are running at low capacity so social distancing isn’t an issue. It’s almost like pre-COVID times.

My 7-year-old earning his third orange stripe on his yellow belt.

The kids also their 100th day of in-person school. It’s a bit of a celebration at our school in the lower grades as they use it to help with place value. At first and second grade, they phase out the celebration a bit. I think it’s a big accomplishment on everyone’s part (especially the school’s, but other parents as well).

That’s enough lead-in… let’s start the Passive Income report. I used to call this the Alternative Income Report, but 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.

The way I calculate these numbers requires that long explanation – it isn’t intuitive at all. The reason why I do things a little differently is that this catalogs a journey. For example, we don’t have passive income from our rental properties while we are paying down their mortgages. Instead, I calculate the percentage of equity we have to show where on that journey we are. Each month you 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.

Lazy Man’s Passive Income – February 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 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 “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

Blogging income rebounded a lot in February. It had previously dropped so far that I’m tempted to say it had nowhere else to go. I won’t because it can always drop to zero.

Dog sitting income was very bad once again. It still feels like no one is traveling due to COVID, so they don’t need their dogs watched. I don’t expect this to change much until the summer starts. That’s when there is a chance that things open up and tourism gets going again.

Over the last couple of months, I picked up a new freelance client who has some blog editing work for me to do. This isn’t passive income at all, so I don’t include it here. I mention it only because even as these passive income sources are down, the overall total income is looking good.

My dog found a friend on the beach. He hasn’t been able to play with other dogs much in the last year because it’s uncomfortable to ask owners who you don’t know during these times. My dog is the darker yellow one, age 12, and the other dog is puppy golden. (Awwwww!!!!)

In January, dogs and blogs combined for a total of $957.59 – the lowest in years. In February, it was:

Total Blogging + Dog Sitting Income: $887.91

While that represents a new low, it’s actually a higher average per day. February’s 28 days gives us about 10% earning time than January, right? I think dog sitting will come back, so there’s room for this double fairly easily.

When dog sitting comes back my kids can pitch in to help. My 8-year old is extremely good with dogs at this point. He can feed them, let them out, and play with them in the yard. My 7-year-old is good too. This help means that I can pay them a legitimately earned income (a small 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. I want to get them more involved in blogging, taking pictures and things like that, but it’s going slow. They get enough school work, home work, and extra-curriculars.

(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 new condo this year is starting to get regular checks which is extremely helpful. Because we rolled over equity from the sale of an old condo our expenses are around $1000 a month, but we get a check for $1600. It’s nice to have cash flow on properties instead of just building equity that is very difficult to access.

As for February’s numbers, Zillow’s estimates on that new property went up 10%. That’s a big gain, but it is more in line with the comps that I had expected. We paid down the mortgages as we always do. In 2020, we gained around $60K in equity. So far this year, due to that growth, we’ve gained $30K. The housing market is really moving.

It can be difficult to deal with tenants, but I like to think of those equity gains as a salary. The “work” for last year’s $60,000 is pretty minimal. We had to work a little more for the $30,000 this year, but $10,000/mo. isn’t bad. Of course, equity isn’t really salary – we can’t spend the money, because it isn’t liquid.

We got to bowling a couple of times, first time in a year. The kids have more arm strength now and can get the occasional strikee – as in this frame of a video I was lucky enough to film.
This month we went from 62.12% to 63.51% ownership of the equity in our properties. In pure dollars and cents, we gained $23,370 in equity last month. That’s far, far from typical, but I think it is reasonable given what I’ve been reading about the markets.

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 $3,400 a month. That number represents our net gain.

If you multiply our expected net rent $3400 by the amount of equity we have (i.e. where we are on our journey), 63.51%, you get $2,159 in estimated monthly passive income. When I started tracking this (January, 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 a little more than 4 years, we’ve seen the number grow $985/mo. That’s good passive growth in 4 years.

As the years march on, the ratio will grow to 100% of a rent that should net $3,400 monthly after expenses. Since rent is inflation-resistant, we can raise it as costs of living go up. We don’t have to factor in inflation like other investments. So we can think of it as around $40,000/yr. of income in today’s dollars buying the same value in the future. That should be enough money for us to live on with our own home paid off (plus our solar panels, frugal shopping habits, and military healthcare.)

In the previous report, the rental property income was $2,104.

Total Rental Property Income: $2,159

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. There are some income investing ideas here. We can also 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 market has been doing great, but it is taking a bit of a break due to the yield curve. Also, some of my satellite stocks have done really well, but they’ve been giving up their gains. I didn’t expect Snapchat, Pinterest, and solar panel ETFs to be up 5x, but they were and I was fortunate enough to lock in some of those gains. Overall, we are well-diversified with most of our money in index funds. The US total market has dropped about 5% and emerging markets nearly 10%.

The kids really like the Dog Man graphic novels and will put away TV and video games for them. Unfortunately, there are less than a dozen, so it only kept them busy for a week. Captain Underpants by the same author isn’t working quite as well.

Last month, our portfolio hovered around all-time highs. As I mentioned, I was getting nervous that the markets were too high. I executed on my plan to continue to stay fully invested but moving more money to bonds. It was a small move of money from stock to bonds mostly for the psychological effect of being active. The small amounts seem to add up and when stocks dropped last March, I was able to buy in at lower prices by cashing in some bonds that didn’t drop as much.

With emerging markets dropping 10% from their highs, I started to move a little of that bond money to buy more of those shares at a discount. I hope most investors are not doing what I do and just leave the money where it is passively. That’s what we do with my wife’s retirement accounts. For investors who want to try to do a little better, I think I’m doing well in buying low and selling high.

We continue to get a profit-sharing check since I bought (a lot of) a company. The business was almost ideally positioned in this pandameic 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: $3,527

Last month, it was $3,549. We dropped $22, which isn’t that much considering. This number rarely moves that much, but slow and steady wins the race. When I did this exercise in 2017 we were at $1180/mo.

Annualized, this monthly $3,527 is $42,324. If our mortgage was paid off, we might 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’ll probably let this investment continue to compound for another 15 years until we are age 59.5. Then we’ll have to see if we want to tap it or let it continue until we are required to take some of it at age 72.

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 maybe I’ll write a book someday.

The stock market has been fair steady since the drop and recovery when COVID first came around. The rental property income typically keeps going up because the mortgages are always getting paid down every month and they generally appreciate a little. Unless there’s a housing market crash, this should continue to happen.

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.

My 7-year-old is honing his culinary presentation skills with a little desert art.

We are a full year into the most ginormous unfortunate event that I can remember in my life. Stocks went down a lot, but then went back up. Real estate just gone up. We’ve been lucky to have tenants who are still working and able to pay rent. Well, one couldn’t, but used the opportunity to sell at a market high and buy a property closer to us at a relatively low price. Overall, the plan keeps rolling along, even during COVID-19.

While the stock market is doing well, the real economy is still bad. It used to be terrible, but people are getting back to work and jobs are coming back. We’ve got a president who is working to end the COVID crisis. We’re getting stimulus checks and vaccines in arms. He’s starting to try to reverse the climate change disaster that causes so many natural disasters. Even if you are a heartless soul who doesn’t care about the people losing everything in fires, you should be able to agree that American business works best when it literally doesn’t have to put out fires. Good climate policy is simply good economic policy.

Very Close to Passive Income: $5,686

Last month it was $5,653. The $5,686 extends our all-time high yet again. As you can tell from the chart below, it just keeps moving in the right direction. It had been the stock market driving the gains for awhile. It slipped up, but the real estate market took the ball and ran with it.

This would be over $68,000 a year of almost completely passive income. What’s better is that there would be no need to touch the investments themselves. We wouldn’t have to sell stocks or get a reverse mortgage. 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. It’s worth noting that, once again, these are fudged numbers that aren’t “real” yet (except for the profit-sharing check). We have gained more than $3,000 in passive-ish income over 4 years. I wonder if we can get to $8,000/mo. in passive income by the start of 2025, another 4 years. That’s a little aggressive, but it would give us something to hope for.

Final Passive Income

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

Passive Income: $6,565.91

Last month it was $6,610.59. It’s another drop, but it would have been growth if it hadn’t been a short month. It seems like this is going to be a consistent number for a little while.

I’d like to see this average $8,000 in 2021, but I need a plan to add something new – it doesn’t look like dogs and blogs is going to get me there. For now, I’ll just be happy that with four different income streams (and two consistent ones), there isn’t much room for everything to drop.

This $6,500+/mo income is nearly $80,000 a year. That largely hypothetical annual income for writing on a blog, taking care of one dog, and investing is really nice. In the long term, $78K would be a lot more income than we’d need – given our necessary expenses for the next 45 years. Of course, those necessary expenses aren’t going to cover all our spending, but it’s a large percentage of it.

As 2020 has proven, you never know what bad news is lurking around the corner. This preparation gives us the financial flexibility to fight it.

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 couple of years (which isn’t passive at all). That’s the fuel that drives the passive income engine – it allows us to live well and invest. My income doesn’t match my wife’s, but I’m good at stretching a dollar in almost all our spending.

We got a lot of snow in February, so we went sledding a few times.

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’s had an incredibly interesting life until she met me – I am so boring. I may tip my toe into self-publishing sometime this year. I would love to talk to a real 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 a while now. Though we are getting close to dipping below that $6,000 mark. If it dips below $6000 and touches $5000, we’ll have to examine some things.

(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.

February was another good month for our net worth. We saw it jump 1.20%. For the year overall, our net worth is up 4.41%. We’ve seen our net worth over 30% in last 14 months. With the Rule of 72, we’d double our net worth in around 2.5 years. That’s probably too good to last forever.

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, 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 15 years. FIRE wasn’t a “thing” back then, but it’s in the news a lot now. We naturally are further along in that journey than some younger readers who may be just starting out. 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 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 and market luck) over 10-15 years.

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 it in our 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 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.

How was your February? Let me know in the comments.