Passive Income Update: June 2020 ($6,801.15)

I know it’s late in the month to review last month’s numbers. I haven’t been in the best mental health state lately. Of course who is nowadays? Don’t let some of the pictures in the article below fool you. There have been some good moments, but lots of time when I feel like I’m just stuck in the mud, unable to move forward with anything.

When I last reported passive income in May things were about as bad as they could be. We were still dealing with homeschooling kids and added systemic racism and police brutality riots. The online community of personal finance bloggers seemed to be destroyed after a number of revelations lead it to be “canceled” by the community.

The bright side was that the nation was opening up and we were down to around 20K new cases in the United States a day. It seems that opening up wasn’t the right plan, as cases per day doubled in June… and they’ve only gotten worse from there.

On a personal level, the kids got out of (home)school, which has helped a lot. We got a chance to take a coronavirus staycation. Here’s a picture of the kids enjoying some s’mores on Block Island:

Our state, Rhode Island, is doing as well as any in the nation, especially for being between the epicenters of NY and MA. We can do almost anything now, but it’s different because it’s all masked and socially-distant. I know that it’s very difficult across much of the country. It’s a strange, helpless feeling. I just want everyone to experience this so that you know what you get if everyone masks-up, tests, and quarantines.

In a lot of ways, we’re very lucky to have the kids at camp. However, I still worry. While we haven’t had a lot of cases, but they are starting to rise a little bit. It’s so hard to look at someone like getting near them would be the end of the world.

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 explanation – it isn’t intuitive at all. The reason why I do things a little differently is that it is a journey. For example, we don’t have passive income from our rental properties while we are paying down their mortgages. These numbers reflect the progress of that journey.

Lazy Man’s Passive Income – June 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

After a few months of zero dog sitting, we’re getting dog requests again. It was only one dog for a few days in June, but we’ve been busy in July.

Blogging income has been down. I can’t do much about it while we have coronavirus. Advertising is down, but our spending, in general, is down too. Few people are searching for information about retiring early. In June we didn’t have the kids at camp. My wife took some time off and we tried to do some staycation stuff. I’m spending almost all my time with the kids until camps start. From 6AM to 8PM, I don’t even try to work. I’m setting up some educational activities, cooking food, doing laundry, washing so many dishes, doing the educational activities, walking the dog with the kids to get fresh air, and fighting through their bedtime routine.

In May, dogs and blogs combined for a total of $2,167.12. In June, it was:

Total Blogging + Dog Sitting Income: $1,804.15

This is the lowest it’s been for the year and yet another reason why my mental health isn’t where I want it to be. I simply don’t feel like I have any control in my life. Again, I know a lot of people are feeling that way.

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 legitimately 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. I’m starting to rethink that because there isn’t as much dog sitting income this year. The kids may play a more meaningful role in the blog going forward.

(The above is our oldest kid who is a natural with our dog. He’s grown up with him his whole life. This is the center of the labyrinth meditation maze on Block Island.)

(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 estimates seem to be finally factoring COVID-19. The value of our properties went down a bit. At least 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 couple of thousand dollars of mortgage debt and grow some equity.

We now have 64.39% 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.

(Kids took me out to a Father’s Day lunch, which was quite beautiful.)

If you multiply $3,325 by 64.39% you get $2,141 in estimated monthly passive 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 41 months, we’ve seen the number grow $1076/mo. That’s like giving ourselves an annual $12,804 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 $2,122. This number always moves slowly as it only changes if one of two things happens: 1) The properties go up in value. 2) We charge more for rent.

Total Rental Property Income: $2,141

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.

(We still had school in early June. This was part of my overly optimistic “Dad School”, where the kids used technology like this Osmo coding toy. Read my Osmo review here. I haven’t been able to keep the kids doing much “educational” during the summer.)

The last snapshot had the markets coming back. When I took these numbers on July 7, the market was doing great. 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: $2,856

Last month, it was $2,798. A couple of months ago, I wrote, “even in a bad-case scenario, we’d be north of $2500.” We weren’t obvious, but we are back there now, with some room to spare.

(I’m up over 400+ days of learning Japanese on Duolingo. I know a number of characters and probably a few hundred words, but I’ve only spent a few minutes a day, so I need to do some “deep learning” time to make it all stick.)

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. I bought shares of companies at depressed prices throughout the drop.

Annualized, this monthly $2,856 is $34,272. 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.

(Kids are staying cool in this $20 inflatable pool. We keep our expectations low and the costs low and we find we are fairly happy with the results.)

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.

(My younger son plays with an Ozobot – yet another learning to code toy that we have around the house. He loves to draw, so this is well-suited for him.)

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 trillion 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 a much better situation. It would have, figuratively, saved our bacon.

It seems like we don’t know which way things are going to go. Since we are easing up on social distancing, it might go poorly again. Some states are seeing increased problems.

Very Close to Passive Income: $4,997

Last month it was $4,919. We had lost $500 a couple of months ago, but we are just a few dollars off from the highs of March. 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: $6,801.15

That’s reasonably good overall for another 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 to be frugal after coronavirus, which may not be likely.

This nearly $6800+/mo income is $81K+ a year. That largely hypothetical annual income for writing on a blog, taking care of one dog, and investing feels like a dream. In the long term, $81K would be a lot more income than we’d need. Here’s what our necessary expenses look like… for the next 45 years. Of course, those necessary expenses aren’t everything, but it’s a large percentage of everything.

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.

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.

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 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. 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 June, our net worth did very well. It was a slow and steady gain of 1.77%. For the year, our net worth is UP 5.25%. We continue to do something right.

Our real estate value is going down just a little bit. 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, 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).

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. I know that COVID-19 is making everything difficult. Feel free to use the comments to vent – it doesn’t even have to be about personal finance.