Passive Income Update: May 2021

We’re into June and that means it’s time to review how our passive income grew in May. Before I put you to sleep with boring numbers, here’s a slightly more interesting look into our last month.

The beginning of the month started with my wife still deployed getting 60,000 shots into people’s arms. The kids had a Cub Scout event and learned how to garden. It’s a good thing that I wasn’t teaching them, because I can’t keep plant life alive. We also went out for Mexican food for Cinco de Mayo to support the local Mexican restaurant. Turns out, any other day would have been a better choice.

Once my wife came back we did a lot more stuff. My 2nd grader is enthralled with Australia that he’s learning in school. We went to the zoo and Outback Steakhouse to help support that enthusiasm. We went to a food truck event that felt very, very normal. My wife and I took a day off to enjoy a picturesque lunch. My wife ran a half marathon. The kids and I helped run one of the water stations.

That’s a full month, especially when you read the financial update below.

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 – May 2021

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

Last month, April was a great month for blogging and dog sitting. I don’t know why the blogging came back, but dog sitting is back with vaccinated people traveling. I didn’t know if it would be sustainable. The only way to find out is to gather enough data points. This month we have another data point.

My 7-year-old struggled to read anything last year. Now he’s reading the 8-year-old’s books upside-down.

This month, May, blogging hasn’t been as good as last month. It was still very good, more than double the average from January to March. While I never like to see the income go down, I do like to see that April was just an aberration.

As great as April’s dog sitting was, May’s is even better. I’m writing this on June 4 and I have already booked more income than May (assuming no cancelations). It seems that the only limit to dog sitting income is… my willingness, space, and time to manage multiple dogs. It’s much more passive when you have one dog to sit. It gets a little more complicated when you have several and have to coordinate their eating times and spaces. At some level of income, it gets hard to call it passive-ish.

The 7-year-old is flexible too.

In April, dogs and blogs combined for a total of $3,584.48 – the start of the comeback. In May, it was:

Total Blogging + Dog Sitting Income: $3,540.96

It’s hard to get much more consistent than that. If only we had one more dog or a day of blogging we probably would have passed the previous month. This income is so much better than it was during COVID when I wasn’t sure if I’d make more than $1000.

With dog sitting 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, but it’s more of a work in progress. 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. During school, they have too much to keep them busy. Maybe we’ll make some progress this summer.

(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’s estimates on the property values continued to skyrocket. It seems like every month they go up by tens of thousands of dollars. In addition to that appreciation growth, we paid down the mortgages as we always do. Due to the growth, we’ve made over $90K in equity for the year. The housing market is really moving.

My wife and 8-year-old played “Chopped” and I choose a bunch of old food that we had around the house. It’s a great rainy day activity! You earn bonus Personal Finance credit if you remember BillShrink. (You can notice some Pokemon influence in the background.)

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 of equity is pretty minimal. We had to work a little more for the $90,000 this year, but ~$15,000/mo. is very good. Of course, equity isn’t really salary – we can’t spend the money, because it isn’t liquid. Also, it’s can’t continue like this. We’ll enjoy it while we can.

This month we went from 66.15% to 67.50% ownership of the equity in our properties. We are only a few years away from getting real profits from the rental properties.

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 $3,400 by the amount of equity we have (i.e. where we are on our journey to 100% equity ownership), 67.50%, you get $2,295 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 $1000+/mo. It’s almost double. That’s good passive growth in 4+ years.

The kids love our backyard summer splurge of a hot tub.

In about 5 years from now, 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 $2,249.

Total Rental Property Income: $2,295

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 we 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.

My 7-year-old goofs around quite a bit, but he was all business in helping at the marathon water station.

The market dropped a bit mid-month, but then it rebounded again. So you won’t even see the drop in this report. I have done well with my satellite stocks overall, but they’ve been giving up some of their gains. I feel good to have locked in most of the gains. Now when I lose money with them, I don’t feel bad. It’s always good to play with the house’s money. Taking profits and buying diversified index funds has worked well for me.

Our portfolio continues to hit new all-time highs. I get nervous that the markets were too high. So I continue to execute on my plan to continue to stay fully invested, but moving more money to bonds, i.e. giving my stocks a shave. 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.

My 8-year-old completed a 365-day streak in Duolingo – most of it in Norwegian (his school friend is from there). Can I add this in his college application?

We continue to get a profit-sharing check since I bought (a lot of) a company. The business was almost ideally positioned in this pandemic 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: $3,733

Last month, it was $3,700. This is a fairly normal size gain – but it’s amazing that it has been continuing like clockwork through all these reports. After nearly 50 reports, I think there were only a few where it dropped… and it seemed to rebound right away. This dividend-ish number rarely moves that much, but slow and steady wins the race. When I started tracking this in 2017 we were at $1,180/mo.

Annualized, this monthly $3,733 is almost $44,800. 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 14 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. I hope to see an estate planning lawyer and possibly some other tax and financial professionals soon.

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 keep the idea open that I’ll write a book someday.

An evening at the beach after school is a great way for a kid to unwind. They had the help of about ten school friends in digging this hole.

The stock and real estate markets have been going up and for a long time. COVID dropped the stock market for a short time, but that’s the only hiccup. If you look at the charts, we had a small setback when we sold one property and bought another in late 2020. It’s taken a few months, but it’s back to new highs.

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 a while. Of course a bad economy may impact both at the same time, but that’s what an emergency fund is for.

I’m starting to get very encouraged about the future – at least in the United States. Last month, I wrote:

[COVID] may not be 100% gone, but it could get to a point that it is rare enough to not have to think about it.

It’s starting to feel like it’s getting to the point that I don’t have to think about COVID. The kids aren’t eligible to get the vaccine yet, but there are large parts of the day where I don’t have to think about it. We are lucky to be in the United States – it isn’t like this in other countries.

Very Close to Passive Income: $6,028

Last month it was $5,949. The $6,028 is yet another all-time high – ho, hum. 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 a while. However, real estate may be the bigger driver now.

The local zoo had a few Australian animals. Unfortunately they didn’t have any kangaroos. We went to the zoo twice this month, once to see Australian animals and a second time at night to see the Asian lantern exhibit.

This would be more than $72,000 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), because the money isn’t liquid. We have gained more than $3,000 in passive-ish income in a little more than 4 years. I used to wonder if we can get to $8,000/mo. in passive income by the start of 2025, but I feel like we will get there now.

Final Passive Income

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

Passive Income: $9,568.96

Last month it was $9,533.48. That’s barely a gain, but any gain is good. More important than the gain is that it’s the second month we’re at all-time highs. I spent the last year thinking that we’d hit new lows. With most of the money coming from passive-ish income that seems to consistently grow, the difference is what I can earn from dogs and blogs.

Supporting the local Mexican restaurant on Cinco de Mayo

I’d like to see this average $8,000 this year. I didn’t think it was possible with dogs and blogs not performing, but now it’s starting to look like there’s a chance. It will take quite a bit of luck, as the number has been low for many months.

This ~$9,500+/mo income is almost $115,000 a year. That largely hypothetical annual income for writing on a blog, taking care of dogs, and investing is very nice. In the long term, $115K 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 day job of bread-winning pharmacist income, her vested military pension (more passive income when she retires), 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.

I love two things about the graph below. First, it continues to stay high like it did last month. Second, it doesn’t dip down too far. It’s been above $6,000 for a while now. It’s good that we are turning this ship around and moving it back in the right direction. I’d like to see $7,000 become the new floor.

(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.

May was another great month for our net worth. We saw it jump 3.80%! For the year overall, our net worth is up 15.28%. It’s very odd to have these kinds of gains when our numbers have been growing for so many years. In terms of dollars, sometimes the monthly gains are more than I’ve made in a year as a software engineer.

The view from our table at Castle Hill at a fancy lunch with my wife.

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 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. In the end, it seems my wife’s pension may be worth ~$2.4 million. However, like most of the money mentioned in this article, this isn’t money we can spend right now.

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