Passive Income Update: November 2020

It’s a little before the middle of the month, so it’s time to review November’s passive income. I usually do all the math on the 5th of the month so that tenant checks have been cashed and our mortgage payments are paid.

Before we get to the financial stuff, here’s a little life update.

It’s been a slow blogging week (or more) for me. The realization that Christmas isn’t really happening combined with unending rain hasn’t put me in the best of moods. Even my 8-year-old said, “What’s the point of decorating for Christmas if no one is going to see it?”

I’ll get into December next month. This article is about November. The big memory I have is about Thanksgiving. We were planning to have one family over as the guidelines allowed. During the week of planning, the governor’s message got mixed to the point that the two days before, I felt like we need to call it off. My wife (who has been running some of the COVID response for the state) politely overruled me (she’s the most tactful person I know) and we did have Thanksgiving with the other family. I was too nervous about everything to really enjoy it.

November is also usually a time for Black Friday shopping. I love finding deals online. This year, I didn’t find much that we needed. I didn’t end up doing much shopping at all. Most personal finance blogs would applaud this, but this is a year where a few good material things may lift our spirits for a while. We have the money for those things because we’ve saved on travel and restaurants.

On the bright side, the kids completed another month of in-person learning without much incident at the school. The school sent home a few grades in the pod for a day or two while close contacts instances are tested. So far we’ve only missed one day for one kid. It’s a big highlight to have the kids in school. It feels so important for my 6-year-old who is just starting to explode in his reading abilities.

We also spent much of the month cleaning out the new rental property and getting it ready for move-in. One of the pictures below is of the kids getting ready to help out. We paid them minimum wage for two hours of work and I threw in a pack of Pokemon cards and a dessert that they like. The kids loved the 2-bedroom place, so I made sure to get a video of them explaining all their hopes and dreams of living in it together. We’ll see if they still feel the same way 15 years from now.

I have fewer pictures to share this month. It’s been that kind of month. What I do have to share though is uplifting, so we do have that.

My 8-year-old found this at a yard sale. It was 25 cents well spent. I liked the message of recycling trash into art.

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 – October 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

November was a very bad month for blogging income. I don’t remember it ever being so bad, but that’s been the way that blogging business has gone for the last decade or so. I expected better because it included a big shopping season which is usually when I can make some extra money referring products. I didn’t see too many deals worth referring though.

Additionally, COVID has killed the need for dog sitting this year. I think this is going to be down until next summer. I’m hopeful COVID will be down with vaccines and everyone getting more time outside. Summer is a big vacation and tourist season for us, so if that happens I can make some money again.

In October, dogs and blogs combined for a total of $1767.85. In November, it was:

Total Blogging + Dog Sitting Income: $1,021.93

While it is depressing to see the number continue down, I have to remember that a lot of it is still COVID. I should be able to make double that. Also, for the number of hours worked, that hourly rate is very, very good. I have some ideas on how I can improve each area, but I’m focusing on getting more done around the house. I can see the direct improvements and that is more uplifting than hoping the extra blogging work turns into something.

My 6-year spent a day and a half building a Nintendo Labo for the Switch over the Thanksgiving break. Once you build your robot, you get to be one in a video game smashing things with your feet and punching your arms. It’s an amazing toy, but it seems hard to find now.

When there is some dog sitting 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 6-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 a lot of school work and home work. We’ll see what happens during the winter break.

(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

We recently sold a condo, and closed on the condo in November. We spent some time cleaning it up and it looks like it is ready to rent. We had hoped to get it rented for December 1st, but it looks like it will be January.

In this picture the kids are dancing more than cleaning, but actual cleaning happened, I swear.

As for November’s numbers, Zillow’s estimates of our properties were a little down. We paid down some of the mortgages. In the end, it was mostly a wash. That’s the third straight month that we haven’t had gains here. We’ve gained around $50K in equity this year, so this pause is fine. I expect that early next year, we’ll continue to grow equity by paying down the mortgages and hopefully seeing some growth in the value of the properties.

This month we went from 60.64% to 60.71% of the equity in our properties. Again, it wasn’t much, but we’ll take it. Previously, I calculated that, after insurance, property taxes, condo fees, and estimated maintenance we’d make $3,325 a month. That number because it represents our net gain. I recently updated this with the new property and it looks like we’ll be at $3,387.50 – a minor difference.

If you multiply our expected net rent $3,387.50 by the amount of equity we have (i.e. where we are on our journey) 60.71% you get $2,056 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 44 months, we’ve seen the number grow $882/mo. That’s good passive growth in almost 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 $40,800/yr. of income in today’s dollars buying the same value of stuff 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 $2,054.

Total Rental Property Income: $2,056

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 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 kids are reading a Pokemon Sword and Shield guide book that I found on sale. It’s hardcover and around 300 pages, but they’ll still spend an hour or two looking up stuff.

On the last snapshot, November, the market was doing great – it’s just been a big bull market. Our portfolio is at an all-time high. We’ll see if investments can continue to grow. Last month I wrote, “with COVID cases continuing to rise, there may be another shutdown in the future.” We’ve seen California shut down and my state of Rhode Island is “on pause.” It was supposed to be 2 weeks, but it’s extended to 3 now. The stock market economy doesn’t seem to care about COVID because it’s looking to the future with vaccines.

We continue to get a profit-sharing check since I bought (a lot of) a company. The business is doing well. It’s actually 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: $3,323

Last month, it was $3,143. We are now far past the pre-COVID number highs. This number rarely goes up much (since it’s a small percentage of our nest egg), but this was fairly extreme.

Annualized, this monthly $3,323 is $39,871. 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 let this investment continue to compound for another 15 years until we are 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 here. I’m too tone-deaf to have a rockstar music career, but maybe I’ll write 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 know if companies can reliably pay dividends anymore. Without customers and profits, many companies have cut their dividends. However, the stock market is looking ahead to summer 2021 with a lot of vaccine and outside time.

Towards the end of the month, the kids helped decorate our Christmas tree with ornaments from over the years.

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. We haven’t seen any kind of crash… instead the housing market is booming.

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 month 9 of an unfortunate economic event (it’s worse outside of economics, but for the sake of this article, I’ll stick to economics). Stocks went down a lot, but then went back up. Real estate has held steady. Overall, the plan keeps rolling along, even during COVID-19.

While the stock market is doing well, the real economy is very bad. It used to be terrible, but some people are getting back to work and some jobs are coming back. We’re finally getting a president who won’t ignore COVID and hope it disappears. We’re also getting a president who is going to start to reverse the climate change disaster that sees so many natural disasters ravage the United States. 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.

Very Close to Passive Income: $5,379

Last month it was $5,197. The $5,379 extends our all-time high.

This would be ~$62,000 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 to the kids for them to build on – unless we choose to draw them down for more fun, charity, or other spending.

This is a sample of my 6-year-old’s homework. Everything he does with school work is like this. He’ll change the problem to something else and solve that instead. It makes me laugh. Fortunately, he does the problems correctly, so I know he gets the concept. I’m jealous of his creativity.

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’re just about at four years of tracking this number, and we have gained $3,000 in passive-ish income. I wonder if we can get to $8,000/mo. in passive income by the start of 2025 (which will be another 4 years). I think that would be too 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: $6,400.93

Last month it was $6,964.85. I’d like to see this get closer to $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 nearly ~$6400+/mo income is ~$76K+ 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, $76K 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.

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 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. 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.

Like most investors in November, our net worth did extremely well. We saw it jump by 3.95%. For the year overall, our net worth is up 21.65%. If you didn’t know better you might think 2020 was another boring, great financial year – a typical saving and investing plan for us. In fact, growing our net worth 21.65% in a year might be above average. With the Rule of 72, we’d double our net worth in a little more than 3.33 years.

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 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 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 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. I hope that some of it is getting easier. I’m sure that for many the kids going back to school, in whatever form, represents new challenges and anxieties. Feel free to use the comment space to vent, I try to give a thoughtful reply to every comment I get.