2020 Passive Income Quarterly Update

Q3 Passive Income 3502020 is a difficult year for many of us. The COVID-19 pandemic spread uncontrollably earlier this year and the economy went into lockdown. The stock market crashed in March, but it recovered very rapidly. This recession is very strange. It doesn’t affect everyone equally like in the past. Many people are really struggling, but some are doing quite well. It really depends on what you do for a living. Personally, we are doing okay. My online income slowed down tremendously, but we never depended on it so it isn’t a huge deal. Mrs. RB40 is still working so her income stabilizes our household finances. Also, our passive income is holding up much better than I thought. Some of our real estate crowdfunding investments completed and we received several nice closing payments. Our other passive income streams also performed relatively well. All in all, it looks like we’ll come through this downturn okay as long as it doesn’t drag on for too long. Hopefully, we’ll get back to normal in 2021. Or some kind of better new normal.

Okay, let’s go over our passive income for the first 3 quarters of 2020. First, I’ll review the basic info and then share the details after that.

*FI ratio = passive income / expense

Q3 Passive Income

Passive Income is Key

Passive income is one of the keys to a successful early retirement. Once you generate enough passive income to cover your cost of living, then you have reached financial independence. I retired before our passive income was there, but I had an alternate source of income – blogging. Luckily, early retirement worked out very well for me over the last 8 years. Our income was good so we kept investing. Our net worth doubled over this period and we feel very comfortable financially. However, we are still working to surpass 100% FI ratio consistently. 2020 is looking really good as far as FI ratio goes. Our income is down a bit, but our spending is way down. We just need to keep it up.

Currently, we support our moderate lifestyle with the combination of these income streams:

  • Mrs. RB40 works full-time. She plans to take a year off in 2022 and retire early soon after that.
  • I blog a few hours per day and make a few bucks online.
  • Passive Income – We generate passive income from the stock market, real estate crowdfunding projects, rental properties, and other investments.

FI Ratio

The FI ratio is a simple way to measure progress toward financial freedom. Personally, I think 100% FI ratio is overkill because nobody stops working completely after early retirement. But it’s better to err on the side of caution.

In the first part of 2020, our FI ratio was very good. We didn’t spend much and our passive income was good. As a result, our FI ratio was 133%. That’s excellent. It means we can reinvest 33% of our passive income. If we can keep up this pace, our net worth will keep growing. Amazingly, 2020 is turning out to be our best year yet.

Real Estate Crowdfunding Income: 2020 target $5,000

I started investing in real estate crowdfunding in 2017. My experience has been mostly positive. There were some problems, but I still think it’s a good way to invest in real estate. However, this is a new way to invest and it could be risky. I plan to cap our asset allocation to 5% for this class of investment.

This year, I’m primarily investing with CrowdStreet and PeerStreet. They both have a very good track record. I like CrowdStreet more because there are fewer turnovers. PeerStreet is good, but you have to keep reinvesting. That takes more time than I’d like.

Real estate crowdfunding is great because you can diversify to different areas of the country. Portland’s real estate market is slowing down tremendously and there are too many new landlord-tenant rules.

Here is the spreadsheet of my RE crowdfunding investments.

RE crowdfunding Sept 20

Real estate projects I invested in

  1. CrowdStreet – Currently, we have $68,000 invested with CrowdStreet. Recently, I committed $27,000 more so the total will increase to $95,000 soon.  CrowdStreet is the best RE crowdfunding company on the market right now. Their commercial projects are first class and should weather the downturn pretty well. One project froze the payout. I’ll keep you updated on this. Check out their project by signing up for a free account at CrowdStreet.
  2. PeerStreet – PeerStreet is good too. This is strictly hard money lending so the income potential is not as high as equity deals.
  3. An apartment in Arizona ($10,000.) This equity deal is going well so far. The estimated cash on cash return is 10% per year. After 5 years, the property will be sold. The estimated total rate of return is about 16% per year.

Completed in 2020

  1. A strip mall in Arizona ($8,000.) This project is done! The strip mall was sold just in time and we got our payout. In total, we invested $8,000 and got $11,035 back in total. That’s about 12.5% annualized return. That’s not bad at all. The estimated ROI was 17% per year. The actual profit is lower than projected, but I’ll gladly take it in this climate.
  2. An apartment in North Carolina ($10,000.) This equity deal is done! In total, we invested $10,000 and received $12,537 back. That’s about 8.9% annualized return (2 years and 8 months.) The expected ROI was 16% per year so this is way lower than expected.
  3. PeerStreet – One project completed on PeerStreet. We invested $3,000 and received $3,256 back over 11 months. That’s 8.5% ROI, as expected.

Problem

A fast-food restaurant in Florida ($5,000) This project is in a foreclosure proceeding. Hopefully, we’ll get some money back. It’s not looking too good.

*Estimated ROI is just that, an estimate. There are risks with any investments including real estate. If you’re not comfortable with real estate crowdfunding, I recommend REITs. They are more established and also have good returns. We have some REITs in our dividend portfolio.

If you’re interested in real estate crowdfunding, sign up with these companies below and check out their projects. You don’t have to invest if you don’t see something you like. Some of those projects are quite impressive.

  • CrowdStreet – CrowdStreet focuses on commercial properties across the USA. They have apartments, hotels, self-storage units, strip malls, office buildings, and more. The minimum investment here starts at $25,000 which is a bit higher than other companies. They have some great projects lined up, though. Sign up for free with CrowdStreet and check them out.
  • PeerStreet – PeerStreet has a very good reputation. Investors can invest in private lending with real estate backing. The only issue I’ve had is early completion. Some projects finished very quickly and I had to spend time to find a new project to invest in. PeerStreet only accepts investment from accredited investors*.
  • RealtyMogul – All investors can invest in REIT deals at RealtyMogul. In addition, accredited investors can invest in private projects and do a 1031 exchange.
  • Fundrise – Non-accredited investors can invest in iREIT here.

 *Accredited investor needs to have over $200,000 of income over the last 2 years or a net worth of over $1,000,000.

Rental Property Income: 2020 target $3,500

Currently, we have 2 units in our rental property portfolio. However, I plan to consolidate to just the duplex where we live. I can’t be a DIY landlord anymore because I need to travel more. My parents live in Thailand and they are getting older. They will need more help in the years to come. At this point in life, I’d rather invest in heartland real estate through RE crowdfunding. Being a landlord is a great way to build wealth, but I need to be a more passive investor in the future.

2020 is a tough year for landlords as well as renters. Landlords have to pay the mortgage, property tax, and all sorts of upkeep expenses even if the tenants can’t pay rent. Fortunately, our tenants have secure jobs and they are paying the rent on time. Whew! It could have gone much differently if I picked different tenants. We had a few big expenses in Q1, but Q2 and Q3 were much smoother. Q4 will be bad, though. I think we’ll have to rebuild our chimney so that will cut into the income. Also, one of our tenants is working from Europe for a while. We gave him 50% off until he comes back. As a result, I doubt we’ll have a cash flowing quarter in Q4. Stay tuned to see how it turns out.

2020 YTD rental income: $3,195

In 2020, we have 2 rental units left and they are both rented out. They should generate about $500/month this year if there are no big repairs.

  • 2016 rental income: $1,974
  • 2017 rental income: $10,973
  • 2018 rental income: $8,999
  • 2019 rental income: $716
  • YTD 2020 rental income: $3,195

Dividend Income: 2020 target $16,000

Dividend income is my favorite form of passive income. Investors own a small part of these public companies and they work for you. These days, I focus on companies that consistently grow their dividend income over the years. This strategy will ensure that our dividend income keeps growing even if we don’t add new money. Currently, we reinvest all the income from this portfolio, but we may use it to pay our expenses once Mrs. RB40 retires. If you’re a new investor, here is a helpful post – How to Start Investing in Dividend Stocks.

As for reinvestment, I don’t DRIP in this portfolio. I just accumulate the dividend and invest in a stock or real estate crowdfunding whenever I see good value.

For 2020, I hoped to generate $16,000 from our dividend portfolio. I’m not sure if we’ll get there. Probably not. A few companies froze dividends so our dividend income will drop a bit this year. Disney is one of those companies.

For new investors, I highly recommend Firstrade. Firstrade is a great discount brokerage that I used for many years. Recently, they lowered their trading fees to $0. That’s great news! Young investors can buy stock without having to worry about the fees. Other discount brokerages are following suit and offer no trading fee now.

YTD dividend income = $10,360

Q3 dividend income

Tax-advantaged Income: 2020 target $37,000

New investors should read these posts first.

The money in these retirement accounts isn’t easily accessible at this time (I’m 46), but they still count as passive income. Once we both retire full time, we’ll build a Roth IRA ladder to access our traditional IRAs so we don’t have to pay the 10% early withdrawal penalty. Most of the investments in these accounts are invested in low-cost Vanguard funds. The dividend income here will be reinvested via DRIP (back into the funds). You can see our YTD income in the spreadsheet below.

The 2020 numbers look low, but Q4 is a bit quarter for dividend income. We might pull a rabbit out of the hat. Who knows?

Somewhat Passive Income – Blogging

Blogging isn’t very passive for me at this point so this is not part of my FI ratio. Usually, I spend 20-30 hours per week writing, networking, responding to comments, and maintaining Retire by 40. Someday, I’d like to cut it down to around 10 hours per week. That goal is a few years off, but I will cut way back on work in the summer. I’m working 10-15 hours per week until the end of the year. Being a stay-at-home dad is job 1 while our son is learning from home. I’ll work more in 2021, maybe…

Anyway, blog income is a huge bonus. When I started Retire by 40 in 2010, my goal was to generate about $500/month. After 10 years, my blog income has grown tremendously. I’m very grateful for your support. Thank you!

2020 YTD Blog Income: $26,326 YTD

Here is how we generated online income in 2020.

Revenue: $34,917

  • Banner ads: $18,211. These are the banner ads you see on Retire by 40. I hope to make about $2,000 per month with these ads at some point. This is dropping due to lower traffic and budget cut from advertisers. For the rest of 2020, I hope for about $1,000/m.
  • Affiliates: $14,906. These are referral fees from affiliate links. If a reader signs up for a service through our affiliate links, then we may receive a referral fee. I’d like to see about $2,000/month at some point. For the rest of 2020, I’d be very happy with around $1,000/m.
  • Private ads: $1,800. Occasionally, we worked with a company to advertise their products. I rarely do this anymore. This income will be very small in 2020.

Expenses: $8,653

    • Business: -$3,618. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
    • Travel and meals: -$738
    • Employee: -$1,998. This year, RB40Jr is our part-time photographer/model. I’ll pay him $25 for each image and video I use in a blog post and $4 per image on social media. This income will go straight to his Roth IRA. I’m excited to see how this experiment will turn out.
    • Estimated tax: $2,200. I haven’t sent this in yet. We still haven’t received our stimulus so they should cancel each other out.

Here is the 2020 graph of the revenue, expense, and net income. September was a good month for us, but I’m not hopeful for Q4. Usually, it slows down and then picks up again after New Year.

Sept blog income

2020 so far

Here is our passive income spreadsheet since 2016.

passive income

The first 3 quarters of 2020 was okay for us. The passive income looks low compare to previous years, but that’s because we receive more payouts in Q4. We’ll have to wait until 2020 is over before we can compare them. I’m somewhat hopeful.

At least, our FI ratio looks good right now. We’re stuck at home and we’re not spending much money. I hope you’re staying healthy and weathering this downturn well.

What about you? How is your passive income holding up?

*Sign up for a free account at Personal Capital to help manage your net worth and investment accounts. I log in almost every day to check on our accounts. It’s a great site for DIY investors.

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Joe started Retire by 40 in 2010 to figure out how to retire early. He spent 16 years working in computer design and enjoyed the technical work immensely. However, the job became too stressful and Joe retired from his engineering career to become a stay-at-home dad/blogger at 38. Today, he blogs about financial independence, early retirement, investing, and living a frugal lifestyle.

Passive income is the key to early retirement. This year, Joe is increasing his investment in real estate with CrowdStreet. He can invest in projects across the U.S. and diversify his real estate portfolio. There are many interesting projects available so sign up and check them out.

Joe also highly recommends Personal Capital for DIY investors. He logs on to Personal Capital almost daily to check his cash flow and net worth. They have many useful tools that will help DIY investors analyze their portfolio and plan for retirement.

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Originally posted at https://retireby40.org/2020-passive-income-update/

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