Late last year, I received a few requests to update our passive income more frequently. So here it is – a new monthly series to keep track of our passive income. Actually, this will be very helpful for me as well. Previously, I review our passive income once per year and it is too much to do in one session. It would be much easier to update my spreadsheet once per month so I can stay on top of it.
First a little background. One of our long term goals is to generate enough passive income to cover our expenses. The challenge is to do this by 2020 so Mrs. RB40 will have the option join me in early retirement. In theory, she could retire right now but she is not quite ready to pull the plug yet. She wants a little more financial security. Currently, we support ourselves by a combination of these following income streams.
- Mrs. RB40 works full-time.
- I blog part time and generate some online income.
- Passive income from the stock market, rental properties, and other investments.
This is working very well for us and we still save and invest over $50,000 per year. If Mrs. RB40 stops working now, we’d need to stop saving and start withdrawing a little money from our investment every year. (In 2016, we’d need to withdraw about $8,000 to cover our living expenses) I think this is perfectly fine because our withdrawal rate would be less than 1% which is very safe over the long term. However, she just isn’t comfortable with any withdrawal, so she is determined to continue working until our FI ratio is 100%. That is – as long as she like her job.
FI ratio = passive income / expense
The FI ratio is a simple way to track our progress toward total financial independence. Once we reach 100%, then it would may give Mrs. RB40 enough financial security to stop working full-time. Personally, I think it’s overkill, but I guess it’s better to err on the side of caution. Normally, financial independence means having about 25-30x your annual expenses which we already achieved in 2012.
In 2016, we generated about $38,000 in passive income. It was our best year so far, but that’s not quite enough to cover our expenses. We spent about $54,000 last year which makes our current FI ratio at 70%. Actually, that’s exactly where I hoped to be, so I’m satisfied with our progress. Okay, let’s see how we’re doing so far in 2017.
For 2017, my target FI ratio is 78%. If we can keep increasing our passive income at this pace, then we should reach 100% by the end of 2020. Let’s go over our investments one at a time and see where we stand. This year, our passive income needs to increase to $42,000. That’s a big jump, so it won’t be easy.
Dividend Income (target $11,500)
First up is our dividend growth income portfolio. Dividend income is my favorite form of passive income. You own a small part of a public company and they do most of the work for you. These days, I focus on companies that consistently grow their dividend income over the years. That way our dividend income will keep growing even if we don’t add new money. Currently, we reinvest all the income from this portfolio, but we’ll probably use it to pay our expenses once Mrs. RB40 retires full time.
As for reinvestment, I don’t DRIP in this portfolio. I just accumulate the dividend and invest in a stock whenever I see good value. Recently, I purchased Amgen, Kimberly Clark, and Consolidated Edison. The stock market is a bit high, but I’m too impatient to sit on the sidelines any longer. I’m pretty sure it will be fine in the long run (30+ years).
I’ll compare our performance to VIG, Vanguard’s Dividend Appreciation ETF.
For 2017, I expect to receive at least $11,250 from our dividend portfolio. This is assuming the dividend at least remain stable. I’m hopeful that we can reach $11,500 via dividend increases, reinvestment, and additional investment.
01/01/2017 value = $329,134
January Dividend Portfolio Update
01/31/2017 value = $330,417 (0.63% YTD gain)
YTD dividend income = $892
Our dividend portfolio took a beating in January as Q4 results came out. Target, Walmart, Leggett & Platt, Western Union, Sysco, and GE were all big losers and they drove our portfolio down quite a bit. This is the risk of buying individual stocks. Also, is this the beginning of the end? If the blue chips companies can’t improve their earnings, then this bull market won’t last much longer.
VIG, our benchmark, gained 1.8% and handily beat our portfolio. The year is still young so perhaps we will catch up later in the year.
Rental property (target $3,000)
Currently, we have a small duplex and a 1 bedroom condo in our rental property portfolio. I’ll skip the condo because we co-own it with my brother. Besides, it breaks even so it’s not really all that interesting at this point. The duplex is more challenging because it is an older home and needs more maintenance and repairs. I just raised the rent, but we still won’t be making much income this year because we’ll need to paint the exterior. The appreciation has been good, though.
On a good month, we should collect about $800 in passive income. Painting the exterior will cost over $5,000. Hopefully, we don’t have any other major repair in 2017.
January Rental Update
YTD rental income = $1,064
January was a relatively good month at the duplex. We didn’t have to do any repair so our rental income was good. I had to drop by quite a few times, though. We had more snow than usual and I had to shovel the sidewalk. When the snow melted the basement got wet so I had to drop by a few times to clean up. Anyway, it was a good month financially, but more work for me than previous months.
P2P lending (target $600)
I’m slowly pulling our investment out of Prosper.com. I’m just not a very good investor there. You’d probably have better luck if you have time to browse the loans. Our ROI is about 8% which isn’t bad. However, these unsecured loans won’t perform well when we see an economic downturn. P2P loans will be the first thing that borrowers will default on when they run into financial problems. I’m just getting out while we’re ahead.
January P2P Lending update
YTD P2P lending income = $65
Real estate lending (target $500)
Here is something new – I’m going give real estate crowdfunding a try this year. I just opened an account at Realty Shares and linked my bank account.
For new investors, there is a 30 day cooling off period before you can invest. The SEC recommends this to allow investors to become more familiar with the investment platform and the different types of investments available. During this period, investors can view the offerings available, but they can’t invest until the waiting period is over.
Fortunately, you can get this waiting period waived by filling out your investor profile and scheduling a follow-up call with Realty Shares. The follow-up call took about 5 minutes and they went over the different types of investments that are available. I got my cooling off period removed and invested $8,000 in a strip mall in Arizona. The ROI is projected to be 17%. The partner has extensive experience in that location so I’m optimistic about the project.
You can sign up with Realty Shares through this link if you’re interested in real estate crowdfunding. I will write about my experience investing with Realty Shares soon. Currently, only accredited investors can invest at Realty Shares. Accredited means your net worth is at least one million dollars excluding your primary residence. I think you can still browse the investment listing even if you’re not accredited.
January Real Estate Crowdfunding update
The investment is pending so no income yet.
This one is more for fun. You’ve heard of Kickstarter. That’s where you try get funding if you’ve got a great idea, but what about after you’ve got a good product? A company needs money to buy inventory and that’s where Kickfurther steps in.
Kickfurther is similar to P2P lending, but investors lend to small businesses instead of individual borrowers. The big difference here is the money will be used to fund inventory. The investors own the inventory and we can vote to liquidate the inventory if the business can’t sell it. Usually, I try to pick loans that already have a purchase order lined up. You can find out more and receive $5 to start through this link.
It’s interesting to see what kind of new products are coming into the market and then to pick a company to invest in. The ROI has been good for the companies that repay on time. I think I got around from 10% return in 2016. I need to go over the tax form in detail when it comes in. A few companies are late, but they are still actively trying to move their products. Hopefully, these late loans will be paid back soon. I only have $1,300 invested here so the income will be pretty small. You should not invest a large portion of your net worth with KickFurther. Investing in a small business is very risky and it is likely that you’ll lose some money. Only invest money that you can afford to lose. I would invest less than 0.1% of your net worth here. Truthfully, it’s a bit like gambling because you never know which business will default.
January Kickfuther update
YTD KickFurther income = $54
Our saving account and reward checking account. They’re boring, but everyone needs them.
YTD interest = $20
Tax advantaged accounts
Now to the tax advantaged accounts. The money in these retirement accounts isn’t readily accessible at this time, but they still count as passive income. Once we both retire full time, we’ll build a Roth IRA ladder to access these retirement accounts. Most of the investments in these accounts are invested in low cost Vanguard funds. All dividend income here will be reinvested via DRIP (back into the funds).
2017 Passive Income
To wrap it up, I’m optimistic that 2017 will be the best year for our passive income yet. The challenge for us is to keep our expenses relatively flat. That way, the denominator doesn’t screw up our FI ratio.
FI ratio = passive income / expense
Passive income grows slowly so we really need to control our expenses.
In January, our passive income looks good. I think we’re on track to beat 2016, but it’s hard to say at this point. We’ll have a better picture after the end of Q1. On the other hand, we had a very low expense month. I think this was mostly due to bad weather and luck. We didn’t do much because it was so snowy/rainy and cold. We were lucky because there weren’t any expensive maintenance in January. I’m starting to get tired of owning multiple properties. There is always something going wrong. We have quiet a few more repairs in February.
If you plan to track your passive income, you should consider signing up for Personal Capital to help manage your investment accounts. They are very useful and I could get all my passive income info from one site. This is an affiliate link and we may receive a referral fee if you use this link to sign up.
Is there anything else that you’d like to see on this passive income update? Stay tune for the next update in a month or so.