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Passive Income 2018

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2018 Passive Income

Q1 is in the bag and 2018 is a 25% over! Time flies, doesn’t it? How did you do with your finances in Q1? Overall, we did okay. The stock market was volatile in Q1 and our net worth bounced around quite a bit. At the end of Q1, our net worth is back to about the same level as it was at the New Year. That’s not too bad considering the S&P 500 was down 2% over the same period. Anyway, we’ll focus on passive income today. That’s different than net worth. I’ll go over how we generate passive income, recap our expenses, and share my outlook for the rest of 2018.

The 2020 Passive Income Challenge

One of our long term goals is to generate enough passive income to cover our expenses. The challenge is to reach 100% FI ratio 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. She is also worried about healthcare. There is just too much uncertainty with healthcare right now. Her employer-sponsored health insurance plan is working really well for us, so she wants to keep it for now. Currently, we support our moderate lifestyle by a combination of these income streams:

  • Mrs. RB40 works full-time.
  • I blog part time and generate some online income.
  • We have passive income from the stock market, rental properties, and other investments.

This is working very well for us and we continue to save and invest over $50,000 per year. If Mrs. RB40 stops working now, we’d probably stop saving and may need to withdraw a little money from our nest egg every year. Our passive income was great in 2017 and it surpassed our annual expense for the first time. That was awesome, but we might not be able to repeat it this year. Our passive income in Q1 was lower than expected. Our expenses are also higher this year. It might take a few years to consistently exceed 100% FI ratio.

That’s okay, though. We don’t need 100% FI ratio because I have supplemental income from blogging. 80% would give plenty of margin for her to retire. We could cover the rest with my online income. 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 enjoys her job.

FI Ratio 

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 100% FI ratio is overkill, but I suppose 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.

*Caveat – I’m not going to worry too much about tax at this time. We’ll deal with it when we hit 100% FI ratio. At this level of income, tax should be minimal.

Passive Income 2018

First, let’s look at the numbers. Q1 wasn’t good. Our passive income was low and our expense was high. That’s the recipe for low FI ratio.

  • 2018 FI ratio: 62%
  • If we add blog income, FI ratio becomes 187%. This is cheating a bit because blog income is not very passive.

passive income spread sheet

There are a few glaring problems here.

  1. The rental income is off pace. This is due to the vacancy in one of our units in January and February. It’s rented now so the rental income should be much better for the rest of 2018.
  2. P2P lending is in the red. We saw quite a few defaults in Q1. The amount isn’t large, but it’s not good to see red anywhere in passive income.
  3. Our expense was high in Q1. We’re going to Iceland this summer and it is an expensive country to visit. I already spent over $4,000 on flights, rental car, and lodging. It should be a fun trip, though. Some years will be more expensive than others. 2017 was a very good year on the expense side.

Now, we’ll go over each passive income stream in detail. Sorry, this one is a little long. You can skip some of these if they are not relevant to your situation.

Real Estate Crowdfunding (target $5,000)

I started investing in real estate crowdfunding with RealtyShares in 2017. My experience has been positive so far. You can read more about how I got started with real estate crowdfunding here. There are also more details there about what type of investments you can make in real estate crowdfunding – debt, preferred equity, and joint venture equity.

This year, my goal is to increase our investment with RealtyShares to $100,000. I expect real estate crowdfunding to generate about 7% income annually and an additional 5-10% whenever a project wraps up. This is assuming nothing goes wrong, of course. I’d like to try PeerStreet at some point as well.

YTD Real estate crowdfunding income = $353

Current projects

Currently, I have $38,000 invested with RealtyShares in 5 projects. The first three are generating passive income for us and they are doing well. The last 2 are still in progress and they haven’t sent us any income yet. I expect payments from all 5 in Q2.

  1. A strip mall in Arizona($8,000.) This was an equity investment. The estimate cash on cash return is 7% per year. After 3 years, the property will be sold and should generate about 10% (per annum) more. Payments have been on time so far.
  2. A fast food restaurant in Florida($5,000, 1 year holding.) This one is a senior debt loan and the payments have been on time. The interest rate is a flat 9.5% per year.
  3. An apartment in Texas($5,000.) This equity deal is going well so far and the first payment came through in January. The estimate cash on cash return is 10% per year. After 3 years, the property will be sold and should generate about 6% (per annum) more.
  4. An apartment in Arizona($10,000.) This deal is WIP and we haven’t seen a payment yet. The estimate cash on cash return is 10% per year. After 5 years, the property will be sold and should generate about 6% (per annum) more.
  5. An apartment in North Carolina($10,000.) This deal just closed in January and it will take a few months before we see a payment. The estimate cash on cash return is 8% per year. After 4 years, the property will be sold and should generate about 9% (per annum) more.

real estate crowdfunding

Sign up with RealtyShares

RealtyShares has been excellent so far, but we need to stay invested to see if the income can be sustained over the long haul. One bad project can really derail our total ROI. I’ll have to be careful and pick the projects with good management.

You can sign up with RealtyShares to browse the various projects and see if real estate crowdfunding is a good match for you. Currently, you need to be a U.S. resident and an accredited investor to invest with RealtyShares.

If you’re not an accredited investor, you can try Fundrise. They have low minimum investment starting at $500 and are open to non-accredited investors. I haven’t tried them so I don’t have direct experience. From my research, RealtyShares and PeerStreets are the best 2 platforms.

Disclosure: We may receive a referral fee if you sign up with a service through a link on this page. The content contains testimonials from Joe. Actual experience of other customers may differ from the testimonials. The testimonials do not represent guarantees of future performance or success. Moreover, no person nor any other entity assumes responsibility for the accuracy and completeness of the testimonials.

Rental properties (target $10,000)

Currently, we have a small duplex and a 1 bedroom condo in our rental property portfolio. The 1 bedroom condo was vacant in January and February. I finally found a good tenant in March. Yes! It is so much more difficult to fill a unit in the winter. Now that all units are occupied, our rental income should be much better for the rest of 2018.

The future of my landlord career is uncertain, though. We plan to move into our duplex when the tenants move out. My mom lives with us about 9 months per year and our 2 bedroom condo is too small. We will need more space soon to preserve our sanity. Eventually, we’ll consolidate down to just one property. Portland real estate market is getting too expensive for me. At this point, I prefer invest in heartland real estate through real estate crowdfunding. Being a landlord is a great way to build wealth, but I want to be a more passive investor in the future.

I’m not sure how long this move is going to take, though. The rental income is good and I don’t plan to kick out our great tenants. I think they’re planning to buy a house at some point. Once we move into the duplex, I plan to remodel the unfinished basement and turn it into an Airbnb unit. From what I heard, an Airbnb unit in that neighborhood could pull in $50,000 per year. That would fund our annual cost of living and life would be easy then. It will take a while to get everything done, though. Being an Airbnb host also isn’t very passive. We’ll see how it goes.

New investors should read this – How to Start Investing in Rental Property.

2018 YTD rental income = $1,365

Dividend (target $12,000)

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, and we’ll use it to pay our expenses once Mrs. RB40 retires. If you’re new to dividend investing, 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. I’m not sure if I will purchase more dividend stocks in 2018. The stock market is very volatile and I don’t think we have seen the bottom yet. I’ll keep my eyes open for a good deal.

Here is a chart of our dividend income since 2012.

2018 YTD dividend income = $2,757

2018 dividend income

You can see our current holding at the end of my Dividend Stocks page.

P2P Lending (target $400)

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 carefully screen the loans. Our overall ROI is about 6.5% which isn’t bad. However, these unsecured loans won’t perform well when there is an economic downturn. P2P loans will be the first thing that borrowers default on when they run into financial problems. The economy is doing quite well at the moment, but I’m just getting out while we’re ahead.

Unfortunately, P2P lending hasn’t done well for us this year. We had quite a few defaults and it drove our returns negative. Let’s look at the details in Q1.

  • Principal payment = $806.51
  • Interest payment = $135.51
  • Service and collection fees = ($11.6) This goes to Prosper.com.
  • Defaults = ($226.31) This are loans that have gone bad.

As you can see, the defaults and fees were more than the interest payment this year. We’re still getting the principal payment, but our ROI is negative. This is the problem with P2P lending. You have to keep reinvesting to keep the ROI high. If I reinvest the principal payment, then the new loans would generate interest which will mask the defaults. We probably would be positive for the year if I reinvested. However, I prefer to invest in real estate crowdfunding. The loan is secured with real estate so the investors will get some money back if the project fails. With unsecure lending, investors usually get no more money back after a default.

2018 YTD P2P lending income = -$100

Interest (target $200)

This one is just boring old saving and checking accounts. Most of our cash is in a reward checking account at our credit union. We get 1.57% for up to $10,000. Anything over that, we get 0.16%. We usually keep about $10,000 in our checking account as an emergency fund.

2018 YTD interest income = $43

Tax advantaged accounts (target $30,000)

These are our 401ks, Roth IRAs, and traditional IRAs. The money in these retirement accounts isn’t easily accessible at this time (I’m 44), but they still count as passive income. Once Mrs. RB40 retires, we’ll build a Roth IRA ladder to access our traditional IRAs so we don’t have to pay the 10% early withdrawal penalty. All 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.

Currently, most of our retirement accounts are at Vanguard. We pay no transaction fees because they are invested in Vanguard funds. If you don’t use Vanguard funds, I recommend Firstrade. Firstrade is a great discount brokerage that I used for many years before moving to Vanguard. Their fees were recently lowered so now investors pay just $9.95 per trade on no load mutual funds. That’s really good for mutual funds.

tax advantaged accounts

Everything looks fine here. Many of these funds pay out more in Q4. That’s why Q1 doesn’t look so good.

YTD 2018 tax advantage accounts income = $5,327

Blog income (target $75,000)

Blog income isn’t passive income, but I’m including it here for completeness sake. 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 many years off, though. I enjoy blogging so it’s a good way to spend time in early retirement. The blog income is a huge bonus. My goal when I started Retire by 40 in 2010 was to generate about $500/month. It’s been much better than that and I’m very grateful for your support. Thank you!

You can see more detail on how I generate income from blogging at my Blog Income page.

YTD 2018 blog income: $19,621

blog income

Starting a blog is a great way to build your brand and generate some extra income. You can see my tutorial – How to Start A Blog and Why You Should. Check it out if you’re thinking about blogging. 

Q1 Expense: $15,659

Here is a nifty Sankey diagram so we can quickly see how we did with passive income and expense in Q1.

expense 2018 Q1

As you can see, our passive income isn’t enough to cover our expense in Q1 if I remove the blog income. This is okay for now. I’m still growing our passive income and I’m confident we’ll get there soon. Meanwhile, the blog income can help cover any short fall.

Big expenses in Q1

  • Housing: $7,074. Housing is our biggest expense at 45%. At this point, we really can’t do much to reduce this expense. We live in a good school district and we don’t want to move.
  • Travel: $4,460 (28%.) We’re going to Iceland in June. I already paid for the flights, rental car, and lodging. It’s going to be an expensive trip, but it will be worth it. We’re going with our college friends and we’ll have a great time. Next year, we’ll visit a cheaper country.
  • Groceries: $1,483 (10%.) I think this is pretty good for 3 adults, a kid, and a cat.

Our expenses look okay in Q1. It’s higher than normal due to the upcoming Iceland trip, but everything else is under control. However, the rest of 2018 doesn’t look great. I’m planning to replace our HVAC and that will cost around $8,000. It’s been out of commission for over 5 years and it’s time to get a new system. This system is very old and the tech said it can’t be repaired. We need a functional HVAC system before selling so this has to be done before we move. Anyway, 2018 looks like it is going to be an expensive year for us.

Passive Income Outlook

I’m optimistic about our passive income for the rest of 2018. We had a slow Q1, but things are looking up now. Our FI ratio should improve quite a bit in Q2. Here are my outlooks for the rest of 2018.

  • Real estate crowdfunding – All 5 projects should pay out in Q2. I also plan to invest in one or two more projects in May and June. This passive income stream should increase nicely for the rest of 2018.
  • Rental properties – All 3 units are rented now so that’s good. I need to talk to our tenants at the duplex to see if they plan to move out this year. This one is uncertain.
  • Dividend stocks – The stock market is volatile this year, but the dividend income should be relatively stable. This is why I like solid dividend stocks. I don’t have to pay much attention to the stock market gyration because I know the dividend will keep coming.
  • P2P lending – This one isn’t doing so well in 2018. The economy is still very good so I don’t know why there are so many defaults. I don’t have a good feeling about this one. I have 223 loans left, a little over $3,000 in value. Hopefully, I’ll get most of that back.
  • Interest – Cash is king! I’m planning to keep $10,000 in our checking account as an emergency fund. I’ll invest in real estate crowdfunding and dividend stock when we have more than that.
  • Tax advantaged accounts – These are all index funds. I’m not worried about them at all. They are long term investment. Even if the stock market crash, it will recover at some point. We’ll keep contributing to our tax advantaged accounts as long as we have extra money. Once Mrs. RB40 retires, we will stop adding to these accounts. The passive income will fluctuate with the market, but that’s okay here.
  • Bonds – We have bond index funds in our tax advantaged accounts. I’m nervous about this one because I don’t understand it very well. Is there a bond bubble? What’s going to happen if it bursts? I need to do more research on this one.
  • Blog income – Blogging isn’t passive, but I’ll put it here anyway because it is part of my early retirement strategy. The blog income is looking really good this year. I think we’ll do even better than in 2017. I’m bullish on this one.

Overall, I’m happy with our passive income. There are more uncertainties than last year, but we will keep investing. Our passive income should continue to grow and eventually it should comfortably cover our expenses.

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 can get all my passive income data from one site.

Do you have passive income? Is your passive income enough to cover your cost of living?

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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, he hated the corporate BS. He left his engineering career behind to become a stay-at-home dad/blogger at 38. At Retire by 40, Joe focuses on financial independence, early retirement, investing, saving, and passive income.

For 2018, Joe plans to diversify his passive income by investing in US heartland real estate through RealtyShares. He has 3 rental units in Portland and he believes the local market is getting overpriced.

Joe 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 every investor analyze their portfolio and plan for retirement.

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{ 64 comments… add one }
  • Olivia April 9, 2018, 12:22 am

    Woohoo! Love to see the FI ratio be higher than 100% :).

    Blog income looks pretty good for this year! Hoping to reach those numbers some day with some hustle!

    Just curious Joe – noticed that your solo 401k contrib doesn’t encompass your entire blog earnings. Is this because you’re spending part of it on daily expenses? Or more because you don’t want all that money to sit in a retirement account that needs to be converted via the ladder? I do remember you have quite a large egg there $250k?

    • retirebyforty April 9, 2018, 10:17 am

      Actually, FI ration is just 62% in Q1. I’m sure it will improve as we go.
      As for the solo 401k, you can’t contribute the entire blog income. Check out the solo 401k at Vanguard when you have time. It’s somewhat complicated.

  • Mr. Tako April 9, 2018, 12:26 am

    My passive income numbers were pretty similar Joe! I’m a big fan of dividends, so we get most of our passive income there.

    Our passive income was $12k in dividend income for Q1. It’s getting there!

    We have a bunch of cash to invest, but I’m with you — the market is volatile right now. The risk premium needs to be better.

    • retirebyforty April 9, 2018, 10:17 am

      Great job with your dividend. I hope to get to that point someday.

  • Ernie Zelinski April 9, 2018, 12:45 am

    You ask, “Do you have passive income? Is your passive income enough to cover your cost of living?”

    Yeah, I think my income from the print editions of my books is passive income. Also, the income from the ebook editions of my books is also passive income. Then, of course, there is the passive income from my dividend stocks.

    All of these definitely cover my cost of living and much more.

    The only problem is I cannot tell from one year to another when any (or all) of my sources of passive income will take a major drop and wind up at zero. There is no guarantee, in other words. As Client Eastwood said, “If you want a guarantee, buy a toaster.” (Of course, I am not going to buy a toaster since even making toast to me is “cooking.”)

    But, as you, overall I am presently happy with my passive income. My net worth keeps going up nicely even though I am spending more money than 95 percent of individuals spend. Absolutely no debt. I am not complaining. In fact, I am extremely grateful for my financial position, which represents extraordinary prosperity and freedom.

    • retirebyforty April 9, 2018, 10:19 am

      I really need to write a best selling book. 🙂 I’ll put that on my goal list next year.
      You’re right. There are no guarantee in life. Some passive income is more stable than others. Dividend should be fine. On the other hand, the blog income can be very unstable. I hope it stays stable for a few years. You’re doing so well. It’s really great to hear.

  • Team CF April 9, 2018, 12:46 am

    Great overview! Love the detail (and diversification). We have a similar strategy in terms of investments, albeit our exposure is through different platforms (and we don’t have as much income as you do).
    Fantastic blog income by the way, indeed not very passive but certainly impressive 😉

    • retirebyforty April 9, 2018, 10:20 am

      Thanks! This post was too long, but I wanted to get all the detail in. I’ll try to edit it more for next quarter.

  • Michael @ Financially Alert April 9, 2018, 12:52 am

    Nice passive income, Joe. It’s fine to throw the blog income as well since you already did most of the legwork over the past few years.

    Last year I finally got back my remaining capital from RealtyShares. I haven’t redeployed it yet, but feel like happy to be 100% whole. I am however still waiting on 2 K-1’s from them.

    Nice job with the dividend income as always. 🙂

    • retirebyforty April 9, 2018, 10:21 am

      Thanks! Are you going to reinvest with them? It’s going well so far, but I’m somewhat nervous about the future. Real estate still look okay in less expensive cities.

      • Michael @ Financially Alert April 9, 2018, 9:16 pm

        I’m not planning to at the moment, but I could jump back in if I see something that catches my attention. A lot of the projected returns have fallen since the earliest days also. I the meantime, I’ve invested in a private syndication deal which acquired a 180 unit apartment complex in San Antonio. I like it cuz it’s conservative. 🙂

  • Lily | The Frugal Gene April 9, 2018, 1:04 am

    Duplex and Airbnb is a good way to go! Just remember local regulations and stuff, it’s hard to predict but you can usually see sentiments from the local public. SF pretty much banned most Airbnbs now. I can’t wait to see the future and what short term renting will be classified under. Nothing you should worry too much Joe. The FI ratio is off the charts!!!

    • retirebyforty April 9, 2018, 10:22 am

      Regulation is somewhat of a problem here in Portland for Airbnb. I’ll keep an eye on it. I didn’t know SF put that rule into effect. I need to do a bit of research there.

  • Accidental FIRE April 9, 2018, 1:22 am

    Great review Joe. You shouldn’t fret that Iceland expense at all, I’ve been there a few times and I assure you you’re gonna love it. Memories are more important than money!

    My passive income is pretty small at this point, but it’s been growing steadily. My goal is to first get it to cover my mortgage. Once I’m there it’s all gravy!

    • retirebyforty April 9, 2018, 10:24 am

      Thank you for your comment on Iceland. I don’t want to fret, but I’m a bit obsessed about it. I know we’ll have a great time and I’ll try to focus on that. It will be so much fun traveling with my friend’s family. Good luck with passive income! Keep at it.

  • Peter Koch April 9, 2018, 1:51 am

    Reddit r/borrow is better for unsecured loans. Quick TAT (15-30 days) and huge ROI (25-30%). Sure, risk is huge.

    • retirebyforty April 9, 2018, 10:26 am

      I will check it out. It sounds very risky. I’m convinced the ROI for P2P lending will drop like a rock once the economy stumble. The last 5 years were good, but I think the good time is coming to an end soon. A bit pessimistic about unsecured lending.

  • Those are pretty good numbers … it will be interesting to see what kind of mix will be needed to increase those passive income numbers to beyond expenditures … I look forward to seeing how it goes … the blogging is icing on the cake … an extra layer of security … waiting a few years until the next downturn is over may be an option … again I like the rental stuff … at least as you say… for now … the wife is always right! 🙂

    • retirebyforty April 9, 2018, 10:28 am

      I plan to get out of local rentals and invest more in dividend stocks and real estate crowdfunding. It’s going to take a few years.

  • Tom @ Dividends Diversify April 9, 2018, 4:55 am

    Joe, Many diverse sources of cash flow. You definitely take to heart those that advise creating multiple income streams. Tom

    • retirebyforty April 9, 2018, 10:31 am

      Multiple streams of income is good for now, but it’s a lot of work. Eventually, I’d like to go down to just a few. Simplification is better when you’re older. 🙂

  • Budget on a Stick April 9, 2018, 4:55 am

    Looks like Q1 was pretty good on you guys! We don’t have any passive income yet but it is on my ToDo list. I would love to get into dividend stocks but I haven’t learned all I want to feel comfortable doing it yet.

    • retirebyforty April 9, 2018, 10:31 am

      Good luck! Dividend stock is a very good place to start. You don’t have to invest a big amount all at once. Just start with $5,000 or something like that and keep adding. You have to start somewhere.

  • Eurookat April 9, 2018, 5:04 am

    I assume realtyshares requires you to be an accredited investor?

    • retirebyforty April 9, 2018, 10:30 am

      Yes, you need to be an accredited investor for RealtyShares and PeerStreet. You can try Fundrise if you’re not. However, I’d advise against it. New investors probably should focus on building a good foundation through stock and bonds. Good luck!

  • Ms. Frugal Asian Finance April 9, 2018, 5:13 am

    There are always a few bumps on the road, but I think you will finish the year great.

    Mr. FAF and I aren’t traveling internationally this year. But next year we might go to Vietnam and stop in a couple of countries in Asia. Iceland sounds like fun. Looking forward to the trip recap!

    • retirebyforty April 9, 2018, 4:17 pm

      I’d love to visit Vietnam someday. We’ll try to go the next time we’re in Thailand. 🙂

  • Caroline April 9, 2018, 5:20 am

    Great update Joe!
    I track my FI ratio too, with and without kids:) Amazing to see the difference!
    Congrats again on the blogging income.

    • retirebyforty April 9, 2018, 4:18 pm

      Kids aren’t cheap. 🙂 Actually, we’re at a pretty good point with our son. He is not expensive right now. He doesn’t eat too much and no more childcare. It’s great. His activity will ramp up soon, though.

      • Caroline April 10, 2018, 5:41 am

        I found it more expensive when they are teenagers but lots of it is by choice (mine). Also lots of social pressure on kids these days so you have to balance frugality and your kids well being (within reason).

  • The Poor Swiss April 9, 2018, 5:25 am

    Another very nice quarter. Well done. Even though expenses were higher than usual, I still think it’s great! I don’t have any passive, except some very low yearly dividend but I’m working on improving that. Passive income is very important.

    • retirebyforty April 9, 2018, 4:19 pm

      Keep at it! It can take a long time to build passive income, but it’s worth it. Good luck.

  • Eclipse On Fire April 9, 2018, 5:28 am

    Impressive! I like all the fancy charts! I didn’t realize how many baskets you had, impressive! I’m still trying to consolidate my different investments to keep things easy while I’m still working. I need to figure out this dividend investing thing one day, but until then I’m mostly just in total market and total bond funds.

    • retirebyforty April 9, 2018, 4:19 pm

      Dividend is a great place to start. If the market goes down more, it’d be a great opportunity. Keep your eyes open. Good luck!

  • Angela @ Tread Lightly Retire Early April 9, 2018, 5:50 am

    I really like the tiny investments in a bunch of different real estate investments you have going there. The best part about that too is that those are truly passive income. When you’re that minority of an investor, all you do is sit back and collect checks!

    • retirebyforty April 9, 2018, 4:20 pm

      I like real estate crowdfunding too. It’s easier to invest in cheaper area. Much easier than local rentals.

  • abuckeye April 9, 2018, 6:07 am

    What a wonderful feeling to see passive income exceed expenses. At the time when you started tracking the FI ratio we were at about the same place. But somehow we have stagnated, and are now only at 86% for last year. My husband is not interested in rental income so our passive income is completely dependent on dividends. I am not working and we are not managing to save much money. Slow and steady – just not sure what to expect in investment performance this year. At 55 I will receive a small pension that if received this year would have put us over 100%. But with social security you will also blow it off the charts.

    • retirebyforty April 9, 2018, 4:24 pm

      Keep at it! Our FI ratio is up and down too. Everything went right in 2017 and it worked out very well. This year is going to be much tougher. I think it is going to take a few years to consistently stay above 100%. Pension would really help. Good luck!
      Rental is a lot of work.

  • Mrs. Groovy April 9, 2018, 6:08 am

    Great blog income and congrats on 100% occupancy in the rentals.
    Mr. Groovy’s small pension covers about half of our expenses. We’re supplementing the rest with money we’ve kept in cash for the first few years of retirement. I can understand Mrs. RB40s position. Very smart of you to be agreeable.

    • retirebyforty April 9, 2018, 4:25 pm

      That’s awesome. Pension is great.
      Everything is going so well right now so I don’t want to change. If Mrs. RB40 is unhappy at work, then it’d be an easy call.

  • DocG April 9, 2018, 6:26 am

    Q1 bit for most of us. Considering…your numbers look great. As always, in awe of blog income!

    • retirebyforty April 9, 2018, 4:26 pm

      Thanks! I’m in awe of blog income from other bloggers too. Always somebody better. 🙂

  • Mrs. Kiwi April 9, 2018, 6:27 am

    Our passive income is nowhere near that high, but we also live in a very LCOL area, so we don’t need it to be at those levels!
    Glad the vacancy got filled, and your blog income looks strong for the year. Congrats!

    • retirebyforty April 9, 2018, 4:27 pm

      We’ll probably move to a LCOL area someday. It’s getting expensive here in Portland. We don’t spend much money, but housing is already a huge %. Thanks.

  • Dave in Sunny FL April 9, 2018, 6:56 am

    Have you worked with someone on a tax strategy? With all of your rentals, blogging, and retirement accounts, there are many different places where a wealth strategist could really improve your net cash. After all, “It’s not what you make, it’s how much you get to keep!” I am currently reading the book Tax Free Wealth by CPA Tom Wheelwright. He is one of the Rich Dad advisors.

    • retirebyforty April 9, 2018, 4:27 pm

      No, I will need to work on that. I’ll put Tax Free Wealth on my list. Thank you.

  • Dividend Earner April 9, 2018, 8:00 am

    Congrats.

    I love the FI ratio concept too. Have you established your velocity and predicted the 100% FI Ratio date?

    • retirebyforty April 9, 2018, 4:33 pm

      I hope to stay above 100% consistently by 2020. It’s very uncertain right now because there are big changes coming. I’m not too worried. You have to live life as it comes.

  • Mr. Blu April 9, 2018, 10:27 am

    Hello Joe,

    I do track my passive income. Actually, I’m even doing more than that: I’m slowly starting a blog about Fire (brazilonfire.com) where I borrowed your FI ratio concept. I’m still not spending too much time on my blog as I’m the middle of the rat race. Anyway, I plan to keep it alive and grow it from time to time. Your blog is an inspiration for me to go thru my own journey! Thanks!

    • retirebyforty April 9, 2018, 4:33 pm

      Good luck! You should set a posting schedule and stick to it. If you’re busy, just post once per month. It’s good practice until you have more time.

  • Sarah April 9, 2018, 11:14 am

    I find with P2P lending that you need a bigger stake in the game. You need enough invested to earn interest to offset any defaults. I started out with just a couple thousand and the value of my investment was going down. I then upped the amount over time to $30k and I now earn 6% per year even with defaults. The 30K earns more interest than I lose with defaults.

    Some people want more than 6% but I’m happy chugging along.

    I’ve been with Lending Club for almost ten years. Have done quite well.

    • retirebyforty April 9, 2018, 4:35 pm

      I agree. I had about $12k at the peak. At that level, you can keep reinvesting and generate enough interest to overcome the defaults. It seems like as soon as you stop reinvesting, your ROI drops like a rock. Also, I’m very nervous about a recession too. P2P lending didn’t perform well last time.

  • Helen April 9, 2018, 12:21 pm

    It’s great you had a decent Q1, congrats! Having a functional HVAC is cool. I replaced mine in 2016. Central Ohio is not that expensive place, it didn’t cost that much. Have a great Q2!

    • retirebyforty April 9, 2018, 4:36 pm

      Thank you. I’ll ask around more about the HVAC. It seems too expensive at $8,000. I already got 5 quotes, though.

  • Steve April 9, 2018, 12:47 pm

    I agree with your grocery budget, I think that’s a great number for all of the mouth’s you’re feeding. As far as your Q1 passive income, although smaller than normal for you, I consider it a good number. I think it’s a smart move to have multiple investment buckets. If one thing goes wrong (which we all know it happens from time to time) you aren’t panicking or losing more money than you would if you had fewer investments. Smart move on your part.

  • Cubert April 9, 2018, 3:03 pm

    My buddy who got me into rentals five years ago is now pretty hot on RealtyShares. He pulled in 16% COC on a trailer park deal. I’m definitely thinking about throwing some money there, but first things first – killing the mortgage!
    Thanks for the extra insight on RealtyShares. If there is an upside, it’s the solid return without the landlord hassle. The downside is the returns could be lower than a typical LTR, and you don’t get the tax breaks. Regardless, it’s a really good strategic blend from my vantage point (a little of both!)

    • retirebyforty April 9, 2018, 4:38 pm

      16% is great! It’s a lot less work than local rentals. Being a landlord is okay for now, but I’d like to be more passive as we age. I’m pretty sure we get some tax benefit from K1.

  • Mr. Groovy April 9, 2018, 7:18 pm

    Thanks for sharing, Joe. I love these updates. And I especially love seeing your blogging income bloom. Very inspirational, my friend.

  • Kenny April 9, 2018, 10:35 pm

    1. Did you do a comparison between RealtyShares.com and other similar Realestate Crowdsourcing Options? There are some major difference in fees.
    2. Did you do a comparison between the P2P Lending options out there in a similar manner?
    3. If you did that comparision on 1 or 2, can you please share it here, or email me directly.
    4. Why do you not go for MORE Rental Properties in your area? Of course, you will be hit with 1-2 months of empty units per 12 to 36 months. If you care for the tenant, push hard to keep them in the unit by doing everything possible / reasonably so.
    5. Why are you pumping so much into Retirement Funds when you are ALREADY retired. Sure you want to save on taxes, but if you are already a 70.5 year old (imagine for a moment), you would not want to do that, and enjoy the returns from that money, without touching the capital of that amount (plus inflation). Do some deep out of the box thinking on this one.
    6. Why no go into investments that are safe (relative) but spew off lots of investment income using ETFs around the world, and stick with it, until the next up cycle. So, if you buy an ETF at $15 and it goes to $12 but is spewing off 6% for example, then even though it went to $12, your commitment is to enjoy the 6% from original investment amount, until it gets back to $15 before you would even consider selling. I own such investments, and every 5 to 7 years they go back into vogue, but I never intended to rush and sell anyways, so I just buy, hold, enjoy the dividends and wait for it to return to original buy price (in case it goes down). If it goes up too fast, then I sell a bit, but hold the rest.
    FINALLY, I am not retired, and working full time, managing properties, managing trading in US markets and also trading in International markets. And, then learning a lot from you. Even though my FI Ratio without my or MrsKenny job income is 250%+, I continue to thrive on being busy and buying more properties and doing more trading.

    I ENVY YOU, since I want to get there, but wrapped around the axle on working! My fault, and my own motivation, and the job and rental does not take up that much time or stress or even pain-factor, hence still going…….

    Kenny

    • retirebyforty April 10, 2018, 1:45 pm

      1. I did some comparison a few years ago. Back then, RealtyShares and PeerStreet were highly rated. Other companies had some issues. It’s probably different now.
      2. The only P2P lending option in my state was Prosper. I think there are other options now.
      4. Portland is expensive now. It’s very difficult to make the number works. The purchase price is too high. The rental market is also leveling off. Rent is not going up much anymore.
      5. I’m 44 so I have plenty of time to move that money around. I’ll do the Roth conversion when my wife retires. We have 25 years to work on it.
      6. What’s the investment? How did it perform compare to VFINX (S&P 500 index) over the last 5 years? 6% sounds good, but I’d need to see the whole picture.
      It sounds like you’re living your ideal life. Enjoy!

  • Mr Crazy Kicks April 10, 2018, 6:53 am

    That sucks about the defaults. I got bit bad with my P2P lending investments during the last crash. More than half of mine defaulted. I’ll never lend money again without anything but credit backing a loan.

    It’s interesting seeing how you’re doing with the real estate crowdfunding. I kind of want to try it, but the luck I had with P2P lending has me cautious. At leas with this there is real estate backing the deal, but I’m still nervous about the valuations.

    Overall, I gotta say, you’re doing pretty darn good if your net worth hasn’t dropped at all this year!

  • Lady Dividend April 11, 2018, 5:28 pm

    These are some solid numbers! I’ve heard about Realtyshares, so please continue to keep us updated. Although real estate in Portland might be expensive, it’s nice to have already bought into the market.

  • The Fiminator April 18, 2018, 2:54 pm

    Hey guys I see you have a bit in P2P lending. I am looking at the same, never done that before yet. Interested in your thoughts on the effectiveness of such an investment. I am a bit wary in terms of timing, in case we have a GFC2 coming up, as some of the ‘experts’ are saying. So I have not taken the plunge yet but interested in everyone’s thoughts. I see a few comments that they lost money in the last GFC

    • retirebyforty April 18, 2018, 4:22 pm

      I think P2P lending is pretty good when the economy is good. You can keep your returns high by reinvesting.
      Once you stop reinvesting, your ROI drops. Our ROI is about 6.5% and that’s not bad at all. It will probably drop below 6 over the next couple of years as the loans age. I like real estate crowdlending better. Good luck!

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