Wow, what a Q1 we had. March was an insane month due to the COVID-19 pandemic. The economy slowed down tremendously and the stock market crashed. Many families are in big trouble. Fortunately, we are more prepared for this recession than most people. We live modestly and don’t have consumer debt. Also, we have a cash buffer and several streams of income. The FIRE lifestyle should enable us to ride through this downturn with minimal setback. I feel really bad for other struggling families, though. The stimulus should help a bit, but the next few months will be tough.
As for passive income, Q1 was really good. Our income streams were working well, mostly. The only issue was the rental income. We had a big maintenance expense in March and that set us back to the beginning of the year in that category. Our expenses were under control too. We didn’t spend much money in Q1. The lockdown didn’t really impact our spending too much. We already live modestly and staying home more didn’t change anything. Actually, we spent a bit more than usual in March because I stocked up a bit.
However, these numbers were from before the shutdown. I’m pretty sure Q2 will be a difficult quarter for our passive income and blog income. Already, I see some slow down and suspension of distributions. Well, that’s understandable. Renters can’t pay if they don’t have a job. Hopefully, we can get COVID-19 under control by summer so everyone can go back to work. We’ll just have to wait and see how 2020 turns out. I suspect it’ll be a rough year for all of us.
*FI ratio = passive income / expense
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’re financially independent. 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 7 years. However, we are still struggling to surpass 100% FI ratio consistently. I’m sure we’ll get there at some point, but it will take time.
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 2021.
- I blog a few hours per day and make a few bucks online.
- Passive Income – We have passive income from the stock market, rental properties, and other investments.
The FI ratio is a simple way to measure progress toward total financial independence. 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 Q1 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 129%. That’s the highest we’ve ever seen, but I’m pretty sure it will come down. Our passive income will decrease due to the 2020 recession. Our expense will probably be lower too due to travel restriction. We’ll have to wait and see how 2020 turns out.
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 the risk is higher. 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 are the projects I invested in.
Real estate projects I invested in
*Some sponsors are suspending distributions due to the uncertainties from COVID-19. We’ll see how the rest of 2020 goes.
- CrowdStreet – Currently, we have $65,000 invested with CrowdStreet. These were fine in Q1. 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. I’ll keep you updated on this. Check out their project by signing up for a free account at CrowdStreet.
- PeerStreet – PeerStreet is good too. This is strictly hard money lending so the income potential is not as high as equity deals. All active investments are current at the end of Q1.
- A strip mall in Arizona ($8,000.) This was an equity investment. The estimated cash on cash return is 7% per year. After 3 years, the property will be sold. The estimated total rate of return is about 17% per year. The payments have been on time so far.
- 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.
- An apartment in North Carolina ($10,000.) There was no distribution in Q1. I’ll keep an eye on this one.
A fast-food restaurant in Florida ($5,000) This project is in default. The borrower has no funds to complete the project. They agreed to pay investors back 100%, but I’m not sure how COVID-19 will impact this deal. I’m not too optimistic. I’ll keep you updated.
*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 a small duplex and a 1 bedroom condo in our rental property portfolio. However, we are trying to consolidate our properties down to just the duplex. I need to travel more now and I can’t be a DIY landlord anymore.
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.
Fortunately, our tenants have secure jobs and they are paying the rent. Whew! It could have gone much differently if I picked different tenants. We still didn’t make much money, though. Q1 2020 was pretty good until we cut down a huge invasive tree on a property. That cost $1,400 and set us back to the beginning of the year. Hopefully, there won’t be another big maintenance bill for the rest of 2020.
2020 YTD rental income: $273
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: $273
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. Q1 was good, but we’ll see how the rest of the year goes. Some companies will cut dividends because of the COVID-19 recession.
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 = $3,765
Tax-advantaged Income: 2020 target $37,000
New investors should read these posts first.
- How to start contributing to a Roth IRA. The Roth IRA is the best way to go if you are young.
- What if you always maxed out your 401(k). See the magic of compounding in real life. The 401(k) is the easiest way to invest for your retirement. Don’t miss out on it if your company offers the 401(k).
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.
Somewhat Passive Income – Blogging
Blogging isn’t very passive for me at this point. 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. In Q3 and Q4 2019, I worked just 10-15 hours per week. Being a stay-at-home dad was job 1 during the summer break. I kept the summer schedule until the end of the year because I had too many things on my to-do list. We’re back to 2 new posts per week for now, but the school shut down is making this really difficult. My son is very distracting.
Anyway, blog income is a huge bonus. When I started Retire by 40 in 2010, my goal was to generate about $500/month. After 9 years, my blog income has grown tremendously. I’m very grateful for your support. Thank you!
2020 YTD Blog Income: $15,339 YTD
My blog income was good in Q1. In March, blog income slowed down tremendously, but it hasn’t been reflected in the accounting yet. The payment usually comes 30 or 60 days after the month is over. Q2 will be really bad. I estimate my online income will drop by at least 50%. I still feel fortunate because we don’t really need this income. Many families are in a lot bigger trouble than we are. Hopefully, COVID-19 will be under control by the end of summer. The economy should recover pretty quickly.
Here is how we generated online income in 2020.
- Banner ads: $9,186. These are the banner ads you see on Retire by 40. I hope to make about $2,000 per month with these ads. This is dropping due to lower traffic and budget cut from advertisers.
- Affiliates: $8,293. 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. This category dropped significantly. I suspect it will drop to near $0 very soon.
- Private ads: $600. Occasionally, we worked with a company to advertise their products. I rarely do this anymore. This income will be very small in 2020.
- Business: -$1,172. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
- Travel and meals:-$362
- Employee: -$764. 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.
Here is the 2020 graph of the revenue, expense, and net income.
Q1 2020 Wrap Up
Here is our passive income spreadsheet since 2016.
Q1 2020 was a great quarter for us. However, Q2 will be bad due to the COVID-19 recession. We’ll have to wait and see how it goes. I just hope the 2nd half of the year improves.
At least, our FI ratio looks good right now. We’re stuck at home and we’re not spending much money. I still want to visit my parents in Thailand later this year, though. Hopefully, COVID-19 will be under control soon.
I hope you’re staying healthy and weathering this downturn well.
What about you? How was your passive income in Q1 2020?
*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.
Source: Retire By 40