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2021 Quarterly Passive Income Update

2021 Quarterly Passive Income Update

The first quarter of 2021 is over. Wow, what a quarter! The U.S. stock market gained 6% in just 3 months. That’s pretty amazing. Everyone is optimistic about the recovery and investors are the winners in Q1. This is why everyone needs to become an investor. Many workers are still struggling. Working isn’t enough anymore. The way to build wealth is to invest.

We did quite well in Q1 too. Our net worth increased 4.8% and I’m extremely happy with that. It lags the market a bit because I haven’t updated the value of our properties. We also hold bonds and cash. Those didn’t gain much. My target net worth gain is 10% per year so we’re already halfway there in just 3 months. The stock market gained a lot in a short time and gave us a huge boost.

If you haven’t checked your asset allocation in a while, you probably should do it soon. The stock market did so well over the last 12 months. It probably threw your asset allocation out of whack. I think many investors are taking some profit and they are trying to diversify a bit. I’ve been trying to invest in a good real estate crowdfunding project, but all of them got funded very quickly. I didn’t have time to research. That’s a huge difference from the last few years. Investors and wealth managers are selling and moving the profit into other investments. Ok, let’s see how we did with passive income in Q1.

*FI ratio = passive income / expense

Passive Income is Key

Passive income is one of the keys to a successful early retirement. Once your passive income surpasses your cost of living, you achieved financial independence. Money won’t be an issue anymore and you can do whatever you want. I retired before our passive income got 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 household income was good so we kept investing. That enabled our net worth almost tripled over this period and we are very comfortable financially. However, we are still working to surpass 100% FI ratio consistently.  

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 perhaps retire early after that.
  • I blog a few hours per day and work on a few small side hustles.
  • Passive Income – We generate passive income from the stock market, real estate crowdfunding projects, rental properties, and other investments.

FI Ratio

*FI ratio = passive income / expense

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. You’ll probably be okay with 80%, but it’s better to err on the side of caution.

In Q1 2021, our FI ratio was really good at 132%. We didn’t spend much and our passive income was good. We haven’t been vaccinated yet so we spent most of our time at home. Once we’re vaccinated, we probably will spend more money on eating out and other fun activities.

Now, I’ll go over each of our passive income streams individually.

Real Estate Crowdfunding Income: 2021 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. At this point in life, I don’t want to be a hands-on landlord anymore. Working with tenant can be stressful. Repair and maintenance also takes a lot of time and effort. I’m ready to become a passive investor. However, real estate crowdfunding is a new way to invest and it could be risky. I plan to cap our asset allocation at 10% for this class of investment.

This year, I’ll continue to invest with CrowdStreet and PeerStreet. They both have a very good track record. Personally, I like CrowdStreet more because there are fewer turnovers. Most projects last about 3 to 5 years. I could leave my investment alone for a while and just collect the payout. PeerStreet is good, but you have to keep reinvesting because many projects completed early. That’s too much work for me..

Real estate crowdfunding is great because you can diversify to different areas of the country. I’m not optimistic about the Portland real estate market so I’d rather invest elsewhere.

Here is the spreadsheet of my RE crowdfunding investments.

Real estate projects I invested in

  1. CrowdStreet – Currently, we have $92,000 invested with CrowdStreet. I plan to invest $25,000 more very soon. It’s been difficult to invest because new projects close very quickly. The demand is through the roof. CrowdStreet is the best RE crowdfunding company on the market right now. Their commercial projects are first class and they came through the downturn very well. Check out new projects 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. Retail shop ($10,000). This is a lending project. It’ll last 3 years and pays 5% interest.  
  4. 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.

Problem

A fast-food restaurant in Florida ($5,000). This project is in foreclosure. I think we’ll get some money back, but I’m not sure how much. I’d be happy with 80%.

*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, VNQ and VNQI.

Invest in real estate crowdfunding

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. I like to invest with a sponsor who has a very long track record, at least 10 years in the real estate business.

  • CrowdStreet – CrowdStreet focuses on commercial properties across the USA. They have apartments, hotels, storage units, strip malls, medical facilities, 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: 2021 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 want to travel a lot more. My parents live in Thailand and they are getting older. I want to spend a lot more time there in the coming years. At this point in life, I’d rather invest in diverse real estate through RE crowdfunding. Being a landlord is a great way to build wealth, but I need my investments to be more passive.

2021 started off a bit rough. One of our tenants was in Europe since last year and we gave him 50% off. Hence, we’re down a bit so far. The good news is that our tenant just came back! Our rental income should improve for the rest of 2021.

2021 YTD rental income: -$51

Dividend Income: 2021 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 mostly 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’ll 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. I just accumulate the dividend and invest in a stock or real estate crowdfunding. This year I hoped to generate $16,000 from our dividend portfolio.

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. Most discount brokerages also reduced their fees to zero last year. It’s a great time to be an investor. I remember paying $80 per trade when I started investing. Robinhood is okay for a brand new investor.

YTD dividend income = $3,530

Tax-advantaged Income: 2021 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 47), 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.

Somewhat Passive Income – Blogging

Blogging isn’t very passive for me at this point so this is not part of my FI ratio. This year I spend 10-15 hours per week writing, networking, responding to comments, and maintaining Retire by 40. I moved to this schedule when my son started virtual schooling. It worked out very well last year so I’ll probably stick to this schedule for the next few years.

Anyway, blog income was 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!

2021 YTD Blog Income: $8,241

We had a good Q1. The first quarter is the best quarter of the year, though. People spend less time online when the weather improves. The blog traffic will slow down and picks up in the fall.

Here is how we generated online income in 2021.

Revenue: $10,610

  • Banner ads: $5,979. 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.
  • Affiliates: $4,631. 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. For 2021, I’d be very happy with around $1,000/m.
  • Misc: $300. I got a signup bonus when I opened a new business checking account.

Expenses: $2,369

  • Business: -$2,260. Business equipment, internet, hosting, email service, CDN, cell phone, etc… I purchased retireby40.com for $1,500. That was the big expense in Q1 2021.
  • Travel and meals: -$1069
  • Employee: -$109. This year, RB40Jr is our part-time YouTuber, photographer, model, and mascot. 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: $0. The first estimated tax payment is due in April.

Here is the graph of the revenue, expense, and net income.

2021 Passive Income

Here is our passive income spreadsheet since 2018.

All in all, we had a pretty good first quarter of the year. Our passive income was a bit low, but it was enough to cover our expenses. That’s the bottom line. The good thing is that the passive income should increase in the years to come. We’re set if we can keep our expenses low.

What about you? How did your passive income perform in 2021 so far?

*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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Source: Retire By 40