Passive Income Update 2019 - Retire by 40 (2024)

Whoa, 2019 is over! Another year is in the book. 2019 was a tough year for our passive income. I tried to consolidate our rental properties, but wasn’t entirely successful. As a result, our rental income decreased tremendously from last year. We also spent quite a bit on repair and maintenance. However, our cost of living also dropped so it worked out. In addition, Q4 was a great quarter for us. One of our real estate crowdfunding investments wrapped and paid out over $1,700. The annual ROI for that project was about 65%. Wow, it’d be great if all investments work out like that. Anyway, Q4 was a good quarter for 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 toreach 100% FI ratioconsistently.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. Sheplans to retire in 2020.
• 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.

FI Ratio

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.

Our FI ratio was incredible in 2019. Our expense is lower than in previous years because our housing expenses decreased. As a result, our FI ratio finished the year at 118%. That’s the highest it has ever been. If all goes well, we should be able to improve it even more in 2020.

Real Estate Crowdfunding Income: 2019target $3,000

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 is risky. I plan to cap our asset allocation to 5% for this class of investment.

This year, I’m primarily investing with CrowdStreet andPeerStreet. 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. It 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

1. CrowdStreet– Earlier this year, I signed up with CrowdStreet and invested $40,000 in an apartment complex in Texas. This project is doing well. We received payment in Q4 and we should see another one next quarter. 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 bysigning up for a free account at CrowdStreet.
2. PeerStreet– PeerStreet is really good too. This is strictly hard money lending so the income potential is not as high as equity deals. I invested in 12 properties so far and it’s working out pretty well. (6 already closed.) However, you have to keep looking for new deals to invest in. That takes a lot of time and I prefer longer-term investments. That’s why I like CrowdStreet. PeerStreet has a very good reputation so check them out.
3. 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.
4. A fast-food restaurant in Florida($5,000) This one is a senior debt loan and the payments have been on time. The interest rate is a flat 9.5% per year. This project is in trouble. The borrower has run out of funds to complete the project. *Good news!* The developer agreed to pay investors back 100%. We’ll have to wait and see if it will really work out. We won’t make much money from this deal, but at least we’ll get our money back. This is why RE crowdfunding is much better than P2P lending.
5. An apartment in Texas($5,000.) This equity deal is going well so far. The estimated cash on cash return is 10% per year. After 3 years, the property will be sold. The estimated total rate of return is about 16% per year. This project closed out in Q4. The total return is $2,784 in 14 months. That’s about 65% per year. Wow, that’s amazing.
6. 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.
7. An apartment in North Carolina($10,000.) This equity deal is going well.The estimated cash on cash return is 8% per year. After 4 years, the property will be sold.The estimated total rate of return is about 17% per year.

Real estate crowdfunding is relatively new and it can be risky. I like it because the diversification it offers, but it won’t work out if there are too many defaults. It looks like our first default will work out well, but we’ll have to wait and see. 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 the 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 investorneeds to have over $200,000 of income over the last 2 years or a net worth of over $1,000,000.

Rental Property Income: 2019 target $2,000

We are going through some changes this year. Last year, we had a rental duplex and a rental condo. This year, we tried to consolidate down to just one unit. We moved into one unit in the duplex and the rest went up for sale. This reduced our passive income, but our cost of living dropped too.

The main reason for consolidation is personal. I need to spend more time in Thailand to help my mom and Mrs. RB40 doesn’t want to deal with the tenants while I’m gone. The real estate in Portland is also softening. I think it’s a good time to get out.

Unfortunately, we couldn’t sell our 1 bedroom condo. We’ll have to rent it out for a few years until the market recovers. It’s rented now so our rental income should improve in 2020.

2019 YTD rental income: $724

The YTD rental income is not good. It was on track until we replaced a balcony door at one unit (-$1,322.) That put a huge dent into our rental income. I’m looking forward to a better year in 2020.

Dividend Income: 2019 target $15,000

Dividend 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 orreal estate crowdfundingwhenever I see good value. Currently, we have quite a bit of cash in our dividend portfolio. I sold some stocks last year and haven’t reinvested everything yet.

For 2019, I hoped to generate $15,000 from our dividend portfolio. We had a tremendous Q4, but we still missed the mark by a few hundred dollars. Oh well, next year will be better.

For new investors, Ihighly recommendFirstrade. 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 = $14,791

Tax-advantaged Income: 2019 target $35,000

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 45), but they still count as passive income. Once we both retire full time, we’llbuild a Roth IRA ladderto 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 incomein the spreadsheet below.

Oh man, I didn’t reach my target here either. Oh well, let’s try again in 2020.

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 am cutting way back on work in the summer. In Q3 and Q4, 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 again.

Anyway, the 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, the blog income has grown tremendously. I’m very grateful for your support. Thank you!

2019 YTD Blog Income: $40,618 YTD

My blog income slowed significantly in 2019. This is probably due to market saturation. A lot of people already signed up for Personal Capital so we don’t see as many conversions this year. That’s okay. I’ve always expected that income to drop. I’ll have to work with some new partners to bring it back up. I’ll probably make about half of what I made last year.

Here is how we generated online income in 2019.

Revenue: $47,338

• Banner ads: $27,085. These are the banner ads you see on Retire by 40. I hope to make about $2,000 per month with these ads. This worked out very well in 2019.
• Affiliates: $18,652. 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. Affiliate income slowed down significantly in 2019. I’ll have to work on this one. I’d like to bring it up to $2,000/month. Currently, the average is around $1,740/month.
• Private ads: $1,600. Occasionally, we worked with a company to advertise their products. I rarely do this anymore. This income will be very small in 2019.

Expense: $13,124

• Business: -$4,179. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
• Travel and meals: -$890
• Employee: -$1,666. This year, RB40Jr is our part-time photographer/model. I’ll pay him $25 for each image 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.
• Taxes: $6,397.

Here is the graph of our 2019 revenue, expenses, and net income.

2019 Wrap Up

Here is our passive income spreadsheet since 2016.

Whew! 2019 turned out well after all. Our passive income dropped a bit, but that was mostly due to money not working. It took a long time to sell our condo and the money was just sitting around. Once that money was invested, our passive income increased. Next year should be much better.

Also, our FI ratio was excellent in 2019. Our living expenses dropped quite a bit. Our housing cost is less because we live in a duplex and share some expenses. Also, we didn’t pay much for our travel last year. Travel hacking worked out very well.

For 2020, I expect our passive income to increase a bit and our expenses to stay relatively stable. We’ll continue to reinvest and keep at it. Our FI ratio should improve to 120%. That’s really the measure of our progress. Who knows what’s going to happen, though? There are many variables. Happy New Year and good luck in 2020!

What about you? How was your passive income in 2019?

*Sign up for a free account at Personal Capitalto 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.