2021 Quarterly Passive Income Update
Wow, it’s the 4th quarter of 2021. The year is almost over. 2021 has been a good year so far. Our net worth increased by about 10%. That’s right in line with my target. Now, we just have to hold on for the rest of the year. I’m a bit nervous, though. The stock market seems high to me.
If you haven’t checked your asset allocation in a while, you probably go over it. The stock market did so well over the last 12 months. It probably threw your asset allocation out of whack. Many investors are taking some profit and they are trying to diversify a bit. I sold some stocks and invested in a couple of real estate projects. These days, most commercial real estate projects are funded very quickly. Everyone is hungry for income and diversification.
Our passive income was pretty good in Q3. We generated $12,715. However, we also spent more than in previous quarters, $12,660. Our FI ratio was spot on at 100%. I’d like to have a little margin, though. Q4 should be better and our FI ratio should improve.
*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 9 years. Our household income was good so we kept investing. That enabled our net worth to triple over this period and now 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 side hustle when the weather is nice.
- Passive Income – We generate passive income from the stock market, real estate crowdfunding, rental properties, and other investments.
*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 Q3 2021, our FI ratio was 100%. Q4 should be much better.
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 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 tenants can be stressful. Repair and maintenance also take 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. For now, I plan to cap our asset allocation at 10% for this class of investment.
This year, I’ll continue to invest with CrowdStreet. They’re the leading company in real estate crowdfunding and they have many commercial projects to choose from. Real estate crowdfunding is great because you can diversify geographically. I’m not optimistic about the Portland real estate market so I’d rather invest elsewhere. Other areas of the U.S. look better.
Here is the spreadsheet of my RE crowdfunding investments.
Real estate projects 2021
- CrowdStreet Texas apartment – This project is doing well. We received payment regularly and haven’t had any problem yet. 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.
- CrowdStreet Chicago office building – The property is under renovation at this time. The current environment is very challenging for office buildings. We’ll have to hang on and see how everything works out with this project.
- CrowdStreet Senior housing – This is a fund to invest in senior living facilities. I committed $30,000 here and funded $27,000. The rest will be due at some point.
- CrowdStreet Washington apartment – This is a new project near Seattle. I think that’s a great market. We’ll see how well this project performs soon.
- An apartment in Arizona ($10,000.) This equity deal is going well so far. **Update** The borrower refinanced this project and returned 75% of the money invested. The payout should be the same. This is great! We can reinvest this money and generate more income.
- I got some residual payments from 2 RS projects that were completed in 2020.
- All my PeerStreet projects completed.
- A fast-food restaurant in Florida ($5,000) The borrower defaulted on this loan. They ran out of money and shut down the business. The property was liquidated and we should recover about 40% of our investment when everything wraps up. That’s not great, but at least we got something back. This is a lesson to avoid investing in ground-up projects. **Update** The recover process is done! In total (including interest paid), we recovered about 40% of the money invested. It’s a bad loss, but at least we got something back. That’s the good thing about real estate investing. You can always sell the land and buildings to recover some funds. Real estate crowdfuning is much better than non-collateral lending (P2P lending).
*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. I like investing in real estate more directly and the local market is getting too expensive for us. My plan is to sell our local rentals and invest more in real estate crowdfunding and stocks. I may look into local rentals again if the market drops.
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.
2021 YTD real estate crowdfunding income: $3,414 (68% of target)
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 need to spend a lot more time there in the coming years. At this point in life, I’d rather invest in 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 worked in Europe since last year and we gave him 50% off. He came back in April and we are collecting full rent now. In September, we added a cover to the deck to divert water away from the house. This cost nearly $5,000 and our rental income turned negative. We don’t have any big project in Q4 so we should recover. However, there is no way we can hit the $3,500 target.
2021 YTD rental income: -$786 (0% of target)
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.
*Our dividend income is a bit lower than expected because Disney is still suspending their dividend payout. I purchased quite a few shares last year when they were down. Hopefully, they’ll start paying dividends by the end of the year. The theme parks are open now so I’m optimistic.
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 also pretty good for a brand new investor. You can start investing with as much as you’d like. Even $100 would be a great start.
YTD dividend income = $10,623 (66% of target)
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.
YTD tax-advantaged income = $21,323 (58% of target)
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 about 20 hours per week writing, networking, responding to comments, and maintaining Retire by 40. Usually, I work a little less in the summer when our son didn’t have school. The weather was nice so we tried to have fun.
Anyway, blog income was a huge bonus. When I started Retire by 40 in 2010, my goal was to generate about $500/month. After 11 years, my blog income has grown tremendously. I’m very grateful for your support. Thank you!
2021 YTD Blog Income: $21,511
Here is how we generated online income in 2021.
- Banner ads: $15,921. 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. For 2021, I hope to generate about $1,500/m. This is going pretty well so far.
- Affiliates: $11,686. 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 eventually. For 2021, I’d be very happy with around $1,000/m. This is going well so far, but I’m already seeing some slowdown due to spring.
- Private ad: $1,000. Occasionally, I work with an advertiser on a sponsored post. I only do this once or twice per year.
- Misc: $300. I made $300 from the signup bonus for a business checking account. This misc income will be very small in 2021.
- Business: -$4,657. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
- Travel and meals: -$500
- Employee: -$440. 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. He hasn’t worked much in 2021.
- Estimated tax: $1,500.
Here is the 2021 graph of the revenue, expense, and net income.
2021 Passive Income
Here is our passive income spreadsheet since 2018.
All in all, the first 3 quarters of 2021 were okay. 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 our passive income should increase in the years to come. We’re set if we can keep a lid on lifestyle inflation.
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.
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.