Lifestyle

2022 Passive Income Update

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Whew, the first half of 2022 is over. It’s been a tough year for investors. The stock market is officially in a bear market and a recession is looming. Along with the stock market, our net worth decreased by the largest dollar amount ever (15%). However, our passive income is still holding up pretty well. This is why retirees need to build a passive income stream. It will help you weather the downturns.

The last time I updated the quarterly passive income post, I asked you to check your asset allocation. Hopefully, you did and rebalanced before 2022. Many investors had too much of their net worth invested in the stock market. A downturn like this is very painful to retirees who need to sell stocks. Fortunately, I diversified over the last few years. I sold some stocks and invested in several real estate crowdfunding projects. This move paid off in 2022. You can see how below. Everyone needs diversification.

Overall, our passive income was great in the first half of 2022. All our investments are hitting their strides. Our FI ratio was also great – 140%. This shows that my early retirement is solid.

*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 reached 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 10 years. Our household income was good so we kept investing. That enabled our net worth to triple over this period and now we are quite comfortable financially. However, we are still working to surpass 100% FI ratio consistently.  

Currently, we support our modest lifestyle with the combination of these income streams:

  • Mrs. RB40 works full-time. She plans to take a sabbatical in 2022 and perhaps retire early after that.
  • I blog a few hours per week.
  • Passive Income – We generate passive income from the stock market, real estate crowdfunding, 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 almost 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 the first half of 2022, our FI ratio was 140%. I’m very happy with it. It might come down a bit because we are taking a big summer vacation to Asia. Stay tuned to see how it goes.

Passive Income Overview and Issues…

The first half of 2022

I’ll quickly go over each category here so you can get an overall picture.

  • Real estate crowdfunding – 2022 is our best year yet. This is because real estate crowdfunding projects pay out more when they are completed. That’s when they sell the projects and share the proceeds. A big project was completed in Q2 and we got a nice payout. These days I invest with CrowdStreet. You can read more details below.
  • Dividend stocks – This year I’m purchasing more growth stocks. This will reduce our dividend income. It looks like Mrs. RB40 plans to keep working for a while so we won’t have to rely on dividends yet. I still like dividends, but I’ll focus on overall growth until Mrs. RB40 retires. For now, more income = more taxes
  • Rental properties – Currently, we have 2 rental units. My goal is to consolidate down to just one unit, the duplex we live in. We’ll put it on sale when our tenant moves out. I will reinvest the money into real estate crowdfunding.
  • Interest – This is just the interest from our bank accounts.
  • Tax-advantaged accounts – Lastly, I count the income from our retirement accounts as a part of our passive income. Once Mrs. RB40 retires, we will be able to access these accounts via the Roth conversion – building a Roth IRA ladder.

Read on for more details.

Real Estate Crowdfunding Income: $20,519

I started investing in real estate crowdfunding in 2017. My experience has been mostly positive. There were problems, but I still think this is a great 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 super stressful. Repair and maintenance also take a lot of time and effort. I’m ready to be a passive investor.

In 2022, I am mainly investing 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. have been much better.

Here is the spreadsheet of my RE crowdfunding investments. Here are some quick guidelines from my experience.

  • Don’t invest in ground-up projects. You never know what will happen with the construction.
  • Don’t invest in an office building, healthcare, senior housing, or retails. Some will work out and some won’t.
  • From now on, I’ll only invest in apartment renovations. The income is good and the chance of losing money is lower. The sponsor can always sell the apartment off.
The first half of 2022

Real estate projects 2022

Active

  1. CrowdStreet Washington apartment – This is a project in Puget Sound. They seem to be doing quite well.
  2. CrowdStreet Chicago office building – The property is under renovation at this time. The supply chain issue impacted this project and renovation is slower than expected. Also, the current environment is very challenging for office buildings. We’ll have to hang on and see how everything shakes out.
  3. 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. This project hasn’t paid out yet, but it seems to be doing okay.
  4. An apartment in Arizona – The borrower refinanced this project and returned 75% of the money invested. Now, we’ll just wait until the project is sold and collect the rest of the check.

Completed

  1. CrowdStreet Texas apartment – This project was finished and the money was paid out. The annualized ROI was 21%. That is excellent. 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.

Rental Property Income: $4,313

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 travel more now and I can’t be a DIY landlord anymore.

At this point in life, I’d rather invest in other locations 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.

The duplex is less than 2,000 square feet so it’s really not that big. Eventually, I plan to remodel the unfinished basement so we can have more living space. It’ll take us a while to get it done, though.

*New investors can start with this – How to Start Investing in Rental Property.

Dividend Income: $7,044

Dividend income is my favorite form of passive income. Investors own a small part of these public companies and they work for you. Recently, I changed my focus from dividend to total portfolio growth. Mrs. RB40 plans to keep working for a while so we don’t need the income. It’s better to delay paying taxes until our income is lower. When Mrs. RB40 retires, I’ll refocus on dividend income. 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 $14,000 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 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.

H1 2022 Dividends

Tax-advantaged Income: $12,780

New investors should read these posts first.

The money in these retirement accounts isn’t easily accessible at this time (I’m 48), 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.

H1 2022 Tax-advantaged accounts

H1 2022 Passive Income

All in all, 2022 is going quite well. All our sources of passive income are gliding along even with the turmoils in the stock market. In particular, real estate crowdfunding is awesome. It really gave our passive income a lift.

That’s what I love about passive income. You don’t need to worry about how the market is doing if you have enough passive income to fund your lifestyle.

What about you? How is your passive income doing in 2022?

Real estate investment should do well over the next few years. We still have a housing shortage in the US and people need to live somewhere. Check out CrowdStreet if you want to generate passive income from commercial real estate. It’s way easier than being a landlord.

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

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.

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