Quarterly Passive Income Report 2023

Lifestyle

100 total views

Hey everyone! Welcome to Q2 2023. I hope you finished your taxes because the filing deadline is just a week away. We are not done yet, but I’m not too worried. I’m going to file an extension because I’m waiting for a few K1 forms anyway. Hopefully, those late K1s won’t change our taxes that much.

Q1 2023 was an okay quarter for us. The stock market ended the quarter with a nice rally and our net worth improved a bit. However, we still have a long way to go. Our all-time high was in January 2022.

Cash flow was a little rough too. Passive income was a little lower than expected and we spent more money than usual. As a result, our FI ratio doesn’t look good so far. I’m pretty sure it’ll recover, though. We don’t have any big plans for the rest of 2023, but you never know. Things always come up. Here is my quarterly passive income spreadsheet.

*FI ratio = passive income / expense

Passive Income is The Key

Passive income is one of the keys to a successful early retirement. Once your passive income surpasses your cost of living, you’ve 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 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 took a sabbatical last year, but decided to go back to work. Now, she plans to retire when our son finishes high school.
I blog for 10-15 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 Q1 2023, our FI ratio was 90%. That’s lower than usual. My target is around 120%. I’m pretty sure it will improve as the year goes on.

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

Real estate crowdfunding – Not much activity with real estate crowdfunding so far in 2023. The income looks good. These days I prefer to invest with CrowdStreet. You can read more details below.
Dividend stocks – Recently, I’m investing in more growth stocks. This will reduce our dividend income. 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 sell the rental condo when our tenant moves out. Then, I will reinvest the money into real estate crowdfunding.
Interest – This is just the interest from our bank accounts and treasury bonds. I check the treasury bond account at the end of the year to see how much interest we get.
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.

More details on each stream of passive income.

Real Estate Crowdfunding Income: $2,631

I started investing in real estate crowdfunding in 2017. My experience has been mostly positive. I 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 because working with tenants can be stressful. Repair and maintenance also take a lot of time and effort. Real estate crowdfunding is a lot more passive and the sponsors have the advantage of scale.

This year, I am investing with CrowdStreet. They’re the leading company in real estate crowdfunding and they have many commercial projects to choose from. CrowdStreet is great because you can diversify geographically. I’m not optimistic about the Portland real estate market so I prefer to invest elsewhere in the U.S.

Here is the spreadsheet of my RE crowdfunding investments. Also, 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, 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 to generate some funds.

*I’m a little worried about the Chicago office building renovation. Workers don’t want to go back to the office. Will the developer be able to make money on this deal? We’ll have to wait and see. The apartments are doing well.

Active real estate projects 2023

CrowdStreet Washington apartment – This is a project in Puget Sound. They seem to be doing quite well.
CrowdStreet Chicago office building – The property is under renovation at this time.
CrowdStreet Senior housing – This is a fund to invest in senior living facilities. This project had a capital call earlier this year. I sent in $3,000. They seem to be doing okay.
CrowdStreet NC apartment – This is a project in North Carolina.
An apartment in Arizona – The borrower refinanced this project and returned 75% of the money invested. Now, we’ll wait until the project completes and collect the rest of the check.

Rental Property Income: $853

Currently, we have a small duplex and a 1 bedroom condo. 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 around 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: $3,657

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 dividends 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 an excellent discount brokerage that I used for many years. Many of their trading fees are $0 now. That’s great news for young investors. 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 just a small amount. Even $100 would be a great start.

Tax-advantaged Income: $6,064

New investors should read these posts first.

The money in these retirement accounts isn’t easily accessible at this time (I’m 50), 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.

Q1 2023 Passive Income Wrap

So far, it doesn’t look so good. However, passive income and expenses are both lumpy. I’m pretty sure it will work out by the end of the year. We usually catch up in December after I get all the numbers in. It’ll be interesting to see if real estate crowdfunding will deliver this year. Last year was a great year and we got a big payout.

Passive income has been great for us. It kept delivering through the roughest part of the pandemic. I’m confident passive income will keep rolling in the future when Mrs. RB40 and I are both fully retired. Now, let’s hope inflation goes back to 2%. That’s the other part of the equation.

What about you? How is your passive income doing in 2023?

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. Although, I’m not sure how the increasing interest rate will change things. It probably will be more difficult to exit a project if the rate keeps rising. Stay tuned.

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.