Final 2021 Passive Income

Last time, I shared how we did on our New Year goals, cash flow, and net worth in 2021. We did well with everything. Our cash flow as great and our net worth increased 13%. That’s not bad at all. Today, I will go over our passive income. Last year was a bit iffy for a while. Our passive income was relatively low until December. We got a few surprise payouts and they pushed our FI ratio way up. Let’s go though each category.

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 few real estate projects. These days, most commercial real estate projects are funded very quickly. Everyone is hungry for income and diversification.

Overall, our passive income was great in 2021. Q4 came to the rescue. It hit a new high, but there were some issues too. We’ll go over that shortly. Our FI ratio also hit a new high, almost 140%. This was great because it shows that we are keeping lifestyle inflation small.

*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 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 6 months 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

*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 2021, our FI ratio was almost 140%. That’s a new high so I’m very happy with it. I’m not sure if we’ll get this high in 2022, though. We plan to travel a lot more.

Passive Income Overview and Issues…

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

• Real estate crowdfunding – This income decreased from 2020. This is because real estate crowdfunding projects payout more when they complete. That’s when they sell the projects and share the proceed. In 2020, several projects finished so we had more passive income than usual. These days I invest with CrowdStreet. You can read more details below.
• Dividend stocks – Our dividend income decreased a bit in 2021. I sold some stocks and purchased others. There were some issues. Disney isn’t paying dividend right now. Visa has low dividend, just 0.7%. I also purchased InMode which don’t pay dividend. It looks like Mrs. RB40 plans to keep working for a while so we won’t have to rely on dividend yet. I still like dividend, 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. Our tenant plans to move out at the end of Q1 in 2022. We’ll put it on sale then. I will reinvest the money into real estate crowdfunding and stocks.
• Interest – I found that our I-bonds accounts were accumulating interest. I’ve been ignoring them for years so I put all the interest accrued here.
• 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 aka. building a Roth IRA ladder. A big holding in my rollover IRA didn’t payout in 2020 so we had less passive income. In 2021, they resumed payout and it gave us a big boost.

Read on to see the details.

Real Estate Crowdfunding Income: $4,847

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.

In 2021, I invested 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. From what I’ve experienced, here are some quick guidelines.

• Don’t invest in ground up projects. You never know what will happen with the construction.
• Don’t invest in 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.

Real estate projects 2021

Active

1. 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.
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 works out with this project.
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.
4. CrowdStreet Washington apartment – This is a new project near Seattle. They started paying out in Q4 2021.
5. 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.

Completed

1. I got some residual payments from 2 RS projects that were completed in 2020.
2. All my PeerStreet projects completed.

Problem

1. 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.

Rental Property Income: 2021 target $773

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 need to 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: 2021 target $14,144

Dividend income is my favorite form of passive income. Investors own a small part of these public companies and they work for you. In 2021, 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 $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 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.

Tax-advantaged Income: 2021 target $40,045

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 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.

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 to 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 Blog Income: $26,532

Here is how we generated online income in 2021.

Revenue: $36,083

• Banner ads: $19,950. 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: $15,133. 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.
• 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.

Expenses: $9,550

• Business: -$5,737. Business equipment, internet, hosting, email service, CDN, cell phone, etc…
• Travel and meals: -$771
• Employee: -$543. 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: -$2,500.

Here is the 2021 graph of the revenue, expense, and net income. 

Final 2021 Passive Income

Here is our passive income spreadsheet since 2018.

All in all, 2021 was great. Our passive income reached a new high and we kept our cost of living pretty low. We could support our lifestyle with this much passive income. We didn’t have to work if we didn’t want to. I’m not sure what 2022 will bring. Mrs. RB40 plans to take 6 months off and we’ll travel a lot more. I expect our spending will increase quite a bit. Hopefully, our passive income will increase as well or at least hold.

What about you? How was your passive income in 2021?

*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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