Passive Income Report: July
When investing I find it can be quite encouraging to monitor the levels of passive income your investments are generating. This gives a more meaningful figure than your net worth as it can show how far you are actually away from financial independence. I use the term financial independence here to mean a level of passive income equal to or greater than your living expenses.
Everyone’s investments will yield a different level of passive income. A high yield portfolio will probably yield around 5 or 6% or more annually. I think monitoring the amount of passive income you receive is important even for portfolios that are not aimed at income, for example a portfolio with investments in growth stocks. In this case it’s still likely that the portfolio will pay a small yield, however you would like to see the income in this portfolio increase aggressively over time as these growth stocks growth and increase their dividends or being paying them. For a high yield portfolio of dividend paying stocks you should also expect to see some growth in the dividends unless you have been fooled into buying high yielding stocks in dying companies in which a fall in passive income over time would be the outcome.
Below is a rundown of the sources of my passive income. I also carry some debts so the interest on these is also counted to give a fair net value of my income.
Assets
Real Estate
I own a rental property which I rent out for £500-a-month. I have some costs associated with this however. I pay a letting agent 10% plus VAT for managing the property which amounts to £60-a-month. On top of this the apartment is in a building which has a service charge or factoring of £14-a-month. My landlord insurance is £190-a-year and landlord registration is the equivalent of £20-a-year (£60 for three years). Gas safety and electrical appliance safety testing is £126-a-year.
Total income £4,776
Peer-to-Peer Lending
I currently have two sources of income for this category. Zopa is my main holding. I have about £6,500 invested in the Access account at 3.9% and £7,000 invested in the Classic account at 5.1% (these rates include my 0.5% Early Adopter bonus).
I also fund some real estate development projects using a platform called CrowdProperty. I currently have £3,000 invested there at 8% interest.
Total income: £848
Cash Savings
Virgin Money recently reduced the savings rate on their online account from 1.05% to 0.5%. I now have just over £200 in the account earning about £1-a-year interest.
Much better is my Thai savings account which has just over 125,000 Baht in it (just over £2,800) and earns a reasonable 2.5% interest rate.
Total income: £72
Stocks
I have almost £18,000 of my net worth invested in stocks through my pension funds. The fund in these do not pay out dividends and simply accumulate (or lose in fees which I fear is probably more accurate) the dividend income from these investments. Outside of the pensions I have a very small tracker fund which pays a 2.58% dividend.
Total income: £6
Liabilities
Unsecured Personal Loan
I took out a £15,000 5 year personal loan in 2016 to help fund the purchase of my buy-to-let property. The interest rate on this is fixed at 3.7% (by comparison the yield on the buy-to-let is about 8% after costs). The balance on this loan is currently just over £11,000 meaning the annual interest payments amount to £395-a-year
Total income: -£395
Credit Cards
I have two credit card balances at present. The first is currently £4,250 at 2.32% interest which expires in September. The second is a new loan for £5,000 at 4.95% which is fixed until 2022. This second loan is mainly to pay off the first one but at the fairly high rate of almost 5% it will be a priority to pay this down quickly, maybe by the end of the year. Combined interest on these loans comes to £346-a-year.
Total income: -£346
Putting it together
So from the above you can see the total income from assets comes in at £5,702. The interest on debts amounts to £741-a-year which is the equivalent of a 3.66% interest rate. Putting these together gives a net passive income of £4,961 which on an asset base of about £87,000 gives a yield of 5.7%.
In the last 12 months my passive income has increased from £4,765 to £4,961 which is just over 4%. This is mainly due to refinancing loans at higher rates and falling interest rates on savings and P2P lending. This can also be seen from the fact that the asset base has increased over 10% over the same period reducing the net yield from 6.1% to 5.7%.
My current living expenses are £10,086-a-year so my passive income amounts to 49% of this putting me almost half way to financial independence.
