The end of August marked 8 months into the Zero Passive Income Experiment. If you’ve been keeping track, you know that at the beginning of this year we had zero passive income. We were literally broke, living paycheck to paycheck, and neck deep in debt.
We needed a way out of our jobs were the only thing that kept us afloat. But if either of us were fired or let go, we would be up the creek without a paddle. It was stressful and we wanted financial peace!
That’s when we started being responsible with our finances. We spent less, saved more, paid off debt, and started investing. We’re not where we want to be but thank God we’re not where we used to be. Check out our August 2011 wealth report to see the details of how we made our money and what we did with it to increase our wealth:
Earned Income - The bulk of our income comes from our day jobs. Over the last several months we’ve had to work hard for about 90% of our monthly income. But this month we hit a big milestone. Almost 15% of our total income came from passive investments! Looks like we’re doing something right.
Google AdSense - Google AdSense is more of a residual income stream than a passive income stream. What I mean is, it takes an significant amount of work up front to build and rank a websites, but once you do then there is very little else you have to do to keep the money rolling in.
Last month we earned $512.10 this month we made $437.67 which is 14% or $74.43 less than last month. Considering, I did absolutely nothing this month for this income stream, I’m extremely happy with its performance..
ClickBank - Last month I created some of the niche websites and monetized them with ClickBank. ClickBank is an affiliate marketing community where you can find hundreds of products to market on your website. I chose digital products that have a strong correlation with my target keywords. This month we’ve made $77.06 in commissions. I did nothing this month for this income stream either, so again, I’m very pleased with its performance.
Real Estate Partnership Income – I formed two partnerships in June for residential multifamily real estate. We closed on two properties at the end of July. Over the course of July and August we secured tenants and accrued rental income. Now both properties are fully occupied and preliminary estimates show that they’re both generating cash flow!
Overall, this has been a great month in terms of building passive income. We’ve added two new income sources through real estate partnerships and maintained strong earnings from our various websites.
Building Wealth
Everyone knows that when it comes to building wealth- it’s not about how much you make, it’s about how much you keep. W use net worth as a measurement of just how much we’ve been able to keep every month. It’s a comprehensive calculation of assets and debts. The more assets and the less debt you have the better your financial position is. We have been serious about our building wealth for the last 8 months, but because of various expenditures our net worth hasn’t grown as much as it has in the past few months.
Retirement Accounts - We’re still structuring our contributions to Jill’s 403-b account so that we can maximize her employer’s dollar for dollar matching program. That’s like free money! If you’re employer has a 401k or 403b matching program be sure to enroll.
Timeshare - I hate throwing away money, but that’s what I feel like I’m doing with this timeshare. Last month we decided to refinance it. We put the remaining balance into a lower interest personal loan (13%). We’ll save 1% on interest but the real kicker is that we’ll have 6 months interest free. Which means that if we can pay it off within the 6 months, we’ll pave $0 in interest charge. Knowing that the interest rates are going to kick in soon, we made a large $3,000 payment. If we maintain this behavior we’ll be able to pay off this debt well before interest begins to accrue on it.
Investment Property (Los Angeles Duplex)- We called it quits on purchasing this duplex. Over the last several months we’ve had hiccup after hiccup and obstacle after obstacle. We just kept pushing through and trying to make it work. We had to restructure the deal on several occasions. We changed from one duplex to another duplex (still the same builder and same terms) due to problems with the city. We had problems with lending. We had problems with certificates of occupancy. We tried to structure the deal again, with another duplex. We had more problems with lending. Then the US debt got down graded and all of a sudden lending completely pulled back and pulled the loan. That was it. We decided that it was time to throw in the towel on this deal. At least for now.
Real Estate Partnership 1- This partnership consists of the acquisition of real estate property in Los Angeles. We structured the deal so that there was very little down, the seller paid the closing costs, and the property is cashflow positive from day 1. We purchased directly from the builder. As such this property is brand new and is covered under the builders 2/10 warranty so any repairs are covered unconditionally for 2 years and structural problems are covered for 10 years.
Closing on this property was extremely quick. From start to finish it took about 30 days. Over the course of July and August, we were able to get the tenants moved in and sign lease agreements. The property is now fully occupied and preliminary estimates shows it is cash flowing handsomely.
Real Estate Partnership 2- This partnership is similar to the one above. It includes the same terms as above as well (it makes things easy when you’ve done these negotiations a few times already). We closed escrow late July and funded in August. We have several prospective tenants on a waiting lists and tapped into them in August. This property is now fully occupied.
Increased Expenses – This months we incurred some more costs for the CPA exam, took a trip, bought some vehicles, and paid for a vacation. All in all, these were significant expenses that we incurred this month and it would have really took a toll on our bank account. But luckily, we had decided to call it quits on pursuing a duplex which gave us a big lump sum refund from escrow and title.
2009 Shanghai Meitian scooter – We got a great deal on this scooter from a seller on Craigslist. We purchased it for $500 but the market value is somewhere around $700-$800. In an effort to be conservative with the valuation of this asset, I’ve valued it at lower of cost or market. In this case because the market value exceeds the cost, I’ve decided to book the value of the scooter at $500.
2000 Jeep Grand Cherokee Laredo – Also a great deal we found on Craigslist. This Jeep was from a very motivated seller and it was originally listed at $4,000. Over the course of several weeks the seller got tired of dealing with flaky Craigslist buyers and began to reduce to price. After much negotiation I picked up this bad boy for $2,250. I could probably turn right around and sell this thing for a profit today. Boo-ya! Again, in an effort to be conservative, I’ve valued it at lower of cost or market. As such book value for this vehicle is set at $2,250.
Net Worth - 8 months ago, Jill and I were “insolvent”. We had negative net worth. With some accountability, transparency, and radical changes to our spending habits we’ve come a long way from where we were. And although this month we didn’t have a huge gain in net worth, we still came out ahead. Our net worth last month was $50,277.23 this month it’s $51,009.74 that’s a +1% increase or $732.51 over last month.
Goals Completed This Month
I publish all our goals here. These are the goals that we completed this month:
- Make more than $1,500 of passive income for a single month (completed 8/31/2011)
- Have 4 month’s expenses in savings (completed 8/31/2011)
- Reduce loan on timeshare to less than $9,000 (completed 8/31/2011)
- Have more than 10,000 Twitter followers (completed 8/18/2011)
See last month’s July 2011 wealth report!
Related posts:
Hi! I'm Jeremy Salvador and this is my wife Jill. When we started this blog we were broke and had Zero Passive Income. Find out where we are now in our 
Well i come to your blog because you create highly professional monthly income report, which includes long term and short term goals. Last month i crossed $100 from adsense first time. Now i don’t want to look back and create massive income stream passive and active. Also, i invested huge sums of money in different things. Let see how things turn up.
Congrats on crossing the $100 mark!
Nice job!! Any increase month to month is great, especially today. Rental property has always been something I wanted to get into but not sure where to start and with my credit may not be possible. I assume your rent is more that the mortgage and doing a new property while cost more is probably smarter then a older property. I may just stick to REITs for now
Well cost of investment is always 10 times the current earning. Whether it is buying adsense website from flippa or real property for rental. So, i am currently i want to get $500 per month from adsense.
Hey Jeff. Thanks for the kind words. Yes the rents are significantly more than the mortgage. What I’m showing here for income is my share (50%) or EBITDA (earnings before income taxes, depreciation, and amortization)
That is some great income! Its nice to see your real estate starting to generate income for you as well! I’m with Jeff and just sticking with REITs for now as well!
Thanks for stopping by the blog Robert! Sounds like REITs could be a good alternative to directly owning and managing properties. I’ll have to look more into them.
Great going and well done for such a disciplined and focused approach. Be careful though with your asset valuation bases. Your biggest risk will be with the stability/fluctuation in value of your Burbank Condo. If it is stable or rises over time whilst the total mortgage costs are lower or decrease over time (including the rental offset), then you will be in the black. Your CPA studies will help you make prudent valuation of your assets. I am keen on learning how you value your assets. Globally vehicle value depreciates by at least 25% p.a (unless its a collectors item or vintage marque). I wish you best success an thanks for sharing your experience! (Please consider mentoring people along these lines too).
Thanks for the input Richard. Right now I’m valuing at lower of cost or market which is a generally accepted accounting principle. This gives a conservative valuation of the assets. If market values dip lower than the purchase price I’ll be sure to adjust.
Thanks Jeremy, do make consideration of the now widely accepted (IFRS) “fair value” or “mark-to-market” practice. Do professional valuers exists in your jurisdiction (assuming the cost of undertaking a professional valuation is worth it)? Since you are so disciplined, periodic valuation should be the “litmus test” . Best wishes!
Richard sounds like you really know your stuff. I’m very impressed. IFRS is probably a more accurate valuation while GAAP gives a more conservative valuation IHMO. There are professional valuators in my area, however it wouldn’t be cost effective for me to get my assets valued on a month to month basis. Thanks for the input!
Fantastic month again Jeremy! I always enjoy reading your blog, It’s great to see that your investing in rental properties now aswel, and showing that passive income applies equally to the offline world as it does to the online world! I hope to get into the rental market myself in a few years, but until then I’ll just have to keep following your adventures!
Keep up the great work!
Thanks for the encouragement Martin! If you have the ability to – I’d say find a great real estate deal and jump on it. I don’t think we’ll be able to find deals like this 5 years from now.
Thank you for sharing your progress with everyone; I find it very inspiring and motivational!
My husband and I are trying to get ourselves out of debt and talking about investing as well. Although we are not at your level yet, it’s good to see and hear that we can meet our financial goals!
With discipline and hard work I’m sure you guys will meet your financial goals in no time. Be sure to get on the same page and work together!
Hi Jeremy.
Wow i am so impressed with your website.
I’ve resently opened a twitter account and i think you were my first follower. Thats when i decided to check out you website.
Ive just graduated, and new to earning money, but ive always understood the logic of growing your passive income.
I’m glad i found someone like minded, and very interested and excited to follow you on your journey.
Enjoy your day.
Juvan
Thanks for stopping by the blog Juvan! I’m glad to hear that despite being young, you’re on your way to financial freedom. Best of luck to you!
Wow. Just wow! I have just come across your blog through Pat Flynn and i must say i am very impressed with what you have accomplished here. Thanks for being so transparent with your finances. It really does prove what can be done with a lot of hard work and learning. Truly inspiring and motivating ! Amazing! Rob UK.
Thanks for stopping by Rob! We really appreciate the support.
Very impressive of getting debt free to positive building wealth. You should start setting up a college fund for your kid. It’s a good time now.
Hey I’m really proud of you, good stuff!! I’ve been meaning to reply to your last comment but because of the new school year I haven’t had a chance.
(To answer your question)
I wanted to do something special for our 1 year anniversary but obviously I wanted to do something that wouldn’t break the bank. God answered my desire by asking me to be the “convocation” speaker for the Hawaii conference. They flew us in and paid for our rental, we told them that it was our anniversary and they were excited to celebrate our special day with them. They also decided to pay per diem for any extra expenses we had (meals @ the airport, transfer fees etc…)
With that flight it also bumped Candice to a Delta Silver Medallion flyer (I’m already gold) instead of me flying from random different airlines through Priceline I found that sticking to one airline is a lot more beneficial. In fact with that Hawaii flight it gave me enough miles for a free flight to the Philippines during the very expensive month of December. (Over $1200 ticket)
We have also been building our wealth and I check your site frequently for any tips. I teach Principles of financial management and business ownership so I’m very thankful for your transparency. Question, I appreciate you putting up your “wealth reports” have you considered putting up your “expense reports” so we can see what someone’s expenses should look like from month to month? (What are some useless expenses? Dish Network? Extra Data plan, etc…) The majority of financial problems usually has to do with people spending on things they don’t need.
-Michael
Hey Mike – Good deal. Sounds like a great trip. Way to be frugal and still get a great vacation.
I considered putting together an income statement that outlines both income and expenses. However, my biggest reservation is that it’s too time consuming to put together. Our typical month we may have half a dozen line items for income. But on the expense side, proper categorization of expenses would result in close to a hundred line items. Additionally, I’d have to deal with issues like cost allocation over multiple months for capitalized expenditures – just isn’t an efficient use of time to put together a report like that. At the end of the year, I may end up doing a 12 month report where I break out things expenses.
Jeremy-
I like most of what you have blogged about except; Debt = Risk. What happens if/when both of your tenants move out, get evicted, or quit paying for six months, who pay’s the mortgage then? Also, where is the balance of the mortgage for the rental properties in the wealth report? That balance is a liability that you have personally signed for the entire balance if your “partner” doesn’t help pay their share.
If you are trying to get into the real estate business your net worth should be more than the real estate you own and you should only pay cash. Also, vehicles are considered depreciating assets so don’t count them in your net worth….same with the time share.
Hey Josh-
Tenants are Section 8 and the about 80-90% of the rents are paid by through direct deposits by the government. We’re accumulating a 6 month cash buffer in the event that the any unit goes vacant.
These partnerships are a little unconventional. I didn’t take title and my name is not on the mortgages. From what my attorney tells me, because of the way we have structured these deals, I cannot legally be an owner – instead I have “consulting” rights that my partners have agreed to pay 50% of net profits, and I’m a second lien holder for my contribution. (I know I know… sounds complicated, but it’s the only way I could structure these deals with the circumstances)
Finally, the vehicles I’ve included are valued at lower of cost or market and I’ll be adjusting them each month based on fair market value. The time share is also adjusted for lower of cost or market. I purchased the time share for over $13,000 but I list it with a value of $6,000 because that’s how much conservative market estimates value it at.
Thanks for the input!
Hey, first off, congrats. Good to see you making progress month to month.
Second, how come you don’t take that money you have in savings and pay off the student loans? Just curious.
Great question Therm. We have been holding off on using our savings because we were going to put some into new investments to create more passive income. However, we recently started our Total Money Makeover and have decided to focus on paying off our debts instead of building more assets.
We’re praying it turns out to be a good strategy!
[...] now we’re about $30,000 in debt (almost $290,000 if you count our mortgage). Today we’re officially starting our Total [...]
Nice report. Your posts and activities are truly motivational. Though starters like me can’t go this way, it’s still an acceptable path that shows how to create passive income streams and assets in the long run.
Thank you very much…
Hi Thoufeeq, thanks for stopping by the blog! I’m sure that as a starter, you can apply some of the same principles I’ve been using to build lasting wealth like:
1) Increase your income by putting in extra hours or taking on other jobs
2) Decrease your expenses where possible. Cut out the unnecessary
3) Eradicate debt from your personal balance sheet
4) Accumulate assets that increase in value and create cashflow
[...] I recently started following Dave Ramsey and started our Total Money Makeover because we were $30,000 in debt (almost $290,000 if you count our mortgage). It’s been a great experience so far. With [...]
Good job, well done! I started in the same month last year, and have similar targets; seeing your results is encouraging to go on, and never give up. Always welcome a challenge with a bright smile!
Thanks for the encouragement Diego! I’m wishing you the best on your journey as well!
Hello Jeremy,
Wow I just love you blog. So what is this real estate partnership? How are you getting income from this?
[...] #32 Zero Passive Income – $514.73 [...]
Sad to say……..this is the first time ive checked out your blog. Needless to say, i am very very impressed. All the information that you put up on your finances really helps me to see the picture of what you are doing and what you are trying to teach with this blog. Shane and I are starting very slowly……with cleaning up our credit by paying our debts and getting stuff removed from the records (with the help of Lexington Law). Once that is done…..we hope to purchase our first home……a modest one to start with….
Wow. This is incredible progress on your net worth in just one year. I just ran across your blog and am thrilled that I found it. I am looking forward to reading more.