In 2008 I started out with no assets and zero investment income. All I had was a dream. 😅
Since then I’ve worked hard to make my dream come true.
And today I have 3 real estate properties, a growing stock portfolio, and a 6 figure investment income.
In today’s post I’ll break down all the ways I make money with my investments. 🙂
I’ll share what assets I have, how I got started with each type, and what I learned along the way.
Revealing my total income from investing
Here are all the different types of incomes I earn from my investments today. All amounts are pre-tax.
- Dividend income = $19,400
- Interest income = $9,200
- Rental income = $63,000
- Options income = $8,400
- Total = $100,000/year
As you can see there was a massive increase this year in 2021. This was mainly because of higher rental income, and the addition of trading options.
Becoming an investor
Ever since college I new I wanted to become rich, but at first I didn’t know how I was going to get there.
In 2008 I graduated and began my career as a graphic designer making $35,000 a year.
It wasn’t much, but better than minimum wage.
I was then faced with a problem, albeit a good one. For the first time ever I had savings but didn’t know what to do with it. After searching online for answers I came across an article by Freedom 55 Financial, an insurance company. It basically explained that I should invest my savings if I don’t plan to touch it for awhile.
So I did some reading about the stock market, real estate, and other types of investments.
I spent nearly all my free time learning about income statements, financial ratios, and candlestick charts instead of going out to socialize like my friends.
I was fascinated by all the success stories of famous investors like Warren Buffett and Peter Lynch.
If they can do it, maybe I could too. I loved the idea of having my money work for me even while I sleep.
By the way, don’t sell stocks while bathing in sparkling apple juice. Because that would be in cider trading. 😎
So anyway, I opened up a brokerage account with TD Waterhouse.
I wanted to buy a low risk, defensive stock. Pipeline companies were the natural choice.
And out of the major names Enbridge seemed like the safest bet.
So I made my first investment purchasing $1,000 worth of ENB.TO shares.
The $29 trading commission felt like highway robbery. But high fees were the norm back then.
In any case I was now a shareholder of a multi-billion dollar company!
A new outlook on life
I was ecstatic when I received my first dividend payment, around $10. 😀
That was the first time I made any real investment income. I was hooked immediately.
It was so much fun buying my first stock I quickly saved another $1,000 to buy my next stock.
Then in 2009 I purchased my first property using 20x leverage.
I finally figured out how I can become wealthy. I will do it through investing! 😉
There’s no need to earn a high income when I could just save some money and buy appreciating assets.
If Enbridge’s profits increase, my net worth will grow too, as long as I continue to hold the stock. 😀
Liquid’s Investment Income breakdown
I continued to invest over time. Here are the full details of my various investment income streams.
I hope you find something useful from my experience.
Dividend income = $19,400
- Income type: Passive
- Tax efficiency: Good
- Special perk: DRIP
Most of my savings over the last decade went to buy dividend growth stocks. Dividends are the bees knees. 🙂 They are tax efficient, completely passive, easy to reinvest (DRIP), and many stocks grow their dividend payments over time. What’s not to like?
Dividend income was a major contributor in helping me reach financial independence last year.
It does take awhile to accumulate though. I was investing about $12,000 a year in dividend stocks when I started out. Things were very slow in the beginning. Here’s a net worth update from 2012. That was after 3 years of persistently investing in dividend growth stocks.
I was excited to make $300/month in dividends at the time, but the growth was still linear.
But after 6 years or so the power of compounding became noticeable! My dividend income was growing $2,500 each year. 🙂 Plus I was also saving and investing $15,000 to $20,000 a year since I was earning more money in my career.
As with any long term plan, you need to have patience, and not quit early. Growth will always appear linear in the beginning. But just wait around long enough and you’ll reap the exponential rewards.
Interest income = $9,200
- Income type: Passive
- Tax efficiency: Poor
- Special perk: Higher seniority in repayment order
This is income generated through bonds, mortgage investment corporations, peer to peer lending, and other fixed income securities.
As with dividend income my interest earnings were small at first.
But I kept an eye out for new opportunities.
Because interest income is taxed at the highest level I try to keep these investments in tax-sheltered vehicles like my RRSP and TFSA. That’s not always possible, but I do what I can.
Here are my interest income sources and how much income they produce per year:
- Bonds and bond ETFs = $2,900
- Mortgage investment corporations (MICs) = $3,100
- Peer-to-peer lending = $3,200
I have about $43,000 of bonds and bond funds. One of my earliest bond purchases took place in 2016 in SolarShare, a green energy company in Ontario. That’s right. Your boy Liquid was investing in the ESG space before the acronym was even invented. #hipsterinvesting 😎 It was a $10,000 bond purchase with a 6% coupon.
Bonds represent a very small fraction of my overall portfolio – less than 3%. Bonds can be a great strategic holding but I generally don’t recommend them as long term investments.
I began investing in mortgages in 2014 and have slowly been accumulating more over the years. I now have $45,000 of MICs in total, and they produce on average 6.9% interest income every year.
I joined Lending Loop in 2016. At first I was getting about 12% annual returns on the peer-to-peer lending platform. But delinquencies started to pile up. My returns dropped to 10% and then 8% over time. I became more and more disappointed with my performance.
After the third year I took some money out to invest elsewhere. It’s hard for me to analyze which companies are credit worthy and which will go bankrupt.
Today I still have about $27,000 in my Lending Loop account. I enabled auto-lend, and plan to just let it ride for now.
Rental income = $63,000
- Income type: Semi-passive
- Tax efficiency: Poor
- Special perk: Lots of tax deductions, eg: mortgage interest, repair costs, etc.
I started collecting rent in 2012 from my Saskatchewan farmland.
But the income quickly stagnated. I had difficulty increasing the rent because I didn’t live in the province. My tenant was only paying me $1,000 a month. 🙁 I had no leverage negotiating with him since he knows the area better than me. I was frustrated knowing I was collecting below market rent.
So I decided to make a change.
I sold my farmland in late 2019 to purchase a condo around Vancouver BC. Both the old farm and new condo were valued at ~$450,000. But it was easier for me to negotiate a higher rent in the city.
So my rental income shot up from $1,000 per month to $1,800. Nice!
Then last fall I moved from my old condo into a house with my wife. I rented out my old pad instead of selling it. This added $1700 a month to my rental income, which brought the total up to $3,500 per month. Woot!
Finally, at the beginning of this year, I fixed up the basement of my house and rented it for $1,750 a month. With this latest addition, I now bring in $5,250 a month from 3 rental units.
Wow! 😀 That’s $63,000 a year!
Luckily there’s a lot of rental expenses such as mortgage interest, property tax, and maintenance costs to offset the rental income for tax purposes.
The importance of choosing quality tenants
My wife and I manage all the properties ourselves, so the rental income is not completely passive.
Similar to screening stocks, we screen tenants very carefully and only accept the best qualified candidates.
After the initial screening process it’s been a very hands off experience.
We haven’t ran into any issues with our tenants yet. #knockonwood. 😉
Here’s a bank statement showing rent deposits from all 3 properties. The rent from my old condo ($1,700) is split into 3 payments because the 3 tenants living there want to pay separately.
Thank goodness for e-Transfer so I don’t have to deal with paper cheques. 🙂
Options income = $8,400
- Income type: Active
- Tax efficiency: Decent
- Special perk: Incredibly fun 😀
I started trading options in April this year.
It began when I realized I had about $300,000 worth of stocks sitting in my margin trading account.
What a privileged position to be in. 🙂 Why not leverage this money to generate extra returns with low risk?
Otherwise I would just have idle capital not doing anything.
My main strategy is to earn option premiums from selling puts and calls. I want to earn at least $700 a month. This works out to $8,400 a year – which is 3% of my non-registered portfolio. So far it appears things are going better than expected. 🙂
Options income is treated as capital gains for tax purposes as long as it’s not my main source of income.
Options trading is the only investment income that is active. But it takes me about 5 hours a month to research and trade so it’s certainly time well spent. 🙂
The main takeaway
In summary, I researched different assets to expand my knowledge-base and comfort zone.
Then I identified where I have the greatest edge and familiarity, and concentrated on those areas.
I developed an investment plan. Put that plan to action. And I adjust it as needed. 😀
It’s not complicated. But it does take some focus, sacrifice, commitment, and luck. 😉
It won’t be quick, but it will be worth it
If you are just starting out and want to build up a strong, perennial stream of investment income, here are some tips to consider:
- Begin with dividend stocks. This has the lowest barrier to entry and will keep you motivated. 🙂
- Save up for a down payment and buy a property in a growing city. You can rent it out or live in it yourself.
- Consider learning to sell options for income once you have built up a $100K liquid portfolio.
- Find ways to hedge against long term inflation. Own companies in the following sectors: energy, utilities, consumer staples, healthcare, commodities.
- Discover what your natural aptitudes are. If you play games where you have the aptitudes and other people don’t, you’re way more likely to win that game.
➡For example, I have a natural affinity towards picking dividend growth stocks, and so far I’ve had reasonable success trading options. So I will continue to focus on these aspects of my investments. However, as mentioned earlier I’m not very good at analyzing the credit risk of small businesses, so I backed away from private lending. Your natural skills and aptitudes could be completely different than mine. The point is to figure out what kind of investor you would be good at. And then prioritize accordingly.
- Lastly, continue to seek knowledge and build your investment empire until you reach FI and beyond. Always be curious.
Of course there are exceptions and nuances around these tips. But you get the general idea.
It won’t make you rich over night. But at least it will start you on the path to financial freedom, and you can personalize the journey as you go.
Do you have any investment income? Leave a comment if you’d like to share. 🙂
Random Useless Fact:
30 minutes of dancing burns about 200 calories.