I love dividend stocks and believe dividends provide a great source of passive income. Quarterly, I provide updates on my dividend income and if I buy dividend stocks.

Using ‘The Dividend Report‘ section of my blog, I track and share my progress towards my dividend goals. I will also share dividend growth stock ideas. Additionally, I will share why I buy or sell. Dividends are truly a wonderful thing.

The Dividend Report Q3-2018

For over a year, I’ve worked towards the same goal. I would like dividends to provide me with a monthly income of $1,500. My plan has dividends providing 25-33% of my monthly income.

Q3-2018 Dividend Income

The S&P 500 recorded it’s best quarter since 2013. The index rose 7.2% over the past three months. This puts the stock market up 8.99% for the year. There were no new stock purchases other than my regular index funds this month. However, I did enjoy an excellent year over year increases in my dividend income.

The graph below shows my dividend income history since 2013:

 

The table below shows my dividend history since 2013:

Q3-2018 vs Q3-2017

Last year’s Q3 dividend income was $537.76. This quarter I received $1,051.55 in dividends. This is a $513.79 or 95.54% increase from the same time period last year. The large increase is a result of three things. First, I purchased several dividend-paying stocks earlier this year. Second, I am still buying low-cost index funds every Monday. Third, I am continuing to max out my 401k every year. Or better put, I have more invested – thus I am collecting more dividends.

This quarter vs. last quarter

My Q3-2018 dividend income was $1,051.55. Last quarter (Q2-2018), my income was $987.86. This is a 6.44% increase from last quarter. Most of my stocks pay a dividend 4 times a year. Disney pays a semi-annual dividend which means they only pay two dividends a year. The Media conglomerate paid one of their semi-annual dividends this quarter. The dividend income from Disney makes up about half the difference in the quarter over quarter growth. Owning more index funds accounts for the remaining increases.

Last four quarters of dividend income

This past year (Q4-17 to Q3-18)  year my total dividend income was $4,624.85. My annual trailing dividend income increased 12.5%. During the previous trailing four quarters, I earned $4,111.06 from dividends. I am very happy with this increase.

Now my average monthly dividend income is $385.40 ($4,624.85 / 12 months = $385.40), which is 25.69% of my current goal of $1,500/month. Previously, I was at 22.84% of my goal. I would like to reach my dividend goal by no later than 2019. This is a lofty goal but worth a shot.

I have a four-part plan to achieve my goal. First, I will continue to max out my 401k. 2018 will be the third year in a row for maxing out my 401k. Regularly contributing to a 401k is one of the 6 steps to a 6-figure net worth.

In addition to my 401k contributions, I also max out my Roth IRA. This is something I’ve done every year since 2013. I buy dividend growth stocks in my Roth and love that Uncle Sam cannot touch this money.

Third, I buy a low-cost index fund every Monday as a way to automate my investing. This takes a lot of guesswork out of building wealth. The fund pays a modest dividend of about 2.0% and tracks the performance of the S&P 500.

Fourth and lastly, I opportunistically buy dividend growth stocks in my brokerage account as opportunities present themselves.

New Dividend Growth Stock Purchases

There are no new individual stock purchases to report for this quarter. I have my eye on a couple of stocks that I would like to buy in the future. I am contemplating adding more $KHC to lower my cost basis. Also, AT&T ($T) intrigues me The telecom giant’s dividend offers a 6.0% dividend yield. Their payout ratio is a modest 58%. However, I need to dig further into their future earnings potential and debt load. I still need to do more homework.

Over the past few years, there were several accounts of why Millennials are flat broke. Stories of how this generation will never be able to buy a home because of Avocado Toast. Oh, and then there are the accounts of how a latte a day will keep retirement away

This is a bunch of crap. Sure, the headlines are catchy but they are missing the point. You should treat yourself (occasionally) and focus on the big three instead.

A few years ago, I went on a long bike ride with a couple of friends. Our turnaround point was about 25-miles down the road at a rural diner/breakfast joint. The place was in the middle of nowhere and surrounded by cornfields. The diner was affordable and offered great food. Heck, who doesn’t love blueberry pancakes that are the size of a pizza?

Over the course of our meal, we enjoyed a great conversation with our waitress. She was a middle-aged woman who was quaint and pleasant. I am not sure how the conversation ended up with life advice, but she said something that has stuck with me to this day.

Our waitress mentioned as a kid she was told, “don’t worry about the small stuff and it’s all small stuff.” I’ve since adopted the saying and use it occasionally. While this saying is great for stress or dealing with difficulties in life, it doesn’t necessarily hold true for personal finance.

When it comes to your finances I wholly agree that you shouldn’t sweat the small stuff (avocado toast or a latte). Where I disagree with this statement is that its all small stuff; there is big stuff too. You absolutely must focus on the big three. The occasional latte or avocado toast won’t land you in the poorhouse. Not controlling or understanding your big three will leave you broke if you are not careful.

What are the big three?

No, I am not talking about an awesome trio that will take your NBA team to the promise land. I am referring to the three biggest expenses in most every budget. Housing, transportation, and food make up 61.3%of the average American budget. Focusing on these three factors will have a greater impact on your ability to save, buy a home or retire than cutting out the latte. 

 

Housing Expense

Housing makes up 32.9% of the average budget. In high cost of living (HCOL) areas like New York, San Fransico, or Washington, D.C. American’s spend close to 50% of their income on housing. Housing expenses may include rent/mortgage, utilities and any other item associated with having a roof over your head.

Last year, the median rent for an unfurnished apartment was $1,492/month. This means half the country pays more for rent and half the country pays less.

There are plenty of ways to keep your housing expenses low. Don’t take on more house than you need. Don’t live the baller life in a swanky penthouse when your personal balance sheet is not in check. Live like a college student now so you can live like others only dream of later.

Ways to reduce housing costs:

Live with roommates

House hack

Downsize into a smaller house or apartment

Live in a more affordable neighborhood

Live in a Class B apartment instead of a swanky place with all the bells and whistles

Transportation

Transportation makes up 15.8% of the average budget. It seems that American’s are spending more on transportation every year as well. The average price of a new car continues to increase. Likewise, the average monthly payment is now over $500/month which is an all-time high. That’s over $6,000/year which is INSANE.

You cannot eliminate transportation expenses unless you live downtown or live within walking distance of everything. I fully acknowledge this lifestyle is not for everyone. I’ve tried it. It’s not bad but also not for me. However, there are ways to reduce your transportation expenses.

Ways to reduce transportation costs:

Live closer to work

Walk to more places

Ride a bike more (my personal favorite)

Live in a walking neighborhood

Use public transportation

Use the sharing economy transportation (bike share, scooters, etc).

Use Uber or Lyft

Drive a used car

Carpool with family, friends or coworkers

Food

You gotta eat. Life is too short not to enjoy wonderful food. However, eating out all the time can quickly burn a hole in your pocket. Learn to cook more. Food makes up 12.6% of the average American budget.

Ways to save on food:

Eat out less

Learn to cook

Meal prep

Pack a lunch

Eat healthily

 

Cutting expenses in the big three

Since housing, transportation, and food make up a bulk of your spending, you would be better off by reducing these expenses. Focusing on the little items won’t significantly impact your budget. Significantly reducing your housing costs, using a car less and making food at home can save you hundreds or more dollars a month.

So my friends, focus on the big three and enjoy your fucking latte. Hell, get the avocado toast as well. Life is short. You should live it up and occasionally treat yourself. If you have the big three in check, you will have more flexibility for the occasional treat. Skimping on the occasional latte isn’t going to get you to financial independence.

This week we have an interview with Anton Ivanov from DealCheck. Anton’s real estate story is great. He started out as an accidental landlord and now has 35 units. The best part? It’s all passive income for Anton; he doesn’t self-manage his properties. Anton is a great example of how truly passive real estate investing can be.

Where are you from?

I was born in Moscow, Russia and now live in San Diego, CA.

About you (brief bio)

I grew up in Russia and moved to San Diego with my family when I was 15. After graduating high school, I wasn’t really sure what I wanted to do, so I decided to join the US Navy.

I served 6 years active duty and was stationed in Sasebo, Japan for most of that time. While in the Navy, I started reading a lot about personal

 finance and investing books and also found out about FIRE. That really put things in perspective for me and I realized I didn’t want to keep working until I was 60, like most people I knew.

I finished my military service in 2013, moved back to San Diego and transitioned to a more “normal” career. I eventually landed a job as a software engineer at a small startup and have been working there ever since.

About 3 years ago, I also started my own tech company – DealCheck, which is an investment property analysis platform for real estate investors and agents.

[Note from Drew: If you aren’t familiar with FIRE – it stands for Financial Independence; Retire Early. I would also encourage you to check out his site; DealCheck is a great resource.]

When did you start investing in real estate?

I actually became an “accidental landlord” when both of my parents passed away around 2009 and I was left with a condo they owned in Southern California.

I didn’t know anything about real estate at the time and was living in Japan, so I almost sold that place. A few of my friends and coworkers convinced me to keep it and rent it out, so it became my first rental property, even though I didn’t actually buy it.

When I finished my tour in the military and moved back stateside, I bought my first property in 2013 – a duplex I house-hacked with my wife.

What markets do you invest in?

I currently own property in San Diego, Atlanta, Birmingham, and Kansas City, 35 units total.

Over the years, I started to prefer markets that had strong economic, job and population projections, but still had relatively low home prices. These markets tend to have a very good mix of price and rent growth, as well as strong cash flow.

A lot of these are inner, growing cities like Atlanta, Kansas City (MO), Houston, Dallas, and Nashville.

 

Are you working in real estate full-time? If not, what do you do?

No, I don’t do real estate full time, it’s more of a passive investment strategy for me.

I’m a software engineer and founder of DealCheck – one of the leading only property analysis tools that I mentioned earlier.

What does your real estate portfolio look like?

I own a total of 35 units:

• San Diego: 1 condo and 1 duplex
• Atlanta: 1 SFR
• Birmingham: 3 SFRs
• Kansas City: 7 four-plexes

  

[Notes from Drew: This is a great looking portfolio. Aton has done a great job accumulating properties. He also used commercial loans to buy the four-plexes in Kansas City, MO. This is a great way to keep growing your portfolio as most lenders limit the number of mortgages you can have.]

What type of real estate do you invest in?

I started by house-hacking a duplex, where I lived in one of the units and rented out the other, which gave me a lot of hands-on experience with buying, rehabbing and managing rentals.

I later moved on to turnkey single-family homes and more recently transitioned to buying small multi-family properties. I plan to keep going with multi-family properties because they simplify management and streamline many other things like purchasing and insuring.

I’m also looking into buying 10-20 unit commercial properties in the next few years as my portfolio continues to grow.

What is your investment strategy?

I’m definitely a long-term buy & hold investor, most interested in cash flow. With that being said, I don’t particularly like extremely discounted, high cash-flow markets, but instead focus on areas which also see price and rent growth over the years.

[Notes from Drew: Emphasis on the cash flow. It is the MOST important aspect to any real estate investment.]

How much time do you spend running your real estate business?

Since I don’t self-manage my properties, the only real time commitment I have is when looking for new deals and managing the closing process on new acquisitions.

If I’m not actively looking for properties, I spent only about an hour a week on my portfolio. This goes toward checking in with my property managers, reviewing monthly statements and managing the accounting.

How has real estate changed your life?

Real estate definitely showed me that retiring early with a meaningful amount of passive income is possible. I was familiar with financial independence and FIRE before I got into real estate, but I never thought I’d be able to get there within 10 years or so.

I was able to get much more passive income from my properties and get a much higher overall ROI on my invested cash (about 20-25% per year) than I could with other types of investments.

[Notes from Drew: Passive income is a wonderful thing. Real estate is a great vehicle for generating passive income and provides the fastest way to financial independence because of leverage. As Anton said, quality real estate investments consistently outperform the stock market.]

What is your goal? What are you trying to achieve with your real estate investments?

My initial goal was to buy 50 rental units, with at least $250 in monthly cash flow per unit. I calculated that this would equate to about $150k in yearly passive income, which was where I wanted to be. Passive income has always been my primary reason for getting into real estate.

Since I got to 35 units a lot faster than I expected, I think I will keep buying more until about 65-75 units and then focus on stabilizing my portfolio, de-leveraging and selling off some of my underperforming properties.

[Notes from Drew: Notice how he focuses on cash flow and passive income. ALWAYS focus on cash flow when you are looking for rental properties. Appreciation is simply speculation. NEVER count on appreciation to make a deal work.]

Please share one of your investment with our readers. Please include general location, property type, some of the basic numbers (cost, returns, etc.)

It wasn’t nearly “the best”, but the most memorable deal was my very first purchase when my wife and I bought a duplex in San Diego. This was the first property I’ve ever bought and the emotions and the hassle I went through stand out the most.

It wasn’t nearly “the best”, but the most memorable deal was my very first purchase when my wife and I bought a duplex in San Diego. This was the first property I’ve ever bought and the emotions and the hassle I went through stand out the most.

This was a 2 story building with 2 identical 3/2 units on each floor. I’d say the condition was poor and it definitely needed a good amount of work and updates on the inside, as well as the outside in the yard.

We bought this property knowing we would be “house-hacking” it for a few years, doing some of the rehab work ourselves, but eventually moving out and turning it into a 100% rental.

The numbers looked something like this:

Purchase Price: $410k

Down Payment: $32k

Closing Costs: ~$3k

Rehab Costs: ~$15k

Monthly Rent: $1750/unit/month

Cash Flow: ~$247/unit/month

[Notes from Drew: wow – this is a great example of real estate investing. Since there are two units, Anton’s cash flow is $494/month after all of his expenses. The duplex provides Anton $5,928 annually. 

When calculating his ROI (Return on Investment) we look at two items. First his investment. Between his down payment, closing costs, and renovations, Anton has invested $50,000 into the property. Second, we look at his return of $5,928/year.

Now that we have these two items clearly defined, we can calculate his return on investment. $5,928 / $50,000 = 11.85% Return on Investment.]

How did the deal go? What would you do differently?

I like to think that this is what started everything that followed in my real estate investing “career”. This first deal taught me more about buying, rehabbing and renting properties than all of the reading and learning I’ve done previously. We still own this duplex and it’s bringing in great cash flow every month.

I’m honestly not sure what I would do differently. Probably stress a lot less about minor things. For a year or so, I would freak out if the gravel around the parking lot was disturbed or if there were any small pieces of trash laying around.

Do you self-manage your property(s)? If not, how did you select a property manager?

I’ve never self-managed any of my properties and don’t plan to ever. The main reason is that I don’t want to deal with day-to-day issues, like looking for and screening tenants, collecting rent, handling disputes or responding to maintenance calls. I’d much rather do something else with my time.

My first step to selecting a property manager is to always find one through a referral from another local investor. I don’t like “cold leads” or using online search. I’d rather work with a company with an extended track record and a recommendation from somebody I know.

Other than that, I like to ask each new property manager a series of questions to learn more about how they do business and what their policies are. I need to make sure I’ll be on the same page as them before we start.

[Notes from Drew: Anton provides a great example on how real estate can truly be passive income. He shows us real estate can provide above-market returns with little time commitment. Being a landlord or property manager is not for everyone. Personally, I like managing my properties but plan to have a property manager one day.]

What advice would you give to someone who wants to start investing in real estate?

It’s tempting to start looking at potential properties to buy right away, but I actually think that focusing on improving your personal finances first will go a long way to helping you be successful with real estate.

This includes the basics like starting an emergency fund, having a budget and working on your saving rate. During the first few years of investing, your portfolio’s growth will largely depend on how much money you can save from your take-home pay.

You may also want to look at your current outstanding debt. Getting rid of as much consumer and high-interest debt as possible will help you qualify for home loans easier, and will also increase your saving rate.

[Notes from Drew: Anton makes a great point. This topic often goes overlooked. You need to have your financial house in order before running off to build your rental property empire. Make sure you are set before taking on the risks of real estate and leverage. I would also add that you should find a mentor.]

What is your favorite real estate book that you have read? Additional book recommendation?

I haven’t actually read many real estate books, but one which I really liked is “The Millionaire Real Estate Investor” by Gary Keller. While it’s not so much of a practical how-to-guide, it gives a good top-level picture of what growing a real estate portfolio looks like.

I’m also a huge fan of the BiggerPockets website, where you can find tons of free information about the various aspects of real estate investing, as well as a great community of investors.