Passive Income

Passive Income

Here at Max Out of Pocket, we love passive income.

To keep things entertaining around here while we learn about healthcare and personal finance, we are running a little passive income experiment. Let’s call it an expensive hobby.

As I like to say, I am just your Average Joe-Max with a questionable blogging career. So when I drop intimidating phrases like ‘passive income’, let’s keep that in mind. We can work our way through concepts like this together, and we will definitely have some fun along the way.

This experiment has entailed me buying up medical office buildings. Since this is a financial blog with a healthcare tilt, I try to stick with what we know. After all, we are at the intersection of healthcare and personal finance.

I started this little project by buying a Healthcare REIT that owns over 250 buildings all across the United States. I have since opened this project to bigger and better things. As of today, the main objective of this experiment is to learn a few things about Healthcare REITs. There is a nice side benefit, though. These investments spit off dividends every three months. I like to consider this rental income that will fund Max’s future healthcare expenses, particularly in early retirement. As of now, it is sending about $1,000 $1,100 $1250 $1,340 $1400 $1650 $1900 $2,100 $2,300 $2,437 $2,677 $3,490 in passive income my way annually. Here is a short history of my growing dividend payments:

  • 2018 Q2 = $88.78
  • 2018 Q3 = $152.72
  • 2018 Q4 = $197.80
  • 2019 Q1 = $197.80
  • 2019 Q2 = $197.80
  • 2019 Q3 = $314.41
  • 2019 Q4 = $455.86
  • 2020 Q1 = $578.46
  • 2020 Q2 = $843.35

Total = $3,029.98

Since Mr. and Mrs. Max OOP still have regular W2 jobs we don’t have time to manage traditional rental houses. So we buy medical office buildings instead and let people who are actually talented at doing this take care of the managing. Hence the phrase, passive income.

One of my medical office buildings.

If you need to catch up, all the posts are below.

Initially, I was updating this series every two weeks on payday as I dollar-cost averaged into this investment. Recently, I decided to cut down my posts to about once a month so we can focus on other things here at Max Out of Pocket.

In October 2019, I finally decided to diversify in another REIT. The updated portfolio is below showing the breakdown between the two REITs. We obviously have a lot of work to do here, but since this is just a hobby there is no rush.

We are also keeping track of where I keep my medical office building. We don’t want to have an embarrassing tax situation on our hands. Generally, most people think it usually better to hold assets like this in a tax-advantaged account but Max has been getting bold and putting several of them in my brokerage account. I even recently clarified the tax treatment of my REIT dividend income.

Account distribution

I need to mention, this is just a small portion of my overall portfolio so as of now diversification is not an issue for me. Also, Max fully expects the value of this investment to come down when interest rates rise. Notice that isn’t an ‘if’ statement, it is a ‘when’ statement. As I said, this is just a hobby that goes against most of my investment philosophy of buying the total market index.

I also need to add my usual disclaimer – this is not a recommendation to buy a healthcare REIT or any stock. You need to do your own research and you are responsible for your own investing decisions.

As we move forward, I will aim to keep the portfolio and passive income updated monthly below. Here are all the purchases made since the start of the experiment.

As of 6/1/2020 – a $9,000 swing from the last update – click to make bigger!
As of 4/26/2020 – click to make bigger!

With the 2020 pandemic, just like the rest of the stock market, we started seeing some pretty wild swings in the value of these assets. I decided to hold off updating this and writing about it for a few months because I didn’t want to be tone-deaf to what was going on in the front lines. I did make some purchases during that time. Here is a look at where things were on 3/6/2020.

This is where things were as of 3/6/2020! $15,000 swing.

Remember, Max is more interested in the passive annual dividend income than the overall capital appreciation/gain. Most of the fields are self-explanatory, but I thought I would point out that the cost basis includes the fidelity transaction fee (until they did away with that), and the total gain includes dividends already paid.

Max Out of Pocket to put this portfolio together = about $50 $55 $60 $65, $75, $85 $89 and a few hours of my time. Enjoy!