Wednesday, April 25, 2018

3 EASY STEPS: How to Make a Dream Come True





Above is a video digest of what I've resisted for the past 20+ years and finally came to piece with:

There is so much I still need to learn from all the people around me!!!

Childhood - Being a Sponge that Soaks In

Let's go back to our childhood. Growing up, we go to school for more than a decade to learn the basics. 

These seemingly basic ideas are in fact a result of thinking, trying, and failing of our predecessors during many previous generations. They worked hard to clear the road for us.

I am watching my kids grow up. 

All the way from birth through school, they are sponges soaking in numerous concepts that they are being taught. 

It's incredible to see them going from little smiley honey bunches to Homo Sapiens (Latin for "wise man")  so fast.

Working - A Sponge that's Being Squeezed Out

Some time later in life, we become the sponges that are being squeezed out for knowledge. 

We give back what we've learned. 

We contribute at work, at home, and in our personal life, sometimes to the point of complete exhaustion. However, in many cases we feel good about it. 

This is natural, since we want to be a part of the future! We'd like to contribute. 

Plus, it feels so great when you are so smart that you can teach or boss others around you, doesn't it?

Well, my husband and I certainly agree that it's fun to kick our kids around. Shhhhh, don't tell the kids...

What if You are Still Asking Yourself: 

How do I become successful?


What I realized recently, during my career change from an HRIS professional to an investor, is that the most certain method to succeed in anything you'd like to take on next remains the same as when we were little.

Whatever your new goal or aspiration is, learn from someone who already knows and is willing to teach you.

The difficult part is to stay open-minded and follow the recipe your teacher points out to you step-by-step, until you see yourself get it right and succeed.

When my 8-year old misspelled "bird" as "burt" this morning, he didn't question or argue. He laughed, took an eraser, and fixed his writing. 

Going back to myself now. I figure that if I could learn when I was eight, I can most certainly pick new things up when I am years wiser! 

This is why my three step approach has been:

1) Find a formula that works and that I believe in
2) Follow that formula exactly 
3) Repeat until I master the formula.

This works! I am learning one new formula at a time and feeling successful.

I wonder what you are thinking. Would you mind leaving a comment below?

Saturday, April 21, 2018

Time to Collect Your Money



As I summarize in the 1-minute video on the left,

last Sunday I woke up to an email 

from Shopify with the subject of...


drum roll...

champaign bottle pop...

hold your breath...



Time to collect your money


"Hmm. Really?!? " was my first thought.

My strategy is always to expect the worst. This approach helps me keep going and not take disappointments to heart. So, I told myself to chillax before clicking into the email.

Chillax is my new favourite word by the way. I learned it from my kids. It means exactly what it sounds like: calm down and relax.

And being as calm as I could be, I clicked into the email, which told me to finish my Shopify Payments setup to get paid for my first sale.

So, it was official: my online store had its first sale! I had my first customer who bought several digital products at 50 Doors. Yay! It worked!! I couldn't believe it.

My new online asset is starting to put money in my pocket. To be specific, here's how the math looks:

$20.00 from customer - $5.68 to google ads 

= $14.32 profit


As you may already know, asset is something that puts money in your pocket.

The theory is that if you own enough assets, the money from all of them will add up and cover all your expenses. 

Once that happens, you can consider yourself infinitely wealthy. 

A wealthy person has assets working for him or her. Per this definition, the wealthy can live forever without relying on going to work to make money. 

To measure how wealthy you are, just think how long you can survive for without working. 

My starting point was 30 days - simply because I lived paycheck to paycheck. I am still not a lot more ahead, but making some progress. 

My husband and I set out with our 50 doors goal: 50 assets, each putting $200 dollars a month into our pocket, so we have about 10K a month to feed our (always hungry) family. Boys sure do eat a lot!

There are many different types of assets. In my mind, the major categories include: 

  1. real property
  2. businesses and 
  3. financial assets.





Real Property Assets


The basic idea is that you own something tangible and get paid for letting others use it:

A house, car, vending machine, solar panels, fancy suite or dress, a parking spot, etc. 

Take an object, find someone who'd like to borrow it, lend it and collect cash.

Business Assets

Business is a system set up to solve a problem for a profit. 

Find something that will help others around you. Figure out how to attract people in need of the solution that you are offering and help them at a profit.  

This is what I hope my website is doing. It is helping people educate themselves and get their first real estate investment property in Canada smoothly.



Financial Assets

I recently came across this table (source: Desrosiers Automotive Consultants Inc. (“DACI”):

Automotive revenue in Canada 



What struck me is in the column highlighted with blue. Let's take 2015:

Imagine all the factories building new cars: that's 32% of revenue

Imagine all the dealerships selling used cars: that's 18% of revenue

Imagine all the servicemen helping us repair and maintain our cars: 10% of revenue.

Now think about the money we borrow to buy all of the above:


Automotive finance produces 

the biggest chunk of revenue: 

40%



The point is that money can easily become one of your assets as well.

There is unlimited number of opportunities around you to put that asset to work for you. Examples include investing in private businesses, mortgages, equities, bonds, etc.

What I am now finding out is that you don't need a lot of money to start. You can make each dollar that you don't spend become an asset that works for you.

The trick is to educate ourselves, so that we can make decisions and balance risk and reward in each project. Then, act on our knowledge and get in the game.

Interested? Hesitant? Afraid? Let me know your thoughts in the comments below. I can't wait to hear from you.


Like us on Facebook




Friday, April 13, 2018

Making a Difference - How You Can Deliver on Your Dreams!


In the last few weeks, I realized that I've been spending a LOT of time on Netflix.

I started watching "Gossip Girl" series and got hooked up on it! The problem is that there are years of episodes and each runs for about 50 minutes. So over the last ten days, I was watching Netflix almost all night long until my phone battery died, on three different occasions.

The consequence is that on the following day my productivity level plummets. I become super grumpy and very slow.

Not good.

Why Even Talk About Netflix?

Because it has become one of my biggest liabilities:

"A liability takes money out of my pocket." - Robert T. Kiyosaki
And since time is even more valuable than money, my Netflix addiction is very costly.

I still remember how I subscribed to Netflix back in 2013-ish.

I was on a business trip to California. I had a really awesome friend there, named Kell. 

Kell also goes by "the purple guy". He loves all shades of purple. Kell always wears everything purple: purple shoes, purple pants, purple T-shirt, purple laptop bag, etc.. He even can give you a pamphlet on the benefits of purple. Long story short, I love hanging out with Kell and hope to see him again soon. That day, we were at lunch.

Kell told me that he and his wife got a new house. The house was amazing (aka "Purple" in Kell's terms). Except for one little annoying thing: It took Kell two hours to get to and from work.

So, when I asked Kell how he could even survive being stuck in the car for this long, he told me that he was actually okay, thanks to Netflix.

Apparently, Kell was able to watch (or, I'm hoping, more like listen to) Netflix movies while he was  on stand still in traffic. And this made his commute very enjoyable!

A couple of days later, I was at the SFO airport heading home and all flights were cancelled. So I had to kill time until 6 AM the next morning. 

It took me 2 seconds to subscribe to Netflix. And I had the best time ever waiting for my flight!

Now, ever since that day, I became a vivid Netflix fan. 

Unfortunately, based on my theory of Assets and Liabilities, over time Netflix became one of my biggest liabilities.

Liability Takes Money Out of Your Pocket

Liability is something that takes resources away from you.

When you subscribe to Netflix, the monthly fee will automatically come out of your account. That's okay! As long as you have sufficient money coming into your account from your job or assets to pay for this liability.

In my case, last month was a bit out of balance.

When I sat down to do my finances and put money into my April buckets for car, groceries, home, etc., I realized that I was a bit short in March. So the money that came in from assets wasn't enough to cover all of the expenses that I have on liabilities side.

There are only three ways to fix this issue:

  1. Decrease what liabilities take away from you
  2. Increase what assets bring you
  3. DO BOTH

So, I looked at all the liabilities that are taking money out of my pocket.

And so far, I found three that I could trim:

  • Netflix @ $14.18 per month
  • Home Insurance - I found a new vendor and got more coverage while saving $26.21 per month
  • Insurance on two of my rentals - Saving $27.40 and $8.66 a month
These three changes save me almost $1,000.00 a year.

Small Changes can Make a Huge Difference



Netflix, only charges 10.99 USD per month. Seems like not that much!

Now, in Canadian plus tax dollars, that's actually CAD 14.18. On an annual basis, $14.18 x 12 = $179.88

Everyone measures value differently. But here's a drastic coincidental example that I came across, which got me thinking.

Small Tokens of Help Add Up! 
Last week, a young lady called Vinie stopped by my house. She is with Save the Children organization. In their "Be a lifeline" program, this organization collects 84 cents a day to feed a starving child.

$14 a month is enough to feed a starving child for over two weeks. 
Just consider this to realize how much difference re-allocation of small chunks of resources can make. 

Last weekend, I was at a Business Mastermind seminar. I was honored to learn from Gerry Robert, the Author of a classic motivational book, The Millionaire Mindset: How Ordinary People Can Create Extraordinary Income.

At the event, Gerry emphasized several times that for anyone who aspires to reach a goal - grow their business, write a book, or become a sought after speaker - it is critical to stop watching TV or cable or Netflix.

These two incidents helped me realize that stopping my Netflix subscription was absolutely the right thing to do.

Simply because it helps me re-allocate my time and a little bit of money.





Imagine How Much You Did in the Last 6 months at Your Day Job?


Many years ago, using the same logic my husband and I stopped paying for Cable. Just before we did that, we both had realized that most of all we watched Channel 5.

At the time, that was the weather / what's on channel. We would watch 'What's on' for a couple of hours almost every night before dozing off. Then, one of us would wake up in the middle of the night and switch the TV off...

Lately, aside from the Gossip Girl adventure, I've been mainly scrolling up and down through "what's on" on Netflix and was having trouble selecting an actual movie. What a waste of my own time!

If you re-allocate your time to acting on your aspirations, you will be able not only achieve your own goals, but also help others reach theirs.

Now, in my case, I watched at least 2 movies a week on Netflix over the past 5 years. This is over 1,000 hours of time. Being a human resources professional, I know that a year at work is considered to be 2,080 hours.

Imagine how much you can get done over 6 months at your day job??!?


Well.... that's how much I didn't do for myself.


Wake Up! Time to Make Your Dreams Come True!!
And this is why I urge everyone to consider their Time and Money liabilities to make sure you are spending your time on what matters the most to you.

Find a way to do more of what you'd like to do.

Find a way to do less of what you don't appreciate doing.

Now, since I have already watched ALL of the romantic comedies I ever wished to watch, it's time for me to re-purpose my movie-watching time to other activities.

What are your thoughts on the topic? Your comment below will be very appreciated.

It'll help more people find my blog and perhaps make a small positive change in someone's life.


Thursday, March 29, 2018

Tenant/Landlord Perspective on Rental Property Lease Agreement

Choose Great Tenants!
Starting April 30, 2018, all landlords in Ontario, Canada are required to use the standard lease agreement template for residential rentals.

Many investors and landlords are not happy about this new requirement.

They don't like the fact that the new lease agreement spells out all the rules that tenants may want to know.



These rules are designed to:
"provide protection for residential tenants from unlawful rent increases and unlawful evictions" and "for the regulation of residential rents" 
per Residential Tenancies Act, 2006
However, some of these rules are not at all landlord- or business- friendly. 

In this post, I’d like to recap what I learned from a lawyer and a paralegal presentation, who have been in the residential rentals business for many years and have seen a lot of landlord/tenant situations. I'll also share some of my own thoughts and findings on the rules landlords are supposed to follow in Ontario.

My goal is to share the key concepts that will benefit beginner landlords without sacrificing the happiness of their tenants. 

First things first:


If you are reading this post, finding it helpful and are not my Mom, please leave a comment at the bottom or share it. Your comment will make my day AWESOME and I am very grateful for it 😁🙏


The Term of Tenancy Agreement is Always Indefinite


Landlord specifies the term of the agreement in section 4 of the lease agreement template. The choices here are fixed length (ex., a year), monthly tenancy, or other (ex., daily or weekly).

Most new investors believe that it is beneficial to sign a lease for a year. Many landlords also learn at various real estate courses that it is a good practice to renew the lease for another year at the end of each term. 



"The tenant does not have to move out at the end of the term." 
- section 4 of Lease Template

The truth is that no matter what type or length of term you put in your lease agreement - a year, monthly, or daily - the tenant has the right to stay in your rental unit FOREVER. 

The tenant will leave if and only if he/she leaves voluntarily OR landlord goes through the process of ending tenancy using one of the very few permitted reasons.

Please note that in case of a problem one year lease really restricts the landlord from evicting the tenant early. For example, N8 form states that the termination date cannot be earlier than the last date of the fixed term - i.e. end of the year for an annual lease. While monthly lease can be terminate with a 60-day notice. Because of this landlord should try to stick with month-to-month leases and stay away from annual ones. 

Can a Tenant Break a Lease? Anytime


On the flip side, suppose you sign a one year lease, but your tenant wants to move out early. Per current rules, tenant is supposed to give landlord a 60-day notice, which has to be effective at the end of a month. 

But if your tenant is going through hard times, chances are they'll move out much faster and with a much shorter notice. In this case, they'll stop paying you rent as soon as they are out. If you try to insist on 60-day notice and they can't afford to pay you, they will not pay you.

In this case, your best course of action is to be thankful that the tenant has moved out on their own accord (rather than staying at your place for free until the Sheriff changes locks) and get a new paying tenant as fast as possible.

Having said that, more often than not, I see tenants giving sufficient notice and coming to a mutual agreement with the landlord to break lease early. This approach is most effective both for the landlord and the tenant. This is why it always helps to have a good business relationship with all your tenants, so they let you know as soon as they decide that they'd like to leave.





Can a Landlord Use a Non-Standard Lease? 


Yes, in theory a landlord can still use their own lease. It's against the rules, but possible if a tenant agrees to sign the non-standard lease and doesn't ask for a proper one. 

In case when the tenant asks for the standard lease and landlord doesn't provide it within 21 days, tenant has the right to leave and landlord would lose the tenant.

My analogy is: Can we drive above speed limit? Absolutely. But there may be consequences if we get caught. So everyone chooses their own boundaries and balances higher speed vs. # of tickets vs. safety.

In tenant/landlord situation, consequences usually come up when there is a disagreement between the tenant and landlord. In that case, Landlord and Tenant Board (LTB) will make decisions based on the Act and other applicable legislation. All terms of any lease agreement that are in conflict with the legislation would be deemed void and non-enforceable. 

LTB officers are very strict in following the legislation. My prediction is that they will not be lenient towards a landlord who decides to break the rules of the legislation on purpose.

This is why I recommend that you find ways to incorporate your additional terms into the new standard lease template and do your best to comply with the rules. 


Rent / Deposit / Increases?


Most landlords are already aware of the boundaries on the money side:
  • We can can charge last month's rent, NSF fees up to $20 and key deposit
  • We can increase rent per approved guidelines every 12 months
  • We have to pay interest on last month's deposit.
Now, these same boundaries are listed in black and white on the standard lease template, so that all tenants are aware of them at the start of their tenancy. 

This certainly clarifies the rules of the game for both parties involved. Very transparent.

Conclusion

Tenant Perspective: Follow three rules and you'll always have a home in Ontario with reasonable annual rent increases:

  1. Pay your rent on time and in full
  2. Treat your home nicely
  3. Respect the neighbours.

Landlord Perspective: There are way more than three rules. Learn them!



GOOD LUCK!! 👋


PS Let me know if you have any questions about tenants, landlords, or lease agreements? Use "Comment" box to ask.




Tuesday, March 27, 2018

A day in life - Investor / Landlord / Parent

Spring is here! I can’t believe a quarter of the year has already gone by. Since the beginning of the year I started a few things but it doesn't feel like I finished a lot. Today was a productive day and I’m optimistic. I am sure things will start coming together soon. So here is a scoop of the day.


Morning at the LTB Hearing 


Related image
Getting to LTB hearing!
Mornings are easy when you work from home. Basically, on most days no one sees me. This is why there is zero pressure to look decent. But today was different because I had a Landlord and Tenant Board (LTB) hearing at 9 AM in Barrie, which is about an hour away from my home.

I was lazy yesterday, Sunday night, and didn't print and fill out the L1/L9 update form. So I had to run around like a headless chicken to get everything done - shower, get dressed, make lunches for kids, print the forms, fill in the forms, and leave the house. I had planned to leave by 7:15 AM, so I could have plenty of time in case of traffic. Well, I left at 7:59 AM. Sounds pretty bad, I know, but surprisingly I still made it on time to the hearing.

LTB Hearing Topic - Application to Evict a Tenant for Rent Non-Payment 


The reason I went to the hearing was eviction for rent non-payment. A tenant lost her job a couple of months ago. As a result, the family is going through some financial difficulties and fell behind on rent. 

Unfortunately, it’s part of my job to take action on rent non-payment. I sent N-4 form on Jan 24th because I haven't received January rent in full. I was optimistic about the delay and knew tenant would catch up - and they did. Unfortunately, once you start falling behind, it is very hard to get back on track and start paying on time. January rent was paid in full, but of course, it was practically impossible for the family to pay Feb rent by the 1st. So the vicious cycle of rent being late continued.

I filed an application to the board on Feb 14th and the hearing day is today - March 26th.

The tenant didn't attend the hearing. This was good for two reasons. First, it is emotionally difficult for me to negotiate with a tenant because I feel bad for them and understand how hard it is to survive. In the past, I used to always end up giving them an extension, which unfortunately didn't help anyone - the tenant still lived beyond their means and kept digging themselves deeper into debt while I kept losing money.

Second, cases with only one party present (as well as all cases when parties agreed on a repayment schedule) are heard at the very beginning of the day. So my case went second and I left LTB at 10 AM.

Key Take Away - Don't be Creative, Follow the Rules 


The Hearing Officer asked me several questions. One of them was about the method that I served N4 with. I stated on my forms that I emailed N4 to the tenant. Email isn't one of the acceptable methods according to LTB rules. Unfortunately, I did not have a written response back from my tenant, but I let the Officer know that the tenant and I spoke over the phone.

Lesson learned: Don't be creative! follow the rules and hand deliver or mail the N4!

Also, get a written confirmation of all your communications with the tenant. I should have emailed the tenant a summary of our phone conversation after we talked.

Precious Coffee
In addition, I got scolded by the security official for non-compliance with the HUGE sign on the wall that said that there was no food or drinks allowed. I have to admit that I saw the ginormous sign and consciously made a decision to hide my drink under my chair (which the officer spotted).

Lately, I've become so frugal that I didn't want to waste the coffee that I just got on my coffee points, thinking that the risk of being kicked out from the hearing room was low.  Luckily, the security officer was kind and let me keep my precious drink and asked me to wait for my turn in the waiting room, rather than inside the big court room.

My luck continued and the hearing officer was lenient as well. She made a decision to proceed with the order even though I used incorrect N4 delivery method. In a few days, my tenant and I will be getting the order in the mail. It will require the tenant to pay remainder of past due March rent and April rent within two weeks. In case of non-payment, I will have the right to request an eviction at the Sheriff's office. 

I truly hope that the tenant will figure out how to fully catch up and get back on schedule with rent payments.

Even though many of my fellow investors think that LTB rules are strongly in favour of the tenant and it is a bad thing, I believe that the system is fair and reflects the fact that Canada is one of the Happiest countries - in fact we are 7th in the World! There is a great responsibility on the landlord to find a suitable tenant and follow all protocols to make sure both landlord and tenant have an effective partnership.


Spent Afternoon Submitting Mortgage Application


Getting Mortgages requires LOTS of Docs and Info!!!
I got back home without much traffic as well.  I spent about an hour gathering up supporting documentation to send to a mortgage broker who is helping me refinance two of the properties. 

The purpose of the refinance is to pull out equity that has built up over the last three years. If all goes well and as per my initial calculations, my cash flow will still be $200 per property AND I should be able to get my down payment and renovation money back. Isn’t this amazing?!

This means that I’ll have the same money that I started with just over three years ago back in my pocket plus two properties that will continue to generate some cash flow. I’ll be able to re-use the same money and acquire new assets. My first properties will literally pay for a future new property. Neat! This is probably what the saying "money working for you" refers to.

Honestly speaking, this is the first time when I am trying to get my money back, so my knowledge is strictly theoretical at the moment. Let’s hope things will conclude as planned.

On a positive side, I was very proud last week when the mortgage broker complemented me on my AMAZING spreadsheet. It covers my portfolio and every bit of information that a mortgage broker might want to ask for.  In the last 4 years, I got 12 mortgages and 4 refinances done. No wonder, I am now a pro at predicting what questions a mortgage broker would ask.


Side Hassle - Networking Works!


A few weeks ago I started a side business hassle. It’s a small business that my friend and I are starting together. I had to do some work for it at the end of the day.

The interesting thing is that everyone who supports me on this side hassle are fellow investors and entrepreneurs who I've met at various real estate meet ups.

I’ve never been a networking fan, so every time when someone who I've met at a meet up helps me out, I’m super thrilled and excited. I have to agree that networking IS TRULY a great way of expanding your reach and range of possibilities. I am very grateful to my newly acquired partners, mentors, and like-minded people who share their thoughts and give me their honest opinions and feedback. 


Wrap Up - Kids and Karate


Now, changing hats and bragging a little bit on personal side.

My oldest son came back from school with a medal - 2nd place in a robotics competition. 

My youngest son scored in top 5 of 1,000 kids his age on a test. I am very proud of him. Also, I am happy because I no longer feel guilty about our policy on YouTube - kids basically have unlimited YouTube. As long as they do well at school and in their after school activities, they can spend all their free time as they please including being permanently glued to screens. 
Looks a lot more romantic than me sweating
in all the super-fat safety gear :)
And my middle son told me he wants to get a programming job. Can you believe it? That's purely his own initiative without any nagging from me or my husband :) He started putting a resume together!

I wrapped up the day by drafting this post and attending karate dojo. It was a sparing day! FUN!!


Wednesday, March 14, 2018

Real Estate Investing Tax Traps

I was at a great seminar last week. One of the speakers, a super knowledgeable tax guru and ex-CRA-auditor, shared several tips about potential tax traps real estate investors can fall into.

Taxes can get pretty fat, so it's always great to learn some ways to keep them skinny. Posting my notes here just in case you'll find them helpful.





Tax Trap #1 - House Flipping

Suppose, the following flip scenario: we buy at 400K, renovate for 100K and sell for 650K. This results in 150K capital gain, half of which is taxable.

Let's say our tax rate is 50%. We'd then pay 37.5K in taxes and pocket 112.5K of after tax profit.



DANGER: Flip with incorrect Tax on Capital Gain calculation -
larger profit than in reality

Except!


Most people don't realize that per Canadian Income Tax Act, there are two distinct categories of property:

1) Inventory, which creates business income or loss

2) Capital, which creates capital gain or loss.

The distinction is based on whether or not a property is acquired and used on account of income or capital.

Taxes Payable - Personal Name


It turns out that, when you purchase a property with the intention to renovate and flip, you put yourself into a business income situation.

Capital gain is not applicable since you have a clear intention of selling the property. In this case, your property is your inventory. So sales proceeds are your income. You have to pay tax on 100% of your income. You cannot take advantage of the 50% capital gain tax inclusion rule.

In the scenario above, if you purchased the property in your personal name (not under a corporation), your taxable income is 150K, tax is 75K and your actual after tax profit is 75K (not 112K).

If you are not aware of this tax trap, there is a HUGE risk of spending 112K profit and then being stuck with a large tax debt of 37K.

REALITY: Flip with Tax on Income - much lower profit

Please note that purchasing in corporate name can save you a lot of taxes. So this example and tax trap would not be applicable, if you manage your corporate taxes well.






Tax Trap # 2 - Condo Flip

On condo flips, investors can fall into an even deeper tax trap.

First, as in the previous example, all of earned income is 100% taxable since condo is considered to be inventory.

In addition, investor must repay GST, if he/she had received it when purchasing the condo from the builder. Even though GST repay is just a return of the money recently received, the danger is that one would have already spent it by the time they'd need to pay it back.

The next catch is that HST is applicable on new properties. Investor would have to pay 13% HST.

Lastly, as per the linked article, CRA is on top of improper tax payments (ie. capital income vs. business income issue) and would apply a penalty up to 50% of tax payable for tax avoidance to anyone who reports tax incorrectly on their new condo flip.

All in all, a condo flip may end up being a loss rather than a profitable deal, once all these adjustments are applied.

For example, if we purchase a new condo for 400K (including tax rebate) and sell it for 500K. Applying capital gain tax only, you might erroneously think that you'd only pay tax on 50% of 100K capital gain, which would result in 75K profit.


DANGER: New Condo Flip with Incorrect Tax Calculation
- looks like a profitable deal

In reality, after we apply all the adjustments that an investor might have missed, we end up with a loss of 12K.


REALITY: Loss on a New Condo Flip due to Taxation Error

Bottom Line


The bottom line is that many new investors might not know about these potential tax traps and might lose money. 

The only way to avoid these tax traps is to keep educating yourself and find a way to get advice from knowledgeable accountants and tax advisors, who have applicable experience and know exactly how to navigate around these and other potential tax traps.

Hope you find this post helpful. Please share, like or forward to your friends and fellow newbie investors if you did!!!

Cheers! 




Tuesday, March 13, 2018

Me vs The Door. I win!

Old Patio Door - Brrrr! cold
Hurray! The door issue is finally resolved. I was VERY frustrated with it! Here's the story.

Mid November, a tenant notified us that they had very severe draft coming from under the front door and also from under the patio door at the back of the living room.

Within a day or so, we  had our contractor come out to the house to look into it. It turned out that there was an easy fix for the front door, but the patio door was too old to be repaired. It had to be replaced. The wind was hauling through and around every inch of the door surface.




Tenant is Freezing! Let's Replace The Patio Door


The contractor called and reported his findings. He had an estimate prepared and went over it with me over the phone. I roughly knew how much it would be to replace the door since we completed a similar project several months ago at another property. The estimate sounded reasonable and within what I expected. We agreed to go ahead with a new patio door!

The contractor ordered a new door at the local hardware store. The new door was supposed to be delivered to his shop within the next couple of days. He called and explained new door specs to me in a lot of detail! He was super excited that the new door was 3-panel and talked extensively about how warm the house would be, once the new beautiful door is installed.

And at the end of the call, he also asked for a payment. I often pay for materials up front and labour upon completion. So this wasn't a surprise.

I thought I knew the contractor well. He finished a couple of jobs for me before. All of them went great - work done quickly and well. Tenants were happy with the quality.

So, without thinking too much into this, I sent the payment for the new door and asked the contractor to schedule work dates directly with the tenant as soon as possible.





Mistake #1 - I have no idea what I bought...


I paid money for a phantom door without doing ANY due diligence to check that there was actually a door purchased on my behalf. I paid simply because I thought the contractor was a good guy based on  the two times he worked for me before.

Instead I should have:

  • Asked for a receipt
  • Asked for a picture of the door that I was buying
  • Checked patio door prices on HomeDepot.ca

Now, when the door issue is behind me, I have to admit that I paid $1,275.77 for a new patio door. If you check at Home Depot, patio doors start at $565 + HST. There are 30 different doors that are cheaper than $1,275.77 and another 170 doors that are more expensive.

So, to this day, I don't know if I paid more than I should've... Was the door too fancy for my needs? Did I pay too much? Did I get a great door that will now last another 50 years? I will never know because I have no idea what I actually bought.

Mistake # 2 - Winter is NOT a good time to replace patio doors

No door - bad idea during Canadian Winter

Now, we had to wait for the weather to cooperate. This winter was brutal, especially in December and January. It was very cold and snowy. Contractor advised that we couldn't take out the door and keep the house open for a day or two when it was -30C outside.

In addition, the selected dates had to work both for the contractor who was always super busy and our tenant, who insisted on being present at all times personally. The tenant wouldn't agree that I come by and oversee the contractor instead, if they can't be home.

Eventually, after 3-4 weeks, everything got aligned: the weather, a couple of open days on the contractor schedule, and our tenant’s schedule.


Series of Unfortunate Events


Unfortunately, our contractor had a mild heart attack just a couple of days before the scheduled date. Obviously, health and life take precedence before the draft under any doors. Tenant was understanding of the situation. Luckily, our contractor recovered and got back on his feet over a few weeks.

Winter weather was still nasty! Once health issue was behind us, we all started watching the forecast waiting for a couple of warmer days. Finally, we scheduled the work. Yay!

On the day of the appointment our tenant had something urgent come up. They couldn't be home and asked to reschedule.

We now waited and watched the weather for the third time in a row... Finally, all good again: decent weather, tenant at home, and contractor is in good health and available. The new dates were scheduled! We set 3 days aside to make sure there is ample time to get the job done.






Mistake #3 - Don't Assign More Work When Previous Load isn't Done


Just  a couple of days before the appointment, the tenant got in touch. They asked us to take a look at several new items at the house:


  • A few outlets had no power on the main floor
  • Shower tap got broken and tenant (including their kids) had to use pliers to turn the shower on and off
  • A pipe leaked in the basement when they were using the washer

Since the contractor would be at the house anyway, I asked him to scope out these issues and let me know a quote.

The contractor called me back and explained that broken power outlets were a SAFETY concern and had to be addressed ASAP. Apparently, wires inside the electrical box were lose and several of them had signs of burning. He had to replace fuses, do some re-wiring, etc. I agreed that he should go ahead and address the safety issues, thinking that eliminating the risk of fire is a much higher priority than getting rid of the draft.

What I didn't expect was that these safety issues would take up ALL OF THE THREE DAYS. So by the end of the slotted time period, all of the new issues were addressed, but the contractor didn't even start on the door.... 

It turned out, that since the heart attack, the contractor wasn't aloud to drive a car. So the work took him longer than normally, because he had to take a bus to and from hardware store during the day every time when he needed some parts. His partner drove a truck, and gave him a lift when possible, but still capacity limitations became apparent. Tenant observed that the contractor only spent 2-3 hours a day working, while I was under the impression that he spent 3 full days onsite.

Anyways. New issues got resolved very fast! Old issue was still not started. 

We were now watching the weather again. Tenant started getting quite frustrated. The house was cold and they were concerned about really high heating bills. It was the end of January - 2.5 months have already gone by.


Mistake # 4 - Always be in Control. Excuses will NEVER end.


And for the fourth time, we scheduled several days. By this time the tenant was extremely anxious. They shared with me that they expected the contractor would find an excuse not to show up.

And he did.

Three days before the appointment, the contractor called me. He politely explained that, as he was preparing for the appointment and unpacked the door, he realized that the new patio door turned out to be welded rather than bolted. As a result, it would not go through the entrance door since it can't be taken apart. And since the front door is the only way to access the backyard in this town house, we'd have to postpone the appointment.... 

Well. This is when meditation practice comes in handy.

I counted 5 breathes in my mind before asking what he thought our options to overcome this hurdle would be... There were two options: 1) get a new bolted door which might be problematic, since manufacturer now makes all doors welded and we'd have to look for an older model; or 2) find a way to bring the door in through a neighbour's backyard.

I explained in detail that it was very important to finish the project and install the new door as soon as possible and that the tenant was not happy and I really needed all his help to get to a conclusion on this. I was offering help and asking if there was anything I could do to help. 

The contractor started calling hardware stores and by the end of the day he found an old model of the door, which could potentially be delivered early next week. Great! Let's do it. 

As a backup plan, we agreed that if there would be a hiccup or delay and the new door wouldn't be delivered early next week, we would implement a backup plan. 

Backup Plan


My husband and I went to check if there was a way to bring the door in through the back yard. We found out that one of the fences at the end of the backyard was only about 4 feet high. We thought that it would be possible, with enough man power, to bring the door in over that fence.

The neighbour was not home and we left him a note with our phone #. We also left our # and information with other neighbours. No response. Contractor told us that he also stopped by and left his card. No response. My husband and I went there again the next day at a different time of the day - no one home and no call back.

Contractor said that he wouldn't carry the door without the neighbour's permission since that would be trespassing. 

My husband and I made a decision that we would personally trespass and carry the door in, through the back yard. We clearly communicated this to the contractor: please, just bring the door, we will get it in for you, then please install it. We spent time on the phone re-iterating this plan. It seemed we all were on board with this backup plan.

Contractor assured us that he felt backup wouldn't be necessary since he already scheduled the delivery of a bolted door for Tuesday. Awesome! Even better.

By this time, tenant refused to pay rent. They explained that they paid hundreds of dollars for heating month after month after month and they were fed up with it. This was the first time ever when a tenant yelled at me. I hung up and submitted a court hearing application. I was very offended by the yelling. Draft or no draft, rent must be paid... However, I decided to find out how much extra heating costs my sloppy implementation of door replacement was causing.

Do You Know What Happened Next Tuesday?


You would not believe it. It was now mid February and winter started fading away. +7C outside. 

8:30 AM. 30 minutes before the appointment. Contractor calls. He'd have to postpone the appointment because it is pouring rain. It is very dangerous to work with power tools in the rain and since he'd be using power tools as he'd be installing the door, he can't proceed. He cannot risk his life and show up.

This time I was not even mad. I've become immune and emotion free. Having said that, all my dreams over the past few nights were strictly about patio doors.

I called the utilities company and found out that my tenants' actual heating consumption was super low through the winter. The service desk could only provide general averages to me, but it became obvious that if my tenants' bill was several times higher than average WHILE their consumption was several times lower than average, they hadn't paid their bills for a while. 

I no longer felt guilty. I knew that I just had to get to the end of this whole door situation. At the same time, it was obvious that I didn't have to worry about my tenants' high heating bill and reimburse them for extreme consumtion. Phew!

Grand Finale


I called the contractor a day later and realized that he still didn't have a new bolted door. Still, the biggest issue was that we couldn't carry the welded door in. Why I asked? I thought that a bolted door was supposed to be delivered back on Tuesday. Oh no - he thought that I didn't want it because I asked him to carry the welded door through the back yard.

Alright. I insisted that we schedule a day when he'd bring the welded door to neighbour's drive way. My husband and I would take full responsibility for trespassing and we'd have the door carried in.

In my mind, I set a deadline of the following Friday giving it final 9 days. I decided that if I wouldn't see a door by then, then that door probably didn't exist and most likely I had bought air for $1,275.77 . I already started asking my friends for trustworthy contractor referrals, so I could quickly find a replacement and start all over again. It wouldn't be the first time when I lose a deposit.

I discussed the situation with the tenants. We agreed to give this operation the last chance. We also discussed utility costs and rent payments and came to an agreement. Our court hearing was scheduled for March 26, just in case our verbal agreement wouldn't go as planned.

The End

Love the new door!
Super thick, 4-panel, warm home next winter :)
Drum roll!!! The following week, on Wednesday a new bolted door was delivered. The Contractor carried it in through the front door. He installed it and finished by Friday.

Somehow, there was a missing part on the lock of the new door, but at this point I was not going to worry about it. The contractor came up with a work around for it, so the door locked.

The bolted door, apparently, was $400 more expensive than the welded one. I asked the contractor to show me receipts for both doors and explained that I couldn't pay any additional money without seeing a receipt. He said that he'd gladly eat that cost given how many problems we ran into along the way. I told him that I appreciated it.

The contractor's computer mysteriously crashed and he wasn't sure how much labour costs we originally agreed to. The numbers in his journal were $200 higher than what my notes said. He agreed to go with the numbers I wrote down. I thanked him for that as well.

Door installed. After 3.5 months of struggling it was a Happy End after all. I am grateful and happy about it!

PS Lessons Learned


In future I will ALWAYS require:

  • a written work estimate including timeline and cost
  • a written agreement for full money refund if project doesn't get done by a pre-agreed upon date
  • receipts and a proof of purchase for all major purchases/materials before I pay for them 
  • invoice before I pay for the work done
  • myself to know market prices and key parameters of the most costly parts of a project.
I realize now that the best course of action would have been to use a specialized Doors/Windows company rather than a General contractor for this project. If someone changes doors every day, I'm sure they'd know about welded vs. bolted doors and how to deal with them. Even though this seems obvious, this realization only came to me after a couple of months of weather checking. 

I wish I could also make sure that no one ever gets sick and the weather is always great, but since that isn't an option, I'd just say that for all external work, I'd notify the tenants that they might have to wait till Spring. If I set expectations correctly, all the re-scheduling would've just been a part of the original plan.

You never know how the circumstances will play out and all the various factors that may work against you. So you need to have a planned way out of an existing engagement in case it fails. You shouldn't be making yourself a hostage of a contractor and/or a series of unfortunate events.