Thursday, July 26, 2018

Little Things I Love!

Over this Summer, there were several days when 

I thought to myself how incredibly lucky I was. 

And that was because I was doing something I really enjoyed. In particular, I got to do some gardening around one of our properties. And I truly loved it.



The garden was all set up by the previous owner, and left to grow wildly over the past four years. 


It is a bright mix of perennials.
Bright white daisies spread out confidently throughout the middle.  


Orange lilies proudly take up an entire corner. 

Red blanket flowers are about to bloom and brighten up the entire garden. 

Mint and lavender add gentle aroma reminding me of our cottage back in childhood.


Beautiful yet overgrown, the garden needed some care.


I was delighted to give it a trim.

Under the warm Ontario Sun, this was a dream come true.


I first weeded, and weeded, and weeded. Until I took out 5 bagfuls of various greenery.

Then, I trimmed the bushes, making sure they wouldn't put too much shadow on the garden. I also wanted them to stay safely below the eaves.

Next, I re-arranged the fresh sprouts, and moved some of the flowers around. My goal was to add a little more order yet keeping the nature's charm.

Lastly, I put landscaping fabric and mulch all around. This made my work look complete. I hope it will last a while now.

Voala! Job well done. And so much fun.

"I have looked in the mirror every morning and asked myself:
'If today were the last day of my life, would I want to do what I'm about to do today?'
And whenever the answer has been 'No' for too many days in a row,
I know I need to change something",
Steve Jobs 

Friday, July 20, 2018

What?! Seven grand for life insurance!!!

As I'm building my portfolio of 50 Doors, I can't help but wonder what happens if I die yesterday.

Initially, just the thought of leaving a gigantic pile of debt behind for my kids to deal with, upon my passing, was giving me goosebumps.

Even though, the kids are older now, they are definitely not prepared to chase rent checks, fix toilets, make sure mortgage payments go through without hiccups, etc. Their current focus is studying and finishing their education.

Since I was freaking out a lot about all the debt I took on, I decided to get some quotes for life insurance. The quote came back at $579 / month, which is almost

SEVEN THOUSAND DOLLARS a year!!!

I was shocked! My husband and I didn't have to think very long to decide that this price is definitely not in our budget. We've been chasing assets, which on average make $200 dollars a month, and are not in a position to set three assets aside to pay for the life insurance. It's just too expensive!

Dangers of Self-Diagnostics: Hire a Professional

Several weeks later, I met an outstanding financial advisor. I attended his talk, read his book, and scheduled a one-on-one consultation. It turned out that I was looking at insurance completely backwards!

Instead of consulting someone knowledgeable and experienced and letting them guide me, I rushed to a decision. I had self-diagnosed my insurance problems and self-assigned a cure: that I must buy a huge coverage policy to pay off all my debt immediately, the moment something happens to me or my husband. Then I discovered that the huge policy was too expensive and left myself and my family in the same risky situation of not having a contingency plan in place.

Only after I talked to a real guru, I realized how much difference knowledge makes. There's a reason we have professionals who know exactly what they are doing! It's a shame I thought for a brief moment, I knew anything about insurance.

Lessons Learned

1) Start by Educating Yourself and/or Hire a Professional

Whenever you do anything for the very first time, it pays off to spend time on education and find experienced professionals who specialize in the field. 

Having read the book by my advisor, I got a good initial understanding of key terminology and common problems, solutions, and use cases around insurance. This helped me ask good questions  during my one-on-one consultation and discover what my personal insurance needs are.

2) Understand Your Own Needs

Surprise, surprise! After understanding how insurance works and what options would be suitable in my situation, I discovered that I don't need a huge policy to cover all my debt. It just doesn't make any sense. No wonder that would cost a fortune!

Instead, I realized that my needs are completely different. For example:
  • Be able to stay home for a few months, if one of our family members gets sick
  • Survive a sudden income interruption, in case my husband has to take a break from work
  • Have a sufficient emergency fund to avoid a fire-sale of one or more assets
  • Ensure that our kids finish their education, no matter what
  • Establish a detailed plan for our executors and get their agreement on this.
What I realized is that insurance is NOT a lottery. There's no need to buy millions of dollars of insurance. All you need is sufficient to go through a life change without sacrificing your future financial and emotional stability. 

Make sure you have enough for you and the rest of the family to still have your lives, businesses, and routine to come back to, after the storm is over, and carry on from where you've left off.

3) Understand Your Family Needs

It was interesting to me to work with my husband. During needs analysis, we drafted his and my estates. This means that we looked at:
  • what my husband will need, should I become disabled or die; and 
  • what I'll need in case he dies or gets sick.
It turned out that our two estates are drastically different.  

I'm actually a lot more demanding aka vulnerable at the moment, because my husband covers most of our day-to-day bills, while I work on building our future wealth. 

In other words, a brief interruption to my husband's work schedule, would cause a sudden financial shock to the family. While if I am out of pocket for a few months, no major collapse would happen. In this case, we'd just need to adjust our long term strategy.

With this in mind, as of now, my estate needs to be insured at a lower amount, compared to my husband's. 

Being Prepared Feels Great!


Even though it sounds very creepy to be discussing in so much detail what will happen when one of us gets sick or dies, I feel great having gone through this discussion! 

Here are some of my take aways:
  • Statistically, the chances of being out of pocket are pretty high! 
  • Basically, almost everyone will be sick in the next 10-20 years. So it helps to plan ahead how to afford to stay home while you recover and/or stay home with a sick relative.
  • Dying is easier than being sick. Sickness is hard on the person recovering and those who take care of him or her.
  • If you plan your insurance coverage well, you'll have a much higher chance to weather a storm and reach your long term goals after it.
Being prepared feels great! If you'd like a referral to the awesome financial advisor I'm working with, ping me and I'll connect you. No obligations and no referral bonuses for me! I honestly think it's super helpful to know more about this stuff and make educated decisions about how to best protect yourself and your loved ones.



Friday, July 13, 2018

Hey! Where should I invest?

I often get a question:

"Hey, I'd like to invest in .... 
plug in any town or city you are wondering about - Toronto, Milton, Hamilton, Windsor, Oshawa, Montreal, Ottawa, Rochester, Buffalo, etc... - 

... what do you think?"




To be honest, in most cases, I think absolutely nothing. I'd really have to do some homework and educate myself about the market before I can answer such a question.

Sometimes, I have a gutt feeling. Especially, when I've had some previous experience in a certain city. Still markets are so fluent and I'd need to look up latest stats and information, in order to provide an educated opinion.

I'd like to share a few questions that I research, whenever I'm getting ready to expand into  a new location.

If you have questions or would like to share your own tips on how to choose a great location to invest in, please add a comment below or send me an email!

1. Do People Want to Live There?

Ideally, population should be 100,000 - 200,000. If it's smaller, you'd really need to study the demand and supply carefully and make sure you know who your tenants are and how you'll find, attract, and keep them. You’ll also need to verify current inventory. Last week, I came across a city that had 26,000 vacant units while the total number of households is around 85,000 and has been declining. This tells me that supply drastically exceeds the demand and I’d have issues filling in units. Prices will not go up for a while in this market. 

There should be evidence and factual proof of recent and upcoming population growth. There are many great cities that, for one reason or another, have experienced population decline. Study latest trends in detail, before deciding to invest in them.

For example, if you come across a town that has been losing people over the past 50 years, I wouldn't bet on a sudden popularity spike. Watch out when you see outward migration, job loss, crime rate increase, poverty climbing up, vacancy rates sky-rocketing, lots of unused or abandoned inventory, etc. All these signs show you that you will likely have difficulty finding quality tenants. 

On the other hand, if you see population decline slowing down, flattening out, and notice people  starting to flood back in, you are onto something! Projected population spike might be a potential gold mine. If you start investing at the right time and get your property at a price that works, you might catch the wave of appreciation. 

Even though appreciation is always a bonus and should not be used in your assessment calculation as a given, it still makes sense to look for areas with high probability of growth and stay away from dying towns.

Projected population growth, recent considerable increase in population, new jobs and businesses opening, new or refreshed infrastructure changes, nearby city or town becoming hyper expensive and over-populated, and vacancy rates dropping are some signals of an emerging market.





2. Lots of Diverse Positives 

Look for social and economic diversity with lots of positives. Be careful when you see a location that has only one great thing going for it. An example of this is all the single big employer cities as well as cities majorly supported by a single industry.

I know that it might seem highly improbable for a giant company to shut the doors, yet we’ve seen so many examples. Windsor, Detroit, and Rochester are some examples of cities that went through a relatively long down town due to larger employers leaving.

One of the ways to find cities with lower risk of over concentration is to look for diversified and balanced list of positives across a wide spectrum: diverse demographics, income levels from entry to high, education from high school to PHD, household sizes from single person to families with kids, several unrelated employment industries, various types and levels jobs - white color, blue color, small businesses, large businesses, new technologies, and established employers, etc.





3. Who and How is Helping the City Grow?  


Lastly, I do a lot of research regarding economic development plans for each location that I plan to invest in. 

Looking at the plans of a City gives you a lot of insight into upcoming trends. For examples, some cities would promote latest technologies, set up programs to attract businesses, implement solutions to upgrade skills of the population to meet incoming businesses' requirements. You'd come across articles when agreements are made between various levels of the government to fund major infrastructure improvement programs: build new bridges, highways, and train stations; grow wind mills farms; re-build airports, etc.

On the other hand, you might come across a town that has its entire budget dedicated to fixing some pot holes in the roads. Most achievements listed on their website would be outdated or insignificant. No major partnerships with outside investors would surface, when you search for news on economic development. You'd realize that no one cares if the city grows. The focus is on status quo. In this case, you'd need to make sure you are good with the status quo and it works for your strategy. Momentum might last a few more years and this may be sufficient.


To recap, since my strategy is mainly based on buy-fix-rent-and-hold-long-term, I focus on finding locations with a high probability of market appreciation due to:


  • Sufficient market size for my needs
  • Recent, current and projected positive trends in population growth
  • Lots of evidence for finding quality renters and demand for the type of units I offer
  • Good supply/demand balance and trends 
  • Minimal risk of economic collapse due to over-concentration in a single niche/industry/social group/etc.
  • Great leadership and people interested in helping the city grow with budgets dedicated to major improvement projects that will attract jobs, people, businesses, and money. Work already under way! 

Wednesday, July 11, 2018

Expectant Parents: How to Create an Effective Financial Plan




Foreword

The following article was submitted to me by Sara Bailey and I believe it's priceless. Sara shares her experience after losing the love of her life and the father of their two children, Greg.

I hope Sara's story helps you take a step back, pause for a moment, and be grateful for and cherish every minute of every day with those you love.

Also, I truly hope that the article will urge you to take action and protect yourself and your loved ones from preventable financial hardship in case of an unexpected life change. 

Thanks to this article, my husband and I saw our Insurance Advisor a few times over the past couple of weeks. We learned a lot about the benefits of various types of insurance coverage and were able to set up a plan that will help our loved ones to keep going, should we die or get sick "yesterday". 

When your family member is sick, you should be able to take as much time off as needed, to help them get better! You should have a plan to help you keep your business or your career safe, until you are ready to get back to them. It's not a secret, that we all have an expiry date and get sick every once in a while. Why not plan for it? 

Lastly, I insist that you TAKE CONTROL AND ACTION towards building your own successful future - whatever your definition is - and live your life fully, for many-many years to come! There is no excuse not to plan and execute your personal success strategy. 

Cheers to planning, executing and being prepared!

"Like many people who have lost the love of their life, I never in a million years thought I’d be here. On my 40th birthday — which I spent with my husband and our two kids bowling, devouring cupcakes, and laughing more than I ever thought was possible — I never dreamed that by my 41st, I’d be a grieving single mom raising a son and daughter on her own. But here I am, and with each passing day, I get a little stronger, and life gets a little easier.", 

Sara Bailey, The Widow, thewidow.net



Expectant Parents: How to Create an Effective Financial Plan


A baby changes everything. The minute you learn you are expecting comes with a whirlwind of excitement and new worries. Suddenly, you are faced with a massive to-do list in order to prepare for their arrival. Between prepping the nursery and buying baby gear, there are the less fun tasks that need to be addressed, too. Creating a financial plan during your pregnant months is a vital step in preparing for your new child.

Start Saving Now


It is always wise to have an emergency fund. Life can be unpredictable: You or your partner could lose your job; one of you could get injured or sick, or the car may need to be replaced. When you have a child, these costly unexpected situations are twice as stressful. Most money experts advise you to have 3 to 6 months of expenses in your savings account for these occasions.

However, even if you already have a comfortably padded savings account, you should set aside even more money during the pregnant months. Having a child will increase your monthly expenses. In fact, according to CBS, the average cost of raising a child is $14,000 yearly. The best time to add to your savings is before your baby is born.

Build a Budget


Children are expensive, which is why creating a budget is key. Some studies have found that parents who do not plan their spending run into financial issues around when their child turns 6 months. This can put a serious strain on your relationship.

Before you have your child, keep meticulous track of your spending to help you identify where you can cut back. Then estimate how much your child care expenses will be, this includes items such as diapers, clothes, formula, and toys as well as larger one time purchases such as the crib and stroller. To make things easier, try using the baby cost calculator at Babycenter.com.

Crafting your budget provides a great opportunity to evaluate if it is more beneficial for you or your spouse to stay home. Child care such as babysitters and daycare on average cost around $200 a week. Crunch the numbers to see what makes the most sense for your family.




Prepare for the Worst


Though it may be unpleasant to think about, you need to make sure that your child will be taken care of if something were to happen to you. Time magazine encourages couples to sit down together and have a serious discussion about estate planning.

Take a serious look at all your assets and create an itemized list of what you would like to go into the will. Do not forget to include investments such as property or art and retirement and savings accounts. To get an accurate measure of their worth, you may need to bring in an appraiser. You could also calculate the value of your home by looking at similar homes in your area and what they recently sold for.

Now is also the time to update your beneficiaries, write or adjust your will, and invest in life insurance. Taking these steps now will save your family members a lot of grief, stress and confusion in the event of a worst-case scenario.

 Invest in Their Education


It is never too early to start planning for college. The earlier you start saving, the better. Treat their college fund as an investment and set up their savings in a college savings plan in their name. These are designed to make sure your child does not miss out on financial aid or end up owing thousands of dollars in taxes. Instead, this money will go directly toward their education.

Get Ahead of Schedule


The sooner you establish a financial plan for your family, the more relieved you will feel. Money problems are often cited as the number one stress factors between couples and this only amplifies when you have a child. Take the time now to come up with a successful money strategy so that you can later enjoy your time with your new baby.

Photo courtesy of Pexels. 





Tuesday, June 19, 2018

How to Stop Living Paycheck to Paycheck


2012 was the year my husband and I  decided to take control over our financial destiny.

At the time, Anton worked for a small start up. The start up didn’t make it, so Anton had no job and no income.

I was running a small consulting firm – we implemented Human Resources systems for companies around the world.

I was a workaholic and drove myself into the ground – I was extremely exhausted, depressed, and had to close the business.

You know what? Our three kids couldn’t care less that we didn’t make any money. They still wanted to eat, drink, do sports, buy Pokemon cards, etc. It was pretty horrible!

That was the rock bottom for us. 


So we made two decisions:


  1. We decided to write our resumes and get ourselves proper jobs. Like grown ups do.
  2. We decided that we will find a way to make sure that this type of financial disaster never-ever-ever happens to us again





 That’s when we realized that we had absolutely no idea about money.

We knew very well how to spend it. But that was it!

So we started educating ourselves.







Some of you might have heard about the Law of Attraction and Bob Proctor.

Bob Proctor is considered to be one of the world's greatest authorities on attracting wealth. What he says is

 “Thoughts become things. If you see it in your mind, you will hold it in your hand”,
- Bob Proctor 

Maybe it was the law of attraction, or maybe I was just click happy on the Internet.

But one day we got a call from Rich Dad Poor Dad coaching team. So Anton and I signed up for an 8-week real estate training program with Rich Dad Poor Dad.




Taking that course and committing to do as we were taught, was one of the best decisions we ever made.

We learned about assets.

An asset is something that puts money in your pocket. 



I’ll show you an example later.


We learned that to become financially independent, you need to acquire assets. Assets will work for you and put money in your pocket. If you own some assets, you’ll have income from them and you will no longer be at the mercy of your employer or your next paycheck.


We also found out about liabilities.

A liability is something that takes money away from you.


For example, traditionally, we think that our house and our car are assets. 

But the reality is that both of them are actually liabilities.


That’s because we have to pay money to maintain them every month - mortgage, insurance, utilities, gas.


Here’s an example of an asset.

This is a small house in Chatham, Ontario.

It rents for $800.

All expenses add up to about $700.

Cash in your pocket is $100 every month.
By show of hands. 

Who would like to have an asset like this? Right, most people think that 100 bucks isn’t worth the effort. 




Audible, Netflix and a Sushi Buffet for up to 4 people cost about $100 bucks.

All three of these liabilities together can be covered by the cash flow from the tiny Chatham house we looked at earlier.

You can look at it this way: if you stop going to work and never get another paycheck, you’ll still be able to afford Netflix, Audible and Sushi.


Let me ask you now. Who would like to have the tiny Chatham house, so that you can get free Netflix, free Audible, and free Sushi for the rest of your life?




Based on the concepts we reviewed:

Assets put money in your pocket. 

Liabilities take money away from you.





The formula to financial freedom is: 

Acquire assets and eliminate liabilities until the cash from assets covers all the expenses from your liabilities. Then you are financially free.


Monday, June 18, 2018

Pocket Deal: You make money when you buy! Literally


Got a property with 20% off!
In one of the real estate training programs I took, we learned about pocket deals.

I knew, in theory, that if you build great relationships with real estate brokers, you'd start getting deals off the market, which they call pocket deals. But so far this has never happened to me until today.

Today is my lucky day!

Because... I GOT MY FIRST EVER POCKET DEAL!


These deals are supposed to be great because:




  • Price is low - you get a gigantic discount
  • No one else even knows about the deal
  • No competing offers even in the hot seller market!

Here is how it happened.

One of my friends focuses of flips. It's essential for him to find properties at super low prices. So, he  designed a system of finding deals off the market and putting them under contract. His system works great!

He gets houses ch-e-e-e-e-e-a-a-a-a-a-p. Then, fixes them. And flips!

Occasionally, he comes across a house at a good discount, but the discount isn't big enough for a flip. The cost of the transaction would eat most of the profit. These situations are best for those who buy-fix-rent-&-hold, like myself.

So instead of flipping, the deal was assigned to me. In this transaction, my friend plays the part of a wholesaler. He adds a profit (aka assignment fee) for himself before re-selling the deal to me.

Here are the numbers:

Market Price
290,000 [1]
Sold to Whosaler At217,500 [2]
Assignment Fee15,000 [3]
My Price232,500 [4]
Downpayment54,375
Closing Costs10,875
Renovation15,000
Total Investment80,250 [5]
Instant Gain31,625 [6]
ROI at Purchase39%[7]





1) Comparable houses are currently selling for 290K

2) My friend was able to purchase the property off the market at 217.5K

3) He charged finders fee,  which is called assignment fee, of 15K when he assigned the deal to me

4) I am paying 232.5K for the house

5) To get the property, my total investment will be ~ 80K, including dowanpayment, closing costs, and a renovation

6) Based on current market prices, I'll have immediate gain of 31.6K:

Gain = 290K - 232.5K - 10.8K - 15K = 31.6K

7) The moment I buy the property, my return on investment (ROI) is almost 40%:

ROI = 31.6K / 80.25K = 39%.


Thursday, May 31, 2018

Cash and Other Benefits of Refinancing

Refinance - a way to convert Real Estate equity to cash
I can't believe it's already June and half of 2018 has zoomed by! May was a productive month. One of the big accomplishments was re-financing two of our properties.

Real Estate isn't very liquid type of investment. This means that you can't easily convert the value of your real estate properties into cash and go buy some groceries. This value is called equity.

Equity equals to current market price of your property minus the mortgage / loan balance that you have against the property.

As you hold a property, equity grows as market prices go up and as your mortgage principal is paid down by your tenants. If market drops, equity drops as well.

There are several conversion mechanisms to convert equity to cash. Re-financing is one of them. Another method is selling the property.





When you re-finance a property, you are basically starting over with a new mortgage.

As a result, your monthly mortgage payment will change. In my case, it went up considerably because interest rate has gone up from 2.95% to 4.39% and also because the size of the new mortgage is a lot higher than previous mortgage balance.

It might seem on first glance that re-financing and getting a higher monthly mortgage may be a very bad thing. If you think about it, your level of debt goes up. Your interest costs go up. Your cash flow from the property goes down. There are also various costs associated with the refinance transaction including mortgage broker fees, lender fees, and lawyer fees. Why would you do it?!?

Here are the reasons why this worked for me:

1) Getting Your Money Back 


Several years ago, when I originally purchased the property, I put in some money as a down payment. After purchase, I invested some additional money to renovate the place.

Refinancing helps me get all of my money back.

Once you have your money back, you can use it however you please. You can put it as a down payment for another asset, for instance. Or maybe you are nearing retirement age and would like to spend the money on your day-to-day expenses. Or perhaps, you have higher interest debt and you could use the money to pay off the lenders.


2) Maximizing Return on Investment


Let's take a look at an example. Suppose you buy a property for $100,000 with $20,000 down payment and suppose the market goes up by 2% every year.  Let's also say that principal pay down is negligible, for simplicity of calculations.

Then, after the first year, the property will appreciate to $102,000 and you would've gained $2,000.

Return on Investment (ROI) = $2,000 / $100,000 = 10%.

In this example, the market went up by 2%, but you made 10%.

This is because even though you provided only 1/5th of the money (20% down payment), you benefited from the growth of the entire house - and you got all of the gain.

What if you re-finance and pull all of your investment money out? In that case, you no longer have any of your money in the property, yet again you benefit from the appreciation of the entire house. This is when you get maximum returns:

Return on Investment (ROI) = $2,000 / almost nothing  = Infinity!






3) Doubling # of Assets That Work for You


Suppose, you buy another asset using the money that you pulled out at refinance.

Now, you have two assets working for you. Together, the gain from appreciation is $2,000 + $2,000 = $4,000.


Here are sample numbers for a refinance transaction:


The numbers above show you key numbers behind a refinance transaction. In this example;

New lender approved a loan of 255K. Out of this loan, previous mortgage of 135.5K was paid. Almost 7K was paid in fees.

Investors got all of their money back.

There was 63.7K of cash pulled out of equity. This is ~ 115% return on investment since the start of the project. Or, 29% annualized ROI.

Note: mortgage debt increased from 135.5K to 255K.

If you have any questions or would like more info, please comment below or contact me.