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!


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]
Closing Costs10,875
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.

Friday, May 18, 2018

Finally! A movie STAR!

Red Carpet Time!
As some of you may already know, in the past I attempted to become a movie star!

Like many aspiring stars, I signed up with a couple of agencies.

This was a great experience with some lessons learned!

On the positive side, I did feel great going to a couple of photo shoots, where a professional make up artist made me look amazing. The pictures turned out awesome as well.

On the reality side of things, I went to about 20 auditions and then gave up.

At the auditions, I felt seriously average and slightly worn out when applying for youth roles. When trying to go for Canadian parent type of roles, I felt puppy-ish and unqualified. It wasn't a surprise to have never been called back.

The biggest lesson I learned during my brief acting career was when taking a course in acting. Our acting academy teacher said one day:

"Guys! If you want to be in a movie, the easiest way to go about it would be to make your own movie!"

Since then, this is one of my core principals. If I really want something, it's on me to make it happen.

I think that this idea is one of the simplest concepts of life, which took me a long time to grasp.

Most of us probably agree with this concept on the subconscious level. This is why we often hear and believe expressions such as:

"Whoever needs it, does it",
- my Mom
"Remember, if you ever need a helping hand, it's at the end of your arm, as you get older, remember you have another hand: The first is to help yourself, the second is to help others."
- Audrey Hepburn
"Sink or swim",
- Wise people, often parents

Long story short, last week I partnered with a Canadian feature film producer and became one of the associate co-producers (aka investor) in his upcoming Canadian feature film.

This project is very exciting! It will be amazing to learn more about the entertainment industry from investor stand-point as the project develops. Here are some reason why I love this opportunity:

  1. Learn about a new industry
  2. Observe a production and launch of a new asset from start to finish 
  3. Acquire an asset 
  4. Differentiate into a field with great demand and lots of room on supply side
  5. Partner with an ambitious experienced team of people who have been successful in the past
  6. And lastly... have my name in movie credits and attend various film festivals!

Risks are everywhere of course! In this case, I strongly believe that the probability of success times reward greatly outweighs the probability of failure times loss.

If you are curious and would like to learn more, please let me know. There is still room for several film lovers to join the project.

Wednesday, May 16, 2018

Why I Love Assets!

I love assets! Imagine someone else going to work and then handing over the paycheck to you to spend? Well, this is how assets work. And this is why I love assets. When done right, assets work for you and put money in your pocket.

Thursday, May 10, 2018

Are You Sitting on a PILE of CASH?

Watch this video to find out!

To watch on full screen, please visit Just Over Broke Channel.

Monday, April 30, 2018

Untangling a Messy Insurance Situation!

Look before you Leap!
When I was a little girl, my parents always expected me to run into trouble because I often rushed too much!

I would occasionally run into a corner of a wall or hit my shoulder on a doorway, just because of running and not looking ahead.

At school, I'd replace a minus sign with a plus mid way through solving a math problem or substitute a 3 for an 8...

Small mistakes lead to wrong answers and, in childhood, to a lot of bruises.

Well, some things are just a part of our nature. I have to admit that I'm still experiencing similar types of issues and hitting obstacles just because of going too fast and not looking ahead.

Found Really Cool Insurance Company

A few months ago, when interviewing market leaders on various topics as part of my book research, I discovered a very neat insurance company.

They specialize in home insurance and use technology to let average consumers choose exactly the coverage they need for their homes.

This process gives you an experience similar to how the rich would do it - a consultant walks with the rich through their home, pointing out fur coats and expensive vases and painting, and asking whether those should be insured and at what value.

This company repeats the same experience for every client using super friendly online application process.

For example, if you own a bike and live downtown Toronto, you can add bike insurance coverage. On a flip side, you can skip everything that doesn't apply to you and save some money. So, if you don't need jewelry or fur coat coverage, you won't be adding it to your plan.

Evaluating Risk can be Tricky! 

Another very neat aspect is that selections by default include all the necessary coverage. So you can't make a costly mistake accidentally.

For instance, even though earthquakes rarely happen around here in GTA, you shouldn't remove earthquake coverage to save a couple of bucks on your premium.

When dealing with insurance, always imagine what you'd like your coverage to be in case a certain disaster happens. Would you think saving two bucks a month was a great idea, when your home got shattered by an earthquake that no one even expected?

No! You'd want some money to get yourself a new place or fix those cracks in the foundation.

I learned during the interviews, that insurance providers already figured out adequate cost based on the likelihood of a certain event. They wouldn't charge consumers millions of dollars for earthquake protection in GTA. However, they do have a lot of data to validate the scenario and, if there is a slight chance that an earth quake is possible and can cause considerable damage, they'd offer the coverage.

So what I really liked about this new insurance company is that they wouldn't let you waive coverage of the type, where a typical consumer wouldn't have sufficient data to make a wise decision. They wouldn't let you take on a risk of losing everything just because your assumptions are based on day-to-day life and not backed up by lots of data with detailed analysis of trends and probabilities.

Instead they'd let you make very safe decisions such as increasing your deductible to save money on your premium or removing coverage that will not cause you to be out on the street in case of a disaster. For example, removing bike insurance and increasing deductible from 1K to 5K would be a great way to save money without putting yourself at risk of becoming homeless at the same time.

Saving $1,200 = A Week on Vacation

Now, at last but not at least, this new insurance coverage ends up being cheaper than what I currently have.

All the small savings from choosing the specific optional coverage I need and waiving safely components that I don't need, add up. Also, even though I have several properties, this company doesn't charge me extra.

Each of my properties still qualifies as a regular residential rental home and there are no extra charges for being a commercial client with more than 3 rentals. Traditional insurance providers would usually charge you extra, once you have more than three rentals.

I got quotes for the first three of my rental properties with a total saving of $400 a year. This might not sounds like much to you, but here is my math.

Saving across all of my properties would be around $1,200 a year.

$1,200 roughly equals to half a year of profits on one of my rental home. This is because my typical goal is to make $200/month on every unit. By tweaking my spending on insurance, I gain half a year worth of profits.

Let's see how the saving compares to what people usually make on a paycheck at a job. Let's assume 30% tax and 80K/year salary.

$1,200 equals to  $1,714 paycheck earned at work before tax. This is about 5 business days worth of work. Basically a week!!!

No matter how you look at this. The saving of $1,200 sounds HUGE in my mind and I wouldn't want to miss it.

Going Too Fast

Better Safe Than Sorry!
Obviously, I got very excited about this opportunity to streamline my insurance expenses and rushed forward.

I got three quotes for three properties and successfully transferred two of them to the new insurance provider: my primary residence and one of the rentals.

It was a very smooth and easy process and only took a couple of minutes and clicks at the computer.

Unfortunately, there was a snag with the third property!

What I didn't realize was that the company only insures a very specific type of residential properties.

There is an underwriting process that takes place after you get a quote and before you get coverage confirmation.

Oops!!! Left With no Coverage!

My third property didn't meet the underwriting requirements and coverage was rejected.

This happened because this property is not a typical residence. It is a triplex and is on cultural heritage list.

Unfotunately, I rushed forward and had cancelled the coverage with the existing provider BEFORE I received a note from the new vendor that they would not cover this property.

I did so because:
  • I saw the two other properties transfer very smoothly. 
  • I loved the quote for the third property as well. 
  • It was the last day to cancel renewal with the current provider without any fees. 
  • I tend to rush!

To make matters worse, when I started looking for another new vender, it turned out that most insurance companies would not even quote you on rental properties insurance unless you also cover your primary residence with them.

So, now with only a few days left, before my coverage expires I have to find insurance coverage at reasonable cost and move two of the properties from the new vendor elsewhere.

The good news is that the new company that I describe above doesn't have the requirement of covering primary residence. So I can still take advantage of their pricing for most of my properties. In addition, their cancellation fee and process is easy.

Now, fingers crossed! Let's see how my search plays out.

Have any comments or questions? Please comment below the post or get in touch directly. I'd be happy to hear from you.