When You Thought You Could Fly and Then... Got Stuck

When you thought you could fly
but then got stuck
and are really afraid!

Sometimes, the moment you think that you've figured out how to become financially free, the situation changes and you have to adjust your plan.

Approaching the Financing Wall

In the past five years, my strategy was to get a new property using expensive private money, renovate it, get a great tenant, then re-finance with more affordable money.

The refinance step is critical. It improves my cash flow. In addition, after the refinance, equity starts to build up within the asset because my mortgage is interest-plus-principal-paydown, rather than interest-only.

Without refinancing, holding on to the property is pointless. The property doesn't bring much positive cash flow. It doesn't accumulate equity over time either. The downpayment money is getting lazy. It's stuck inside of the property, not doing much.

This strategy worked for me five times.

With five different properties, I got a private interest-only loan to acquire a vacant asset. Renovated. Advertised. Got a great tenant. Enjoyed my skinny cash flow for a few months. Then, qualified for a traditional mortgage at a better rate. Refinanced.

Voila! Much better cash flow and principal paid down by my tenants. How nice!

The process worked like a clock. Over and over again. Until it failed.

Slammed Against The Financing Wall

At the end of 2017, I acquired three properties with private money. My plan was to replace the expensive interest-only loan with a more affordable conventional loan in a few months. Like previously, this would lead to improved cash flow and principal paid down by tenants.

Except, this time I couldn't qualify for a conventional mortgage!

The problem was that I no longer met the bank's underwriting criteria. In simple language, the lenders concluded that it was too much risk to give me another mortgage.

In the past, I had a job. My salary looked great from a lender standpoint.

Today, I am self-employed. My rental income is considered risky. Even though it is supported by 17 families working at 17 different jobs, lenders believe it's riskier than relying on my old one-woman paycheque.

In the past, I had one property. It looked great from a lender standpoint, as having a mortgage was so typical.

Today, I have a bunch of assets. Yet, most lenders don't approve more than five mortgages. They consider it risky because a borrower with more than five assets doesn't match their typical good borrower profile. Having more than five mortgages is not typical.

Investors call it the Financing Wall.

When you just gained the momentum, then slam - no more money for you!

Through and Beyond The Financing Wall

Long story short, let me jump to the conclusion of the story:

Don't give up when you don't qualify for a mortgage four times in a row. 

Don't give up when your credit score went from Excellent to Good to Fair. 

Don't give up when your situation doesn't fit a conventional good borrower profile.

Don't give up when your credit card payments give you creeps.

Instead:

• Make sure your mortgage broker is as awesome as mine! See their contact info below
• Eliminate liabilities! read through my prior blog post on how eliminating liabilities can decrease the burden of expenses and expedite your financial freedom
• Make sure you have Plan A, Plan B, and Plan C and you do just fine with or without better financing
• If your profile doesn't match the characteristics of a good borrower, learn what those characteristics look like and tweak your profile to change your financial future, so you can qualify down the road. Here is a link to an Excel template that I use to help me stay as organized as possible and make a very good impression on potential lenders
• Keep learning, so you can adjust your strategy or start using new strategies! There are infinite number of different ways to accomplish a goal.
• Ask! What I didn't realize far too long is that no matter what your situation is, chances are someone has been there and will gladly help you find a way out. Email me at ask@50doors.com

Here's the info for my broker, who has helped me with financing many-many times when I doubted there was a path forward. In fact, he shared this quotes with me when we broke through the Financial Wall after a few unsuccessful attempts:

"Never give in. Never, never, never, never--in nothing, great or small, large or petty--never give in, except to convictions of honour and good sense." 

-- Winston Churchill

If you need a mortgage in GTA, check out these guys

PS Did you know that a $300,000 mortgage with 3% rate will cost upwards of $575,000.00 and you could save 10 years and $90,000 of interest if you were to pay just $200 more per month? Here's an Excel tool that I use to do all my numbers when it comes to planning accelerated mortgage pay down and tracking my results

How to Become 22% Financially Free

Most of my girlfriends think that
living with my parents is
a horrific idea :)

Over the Christmas break, my family made a very big decision. We all finally agreed that it's time to eliminate one of our biggest liabilities - our home! 

We decided to join efforts cross generations and consolidate two residences: my family moved in with my parents.

This is not only because we love each other to pieces, but also because we saw a great opportunity to optimize our spending. This is a step towards our financial freedom goal and a part of the following chain reaction:

• Spending goes hand in hand with saving.
• Saving goes hand in hand with investing. 
• Investing goes hand in hand with multiple streams of income.
• Multiple streams of income go hand in hand with financial freedom.

I understand if you think it's a crazy move. Even my nine-year-old jokes:

My son: Mom, how do you feel about living with your Mom when you are almost 40?

Leaving 16 years of memories behind

Me: I like it

My son: Why? [Pauses] Free food?!?

Then, he bursts into laughing loudly at his own black humour.

All joking aside, this is a big change for our family. Kids had to change schools, karate dojo, pack
and move all of their stuff, and try to make new friends. My husband and I packed 16 years of life into boxes and garbage bags and piled it in my parents' basement. My parents now have to observe our semi-chaotic living in their previously idyllically quiet home.

Why? Because this change takes us closer to achieving our financial freedom goal. Now, our upcoming year-long Sailing Trip in a couple of years is more real than we've ever imagined.

Myth: Home is an Asset

Most people consider the home that they live in to be an asset.

There is a lot of evidence all around us in favour of this myth. For example, real estate agents will tell us that home is the most expensive asset we will purchase in our lifetime.

A creditor will ask us to put the market value of our principal residence at the top of the Assets column on their credit application.

Our personal financial advisor will ask about the value of our home and enter it on the first line of the assets section of our Personal Financial Information form.

Let's be pragmatic about facts:

A real estate agent will get paid a commission based on the purchase price you pay for your home. 

A creditor will collect thousands of dollars of interest payments when you borrow from them and secure a loan against your home.

A financial planner will help you in many ways:

a mortgage, insurance, a secured loan, an investment portfolio, and a repeating annual financial plan update, all of which is based on the market value of your home; all of which comes with a price tag.

Please keep in mind that I am a grateful customer to a few amazing real estate brokers, mortgage brokers, and financial planners. Knowledgeable advisors help me tremendously on my way to financial freedom! The value of the products and services they provide to me greatly outweigh the associated costs and propel me forward. In fact, I wouldn't be able to achieve what I've done so far without their help. If you are reading this - Thank you!

The trick to appreciating the value of these services is to know exactly what you are after.

The advisors, especially great ones, will give you the advice that you'd like to hear. This is because a huge part of their job is to help you achieve your dreams. They will cater services to your tastes and help you make the decisions to achieve your desires.

Therefore, if you go with conventional definitions and believe your home to be an asset, you will inevitably purchase an expensive home and spend a lot of money on it! Your advisors will help you do it to the maximum.

Your Decisions are Yours to Sponsor

Since my goal is financial freedom, I make it my highest priority to fully understand the costs of each of my liabilities, including my home.

I am fully and solely responsible for all the associated home expenses such as:

Mortgage Interest and principal 

Mortgage insurance 

Life and disability insurance premiums 

Property taxes 

Property insurance 

Maintenance and repair costs 

Snow and grass care costs 

Cable 

Internet 

Phone line 

Security alarm system 

Furnace lease 

Water tank lease 

Utilities 

Interest on the furniture bought on credit card 

Interest on the car as fancy as my neighbour's

Netflix

Amazon Prime 

Cleaning lady (I notice that the trend is more bathrooms than people in a house!)

A second car if the house is far from work 

Given my personal goal, I choose to disagree with the conventional definitions and concur with Robert Kiyosaki, who insists that we put our home on the liabilities side of the equation.

In order for me to balance my personal budget, I have to face the harsh reality and be ready to pay the bills that I signed up for. There's definitely a lot of bills to pay when it comes to home ownership!

Consequently, my advisors strive to help me find the best bang for the buck, save every penny possible, and use my personal home to the fullest.

Abundant Opportunities

Homeownership combined with the home being classified as a liability (as opposed to being an asset) gives you tremendous opportunities.

First and foremost, I bet you can save two to three hundred dollars a month, if you carefully revisit all of your regular expenses, decide which of them you no longer need, and stop paying for them.

Keep in mind that small savings add up.

For example, over the past couple of months I shaved off the following on little things:

- Replaced mortgage and loan protector insurance with whole life and disability insurance +$100

- Stopped paying for a home thermostat rental +$15

- Cancelled Netflix +$12

Sub-Total: $127 per month = $1,524 per year = $1,836 before tax.

After moving to my parents, I've also added the following savings:

- Cancelled internet +$65

- Cancelled home insurance +$40

- Cut utilities and property taxes in half +$500

Sub-Total: $605 per month = $7,260 per year = $8,746 before tax.

Adding $656 monthly saving I shared last month, grand total becomes:

$127 + $605 + 656 = $1,388 per month = $16,656 per year.

At 17% tax rate, that is $20,067 of pre-tax salary.

An average family with 73.7K annual household income has to work for over eleven weeks to earn enough money to cover these expenses.

Given the recurring nature of these expenses, it's not just a one-time eleven-week long work project. You'd have to work for eleven weeks every year to pay for all these obligations.

For me personally, getting rid of these liabilities means that my husband can be on vacation for 11 weeks out of 52 every year. 

This alone makes us 

22% FINANCIALLY FREE

Sailing Trip Awaits!

Not bad, eh?

PS Saving and being frugal around your home-related expenses is just one side of the coin. Being a homeowner can open many investment opportunities and become the basis of your future wealth and financial freedom. Email me at ask@50doors.com if you'd like to learn more

When Frugality Fails

Being a landlord can feel EXTREME

Earlier this month, I started feeling as if

someone somehow 

made 

the God of Appliances 

MAD

Every time I picked up the phone, I heard one of my tenants deliver the bad news.

It started on Sunday morning.

Ring-ring. My fridge stopped working.

Monday morning. Ring-ring. My dryer stopped working.

Monday evening. Ring-ring. The washing machine doesn't drain.

At that point, I made a strategic decision of letting the phone ring and go to voice mail, while I was sorting out all these appliances issues.

Luckily, this was it for the time being!

Extreme Efforts Being Frugal

Most properties I get, come with appliances and in most cases they are pretty old. Hence, I expect at least some of the appliances would break fairly soon after the purchase.

In the past, I always looked for a used appliance to replace the broken one. I thought this was the most cost effective approach.

For two to three hundred dollars, I could find a decent used washer, dryer, stove or whatever needed. A new appliance would be about $500, almost twice more expensive.

With a used appliance, I also had to figure out a way to deliver it to the tenant, get it installed, and get rid of the old broken one.

Luckily, my husband is quite handy and could help with most of this.

This is How We Did It

I'd find the most affordable decent used appliance and negotiate the price.

Then, coordinate child sitting, so we can free up either a Saturday or a Sunday.

Our weekends are packed with our youngest son's Russian lessons, music, hockey, and occasional birthday parties.

Our youngest son is nine and the oldest is almost 19. My parents and my-in-laws have 6 grand kids each. They used to be eager and excited to babysit the oldest couple of grand kids.

Let's be honest, after 19 years on grand-parents duty, I can't say any of the grand-parents are thrilled when I ask them to spend a day driving grand son #6 back and forth, trying to bribe him with just the right amount of doughnuts, chocolate milk, and chips as he goes through a back to back list of all sorts of developmental activities and sports.

Having said that, more often than not, our parents still agree to help us out.

Childcare arranged - Yay!

Next, we'd borrow our friends' mini-van. Our friends have three kids of their own. So this is a hassle for them as well. They have to move car seats, strollers, and downsize their life for the day every time we need to borrow their car.

I'm grateful every time they help us out! To thank them we always bring back their car with a tank-full of gas.

Transportation Arranged - Yay!

The following step is to make an appointment with the tenants, at least 24-hours ahead. This is usually the easy part since the tenants look forward to getting a working appliance.

It has to be on the weekend, though! Because my husband has a day job. All this investing jazz is happening after hours and on weekends.

Tenants on Standby - Yay!

On the day of, usually a Sunday

1) Wake up early in the morning, seven-ish

2) Get Starbucks, it's going to be a long day!

3) Pack and drop off the child

4) Give extremely-detailed-instructions to the grand-parents about all the activities they have to tackle including a back up plan in case the child is in a whiny mood

5) Get the mini-van from our friends

6) Pack all tools and hardware

7) Remember to take the key, in case tenants aren't home

8) Go and get the appliance from the seller, typically someone I found on Kijiji

9) Drive to the tenant, either to Barrie or Guelph

10) Attempt to install the appliance

11) Find out that something doesn't work or is missing - pipes, outlets, drains, narrow doorway. It's guaranteed that something is going to be messed up or in our way.

12) Go to the hardware store for the parts and tools, minimum twice

13) Finish appliance installation super-late in the evening

14) Roll out the old appliance to the curb. Comply with local city and safety rules (ex., if it's a fridge, take off the door!)

15) Get fast food. We are super hungry and done with all the snacks by this time

16) Drive back to Toronto. No traffic on the way back - Yaaay!

17) Fill up the tank and return the mini-van

18) Pick-up the child from the parents

19) Go to bed at two or three am

20) Wake up four hours later

The job is done! Yay!

How Much Money-Wise?

With do-it-yourself approach, we'd pay about $300 for the used appliance, $50 for gas, $80 for a full tank of gas as a Thank You to our friends, get coffee, fast food and realize one out of every four new used appliances would break within several months after purchase and we'd have to fix it.

In summary, used appliance would cost about $600, while a new one would be about $800.

	Used Appliance	New Appliance
Appliance	$300.00	$500.00
Delivery	$-	$100.00
Installation	$-	$200.00
Starbucks for Two	$12.00	$-
Fast Food for Two	$20.00	$-
Gas & gas re-fill	$130.00	$-
Fix New Used Appliance	$132.50	$-
Total $ Cost	$594.50	$800.00

How Much Effort-Wise?

In addition to dollar cost, we'd need to collaborate with and inconvenience a whole bunch of family and friends to coordinate appliance re-placement.

Collectively, we'd spend over 150 hours either putting in heroic efforts AND/OR sacrificing our weekend.

The result would be subpar. After all this time invested, our old new appliance will likely break soon or stay functional for just a couple more years. So we'd need to re-group and fix it again!

People Involved	Do It Yourself Delivery /Install	Professional Delivery/Install
Grandparents @ 12-14 hours	2	0
Child @ 12-14 hours	1	0
Friends @ 12-14 hours	5	0
Husband @ 12-14 hours	1	0
Self @ 2-4 hours admin work	1	1
Self @ 14-18 hours inspiring my husband to put in heroic efforts over the weekend	1	0
Handyman @ 2-3 hours	0	1
Tenants @ 3-6 hours	2	2
Total # Participants:	13	4
Total Time Needed from everyone involved	128 to 156 hours	8 to 16 hours

With PROFESSIONAL help,
being a Landlord feels smooth

Landlord Job gets Easier with Professional Help

As my portfolio grows, appliances issue come up more and more frequently.

Sometimes, as often as three times a day!

My friends and family will NOT want me to hijack all their weekends, so that I can save $200 on an appliance.

I will never see my son again, if spend all my time trying to get and install cheap used appliances.


Also, my husband would very likely ask for a divorce if I queue up appliance deliveries and other handyman work for the next three-four-five weekends in a row...

Lately, I always go for NEW appliances and pay for PROFESSIONAL delivery and installation. 

This is the ONLY way I can scale to 50 doors.

How Two Families Got Richer

Miss my car, but don't miss spending ~8K a year 

Over the past 5 years, I've been adamant about eliminating liabilities.

Here is the theory:


Liabilities take money out of your pocket.

The more liabilities you get rid of, the more money you keep for yourself.


Every dollar you keep, you can put to work by acquiring assets.


Assets put money in your pocket.


Once money from your assets cover your needs, you are financially free.

Hence, eliminating liabilities expedites your financial freedom

Easy! Right?

Not really!

It took me over five years to make the decision to get rid of one of my biggest liabilities - my car! 

In Love with My Car

In love with my car

My husband and I knew precisely the cost of owning two cars. Yet we hesitated. We had a lot of questions: do we really need both cars? can we do with one car? how much extra time will we spend on logistics if we were to get rid of one of the cars? which of the cars we keep? how much can we save?

Most of uncertainty and hesitation came from the fact that my car was really important to me. I loved it! It was an integral part of my life.

It was hard to imagine not having my own car. I was used to being free to go whenever and wherever I want.

Managing our properties, driving kids to schools and sports, visiting our parents, getting tons of food from Costco, etc. all required a lot of driving. My husband and I often had to be in two or three different places at once. Eliminating one of our cars would cause a lot of stress and cost time.

After discussing pros and cons, we always came to the same conclusion: we had to keep both cars.

Even though I knew my car was an expensive liability, I loved it too much. I couldn't let it go.

Annual Car Cost = Seven Weeks Working 

It's been taking a TON of money out of my pocket. In 2018, relevant  expenses added up to $7,878:

Costs	Amount
Gas	$3,473
Insurance	$2,435
Fixes	$1,507
Parking	$463
Total	$7,878

At 17% tax rate, this equals $9,492 of pre-tax money.

An average family with 73.7K annual household income has to work for over seven weeks to earn enough money to cover this liability. This is a recurring expense, so it's not just a one time seven week work project. You'd have to work for seven weeks every year to pay for all the car expenses expenses that year.

Time for Change

All good things must come to an end

This year our personal situation changed.

Our oldest son moved out.

Our middle son became fully self-sufficient. He prefers TTC.

I work from home most of the time.

My husband takes train to work.

We noticed that both cars are parked and idle during most of the time.

The next step was obvious. No more hesitation. We no longer needed two cars. Time to sell!

My Ex-Car is now an Asset

Once we made the decision, selling was easy. We found a buyer on Kijiji.

What I loved the most was that he turned the car into an Uber! It's now an asset and is putting money into the buyer's pocket.

One transaction made two families a little bit richer:

My family got rid of a liability. We now keep more money for ourselves.

The buyer's family acquired an asset, which puts money into their pockets.

Can't Afford Financial Freedom? Start with these THREE Steps

Overcoming the No Money Hurdle.
This is how I feel when I need to finance a new deal.

I recently sent out a 2-minute survey about financial freedom. If you haven't responded, feel free to  fill it out HERE -  it's fun, super-quick, and your response will help me understand what's important to you.

It'll also give you a moment to think about your personal financial goals.

One of the survey questions was:

"What's holding you back from reaching financial freedom?"

So far, the top-most response with 58% vote is:

"I can't afford it. Not enough money" 

I thought it would be helpful if I gave you the exact steps I followed to finance my real estate assets. This approach worked for me over a dozen times.

Step 1: Acquire an Asset not a Liability 

An asset puts money in your pocket. A liability takes money away from you. 

Assets are easier to finance than liabilities. 

By definition, assets make money and, hence, provide a less risky security for a prospective lender.

A typical A or B lender always makes money, no matter if you pay your mortgage or not:

• If you pay mortgage, they make a LOT of money (see my previous blog post - Mortgage Free by 2023).

• If you stop paying your mortgage, the lender can collect the rent instead of you. This is why many lenders require a current lease agreement, so that they have a way to verify how much income you collect from the asset. This gives them a method to make money, even in the worst case.

• In case of default, the lender can choose to sell your property. If your property makes money and is priced under market, there will be lots of buyers - the sale will be quick and easy. This is why most lenders will also require that an appraiser they approve off, provides a current market assessment and confirms the market value of the property. The bank will only finance up to 65-80% of the value. 

On the flip side, all your liabilities add up and play against you. You may be able to get financing for the first few real estate properties, which are not cash positive, if your personal income can support paying for them. However,

• Most traditional lenders will turn you down, if your debt service ratio is worse than 44%. This means that at the most, 44% of your income has to be enough to cover all your interest, tax, and heating payments. 

• When you go after liabilities, you reach this 44% ratio very fast. As soon as that happens, most traditional lenders stop giving you money. Your strategy becomes too risky for them.

Keep in mind that you can usually find more creative ways to finance the deal. However, in my experience, creativity usually is expensive. You have to get more expensive money from lenders who don't mind extra risk or trade equity for money. Either way, mathematically there is a point at which financing cost turns your property from an asset into a liability - you start losing money.

Long story short - getting financing for assets is a LOT easier and more affordable than getting financing for liabilities. 

My recommendation is to focus only on assets and stay away from liabilities. 

Step 2: Play by Lenders' Rules 

There are numerous lenders out there. Each lender has their unique underwriting rules and procedures. These are similar on a high level, yet minor nuances sometimes make a big difference. You might not qualify with some of the lenders, but be a perfect candidate with others.

Underwriting is the process by which a lender determines whether you qualify for a mortgage or a loan with them. Knowing how the underwriting process works is half the battle.

Hence, it's beneficial to work with an expert who knows this process inside out and can help you navigate through the mortgage application, and position you properly with the lenders, where you have the most chance. It's similar to resume writing and interview process - a good mortgage broker can help you with your money resume and your money application.

If you don't qualify at the moment, an expert mortgage broker can explain to you what may be missing. This way, you can plan your next step and work your way to your next deal. Alternatively, knowing what is missing, you can find ways to partner with friends, family, or third parties to fill in the blanks and make the deal work. Understanding lenders' rules gives you a chance to structure your deal correctly and make things work.

Financing is a repetitive task. At the minimum, you have to review financing for each asset every 5 years. When you build your portfolio aggressively, financing becomes a never-ending ongoing task.

You are always looking for money. You are always looking for ways to replace expensive money with more affordable money. Every time you find cheaper money, your cash flow goes up. 

Financing mistakes are costly. In my experience, each finance/re-finance transaction ends up costing at least $7,000 on a small residential deal. On an ongoing basis, my regular mortgage payment is often just under 50% of gross rent.

It makes sense to have a good partner on financing side of things. The last three transactions that I completed were possible thanks to the help I got from the Loan Central team. 

If you are in GTA and access to money is your biggest hurdle, give Loan Central a call! It doesn't cost you anything to ask the question. You could also drop in and attend one of their weekly meet ups. I've attended several and found lots of great FREE information and connected with a few like-minded people.

Here's Loan Central's contact info. They helped me multiple times.
If you have financing related questions, ask them!

Step 3: Be Extremely Organized 

No matter how many assets you plan to acquire - one, two, ten, 50, or a 100, stay organized.

On many occasions, lenders, mortgage brokers, and money partners complimented me on giving them the information they needed quickly and in the format that was easy for them to follow.

Lenders typically need a lot of information to complete their underwriting process and determine whether you qualify for a loan with them.

The way you present the information and its accuracy makes it easier or harder for lenders to make the decision.

It's in your best interest to make your application to be as easy to evaluate as possible.

• Provide complete accurate information 
• Double check all numbers against supporting documents before you submit information
• Make it a rule to keep track of information on a regular basis - after all, making money is what you are after. 

You will make MORE MONEY, if you keep track of it.

This is how I feel
EVERY TIME
when I finalize financing for a new deal

Here is a link to download my Excel tracking template. If you'd like it FREE, please email me and ask me to email my sample Excel portfolio template back to you. I'll respond as quickly as I can.

Here's an old blog post on what sort of documents you'd typically be asked to provide when you apply for a mortgage.

Hope you find this blog post helpful. If you have any comments or questions about money, please leave me a comment below.

PS You also might be wondering how you can come up with a down payment. That'll be in one of my future blog posts. Please stay tuned.

Financial Freedom Blueprint Gets You There Faster!

Financial Freedom Blueprinting! LOTS to think about!

Do you ever wonder if you are on the right track? 

Do you ever question your past decisions? I do!

Recently I partnered with a company that creates professional Financial Plans.

Working out the first draft of my financial plan took a lot of pondering, discussion, questions, answers, assumptions, frustration, and so forth.


Once all data has been gathered and finalized, we entered it into the financial planning software.

The program ran through hundreds of calculations and applied a few algorithms to project the value of our estate, upcoming tax obligations, assets, liabilities, cash flow, savings, etc. for years to come.

Within seconds, I got to see:

• how much money I'll have when my kids grow up
• upcoming periods of cash surplus and shorfalls
• the size of my future estate 
• my future TAX liabilities!! 

Amazing! The Financial Plan instantly gave me a visual summary of my financial future. It also helped me assess my progress towards my goal to be Financially free.

Just to give you a taste - below are some sample charts I pulled out. This is using dummy data.

What Will my Net Worth Be?

Here's a sample graph that shows a Net Worth forecast.

Red bars show liabilities. Black bars are total assets.

What will my Estate be when I turn 80?

Here's a sample estate summary  - you can see it for any point in time!

Analyzing Financial Plan

The next step is to review the initial outlook. Analyse it. Consult with experts, run through a few scenarios, and create an action plan.

The biggest and most obvious issue in my personal financial plan is insufficient liquidity.

Most of our assets are hard assets. Therefore, our long term plan shows that we should work on a strategy to acquire liquid assets, and focus on creating additional streams of passive income, as well as converting some of the hard assets into liquid.

This is not a surprise! In fact, we are currently approximately 66% done with our original passive income goal, so there's definitely room to improve. 

However, it was surprising and rewarding to realize the long-term effect of our efforts so far. Even though there's still lots to do - the plan shows that we've accumulated a lot of value, which will continue to grow with time.

Financial Freedom Blueprint

I'm so-so happy to continue to work with the Financial Planning team to build out a few scenarios for the future and incorporate upcoming actions: acquisitions, re-finances, exits, addition of new asset types, and so forth.

There are a few forks in the road when it comes to building wealth. 

Each of the scenarios we've prepared shows me a different path forward. 

So all of these scenarios together become a part of my financial freedom blueprint. 

Having an accurate and validated plan adds a LOT of clarity to my action plan. 

There's no reason to constantly question myself - the road ahead is clear.

Million Dollar Decision: Spend or Save?

Balancing Act! Spending vs Saving

Recently, I ran across a fantastic company. I loved their business model.

The team their helps Canadians take control over their finances and build passive income. Most of their clients achieve the following objectives:

1. Pay off their bad debt within about 30 days
2. Create about a $1,000,000 investment portfolio within 8-10 years
3. And all this, without sacrificing their current lifestyle. 

I am starting to work closer with this firm, to learn more about the specific software program and approach they use to achieve such tremendous success. I can see how this process will benefit many of my readers.

Wouldn’t you want to have a million dollar portfolio!?

This afternoon, I worked through my own numbers and a couple of scenarios to see how I can use my primary home plus leverage to build up my passive income.

I'd like to share my notes with you. It’s amazing how the decision to hang on to current lifestyle affects the long-term outcome!

The Formula

Step 1) Re-finance your primary residence to extract as much equity as possible. Pay-off all high interest rate bad debt and invest the rest.

Step 2) Repeat step #1 above three times: today, then in 3 to 5 years, and then again in about 10 years.

Assumptions

Below are the key assumptions I made when working through my own numbers. These assumptions are reasonable in my particular case.

Your situation might be different, so please adjust and feel free to post questions below the post:

• Property appreciates steadily at 5% a year
• At first refinance, my mortgage interest rate will increase from 3.15 to 4.5%
• Mortgage interest rate will remain at 4.5% for all future years
• I will be able to re-finance up to 75% loan to value every five years
• My portfolio will be invested with an average 11% annual return.

Scenario 1: Keeping My Lifestyle

After each re-finance, I’ll spend all of the passive income.

It is important for me to use the extra disposable income right away.

Outcome

• Fifteen years later, my net worth will be $770,000.
  
• My investment portfolio will be $383,000, producing $42,000 of passive income a year. This income will not be enough to cover my annual mortgage principal and interest payment of $55,000.

Scenario 2: Extreme Frugality

After each re-finance, I’ll find a way to reduce my day-to-day spending, so that all of the passive income goes right back into my portfolio. 

As a result, my disposable income will get smaller with each refinance, yet my portfolio will grow very fast thanks to the compounding interest.

Outcome

• Fifteen years later, my net worth will be $1,307,000.
  
• My investment portfolio will be $1,001,700, producing $110,000 of passive income a year – more than enough to cover my mortgage payments of 55K. 

Know Your Options - Make Conscious Decisions 

These two scenarios show you the full spectrum of possibilities.

The first scenario best fits those who appreciate today and live in the moment. It shows that with some effort put into making your equity work for you, you can build some wealth while enjoying some extra passive income.

The second scenario emphasizes the importance of being conscious about the impact of compounding interest over a long time. If you can be frugal – be frugal! This will pay off over time and you could be on the road to creating a multi-million-dollar portfolio and hundreds of thousands in passive income!

Whichever point on the spectrum of options you choose, it's extremely important to know yourself well, evaluate the possibilities, and go for whatever plan you believe fits your needs and desires best.

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 

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.