In a previous blog (Get Organized Before Buying Investment Real Estate), I outlined a list of documents that anyone should have prepared before they seek financing for their real estate investment acquisitions.
One of the most important documents is your “Net Worth Statement”. In the last year I’ve had the pleasure of reviewing dozens of these and, as a result, it’s clear to me that many newbie investors have a challenging time filling it out properly. As a result they have reported having a challenging time obtaining financing approval within the time constraints of their deadlines.
Short term pain for long term gain. Many people will avoid spending $100-200 to replace their lights with a more efficient alternative.
Recently I replaced the last 16 bulbs in my house with LEDs, the investment of $128 will break-even in less than 18 months and save me approximately $2,000 over the next 20 years.
At this pace, assuming no increase in electricity cost for the next 20 years (which is unlikely), worst case scenario I will earn an annual ROI of 33.3%; which is far greater than the historical average ROI of the stock market historical average of 10.1% (8.7% adjusted for inflation). There are many cases when masterful saving can outperform systematic investing and it’s worth paying attention to.
Take a look:
Every penny counts towards your retirement and it’s vital to sock away as much as you can afford, especially while you are young. How much can you afford to invest? Let’s assume you can invest $300 each month ($3,600 each year).
Every time you look at your investments it appears to be growing; albeit slowly. Is there a way to kick-start your investment account? There is, but it’s going to require an entirely different mindset about what risk truly is and an understanding of how risk can be managed. Let’s discuss…
Most homeowners have equity in their house and each and every month as the mortgage is paid down this equity continues to grow. Unfortunately this equity earns $0. Of course the value of your home appreciates slowly over time, but this would happen regardless of what you owe on it.
A convo I’m having this morning with a colleague, I thought I would share. Should you invest in your RRSP to save taxes now or your TFSA; saving no taxes now but increasing your compounding power over the next several years? Take a look…
One of the most important lessons in investing is to learn about the power of compounding. In many cases, investing early and regularly can make all of the difference in the world.
Let’s take look at a chart that shows the impact of investing $100,000 by age 30 vs. investing $200,000 by age 45 (assuming 8% average return each year). As you can see, even though the second individual invested an additional $100,000, they will have nearly $600,000 less at the age of 65… that’s a breathtaking difference!
Investing $100,000 at 30 years old vs. investing $200,000 at 45 years old
But what if you haven’t had the luxury of starting to invest early? What do you do then?
Does that $30,000 kitchen renovation really make you that much happier? Did you need granite countertops, new stainless steel appliances, built-in double ovens and recessed ceiling lighting?
Alternately, would new modern cabinetry with a standard countertop at a tenth of the price have been sufficient?
What about that $30,000 pool install? Did it need to be installed in-ground? Did you also need to replace your patio and extend it with high-end interlocking stone?
Alternately would an above ground pool that was a tenth the price have been sufficient?
Do these “luxurious” upgrades really bring you increased sustainable happiness or are you a victim to consumerism, short-term lust for higher-end physical possessions and, of course, trying to keep up with the Joneses.
“Oh my gosh, your life must be so stressful. Dealing with collecting rent, evicting tenants, doing repairs, showing apartments. You must never get a break!”. These are some of the most common reactions I get from people when I mention that I invest in real estate.
Now let’s discuss how “stressful” it really is.
I’ve been investing in real estate since 2010, a total of ~60 months. During this period I’ve had to evict two tenants, one which left amicably and the other which took a 2 month process to evict. I’ve also performed mostly routine repairs every couple of months. The one non-routine emergency repair that I’ve experienced was a unit that experienced frozen pipes two winters in a row and required a few dozen hours to fix properly. Oh and I’ve also had to purchase a spray foam insulation kit and spray the basement walls in one of my units which had excessively cold floors above during the winter months.
Today you have your annual physical at the doctor’s office. You wake up and enjoy a hearty breakfast and then head out for your appointment. All looks well and you’re sent for the typical tests that accompany your annual physical and then your appointment is done and you’re off to work. One week later you get a call from your doctor’s office asking you to come in to discuss your physical. You oblige and head in as instructed.
The receptionist calls you in and you sit down on the patient bed. The doctor walks in and closes the door. He flips through his notes, looks at you and slowly mutters the words “I’m afraid I have some bad news.” Your heart skips a beat as you hear him mutter some words about results and re-focus long enough to hear the dreaded words “I’m afraid you only have one month to live”.
Perspective is a major factor in everyone’s happiness. Two people can live the exact same scenario yet somehow they will almost always interpret them entirely differently. Let’s take a look at a similar scenario described by two different people. Which perspective do you want to frame your mindset with?