How to invest in appreciating assets to create your own financial freedom

7 years ago today, we took possession of a luxury 6-plex with 3 bedrooms / 2 bathrooms / underground indoor parking / central air for four of the units and the 2 bedrooms / 1 bathroom / central air for two of the units.

We acquired it for roughly $1 million after environmental fees ($965K + closing costs and fees) with ~$220K down. While most people assume this would be out of reach for nearly everyone, we borrowed the capital from the equity within our homes by using a home equity line of credit.

Many people take out home equity lines of credit to perform renovations, purchase trailers / luxury vehicles or to take luxury vacations. All of these purchases depreciate in value and/or eliminate wealth, so we chose to go against the norm and to transfer our equity into assets that appreciate instead.

In this timeframe of 7 years, having borrowed ~$220K from our home equity, we’ve paid interest of ~$42K on the loan (~$6K per year x 7 years). In that same timeframe the property has appreciated to a value of $1.5 million and our mortgage owed is now down around the ~$650K mark. Paying interest of $42K have earned us a return of $600K ($1.5 million value minus $650K mortgage minus $250K outstanding home equity line of credit). This investment has resulted in a whopping 1,300% return in just seven years!

Now, to acknowledge the unusual market conditions, we are acutely aware that this won’t always be the case; properties have appreciated at a ridiculous and unsustainable pace over the last several years; in fact our forecasts had us earning $300K less, which had that happened, it still would have been an incredible return. What were the assumptions we used to calculate our returns? We assumed historical averages of appreciation aligned w/ inflationary metrics.

I’m not sharing this to brag. I’m sharing it because I have family, friends, clients and investors that continue to be apprehensive to invest in their own financial future. If this helps even one person to take the first steps required to invest in their future selves, then this post was worth my time. Anyone could do this. It does require a bit of learning and some patient due diligence, but it is absolutely a worthwhile investment. The biggest barrier to us having ever taken this step was fear. Once we got over that, it’s been mostly smooth sailing.

The biggest lesson of all that we’ve learned on this journey is that if we had never taken these first steps to invest in our future selves, our net worth would be millions of dollars lower, we wouldn’t be in any position of financial independence and the only people who would have paid the cost of our inaction would have been ourselves.

If anyone takes anything out of this post today, stop procrastinating, write down your dreams, put a plan together and begin working towards it. Baby steps, one at a time, a little bit each day; believe me, if I can do it, so can anyone else. We’ve achieved our dreams, not because we did anything extraordinary, but because we took action, set our fears aside and moved forward a little bit at a time. Why wouldn’t you do the same? Your future situation depends on what you do today. Go get ’em tiger!

The new Tesla Model 3 is only “$35K”?

Tesla Model 3The new Tesla Model 3 is only $35K? That’s at least what their advertising would like you to believe. It’s only a “bit more” expensive than your last vehicle purchase. Maybe it’s finally time to get on that; you’ll save so much money on gas too!

Hmm… it seems too good to be true, let’s slow down and take a moment to do some due diligence… after all, the advertised price is after government tax rebates and alleged gas savings. That seems like a shady way to advertise… after all, the base purchase price is really ~$47,600 and after all the fees and high financing costs it’s really much, much more.

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A Single Sacrifice Is All It Takes To Retire Early

necessity-vs-luxuryLast night I met with a colleague of mine who said she didn’t have any money to invest in her retirement. As it turns out, within five minutes I found several instances where she was believing her own lies. The biggest one? Her car costs as much as her mortgage… that’s nuts!

Mortgage ($810 mortgage + $140 property tax)
$950 / month

Car ($465 payment + $250 insurance + $240 gas)
$955 / month

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Our Love for “Luxury” is Costing Us Our Freedom

luxury house with poolDoes 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.

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Can you keep great tenants from leaving in the first place?

So can you keep great tenants from leaving in the first place?
Keeping Good Tenants
“Definitely,” says Brent Mondoux, who has been investing in the Ottawa area for a number of years. “Some of the keys to holding on to our great tenants are by going back to the basics and simply treating them with respect.”
Moudoux has had a relatively low turnover in properties himself, and has forged good relationships with most of them, although he’s quick to point out that business is business when it comes down to things like missed or late payments. He recommends having a preventive system in place that will make payment a straightforward process for tenants and yourself, such as collecting post-dated cheques ahead of time and accepting rent via direct debit or e-transfer. So what are some other tips?
Key Tips
  • Be present. Tenants are unlikely to renew a lease for an absentee landlord, and they’re unlikely to be very quick to report breakages and structural issues as well. If you neglect your tenants, chances are your property will pay the price.
  • “Respond to all reported issues within an hour,” advises Mondoux.“Set expectations in terms of estimated resolution timeframe, and don’t lie. If it’s urgent, don’t delay. Set the wheels in motion immediately to resolve the problem in a timely manner.”

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How to Perform a Real Estate Cashflow Analysis

This is what a real estate cashflow analysis looks like. It informs you of your up-front costs, assesses cashflow positivity with current and potential future scenarios, budgets appropriately for vacancy/repair/contingency and accounts for overhead costs even if they may be unrealized (e.g. property management, accounting, bookkeeping, etc.). It is also vital to highlight any assumptions and verify them in writing, absolutely no exceptions.

real estate cashflow analysis

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Get Over Your Fears and Take Action Today!

ObstaclesBy the end of 2011, I had completed nine years of real estate investment courses.  Acquisition, cashflow, buy & hold, flipping, landlording, rent to own, taxation law… the list goes on and on.

Despite my educational knowledge, I still had not yet purchased a single investment property. Even though I had successfully run my own company for the previous fifteen years with positive cashflow in each and every year, I was still afraid to take the plunge.

I kept asking myself “How could I take so many calculated risks but be afraid to take this one?” I was stuck in a state of fear commonly coined as “analysis paralysis”.  I would look for the perfect deal but before I would pull the trigger I’d make up excuses as to why each potential deal wouldn’t work. The truth is there’s no such thing as a perfect deal. The human mind can be our own worst enemy and I was battling against nobody other than myself. Trying to psyche myself into taking the next step, but for some reason I kept backing down, convincing myself as to why each opportunity wasn’t optimal.

In mid-2012 I booked vacation. I decided to stay home and relax. The previous two years’ vacation was spent repairing the house after extensive water damage which had nearly depleted all of my savings. It was early afternoon and I grabbed an ice cold Corona from the fridge and went to sit in the yard and do some reading. As I hunched down in my lounge chair I continued to read my latest real estate investment book. My attention was drifting in and out and I found myself reading and re-reading the materials. I felt frustration growing within me as I thought to myself “I know this s&%t. I’ve read it a hundred times in other books.” I stood up and blurted “That’s it! I’m going to buy a property or I’m going to stop reading about real estate investing.” That was the catalyst, the last nudge through the barrier of procrastination, the trigger required to break through my analysis paralysis.

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Save An Hour of Salary, Prevent a Day and a Half of Work in the Future

The power of saving and investingOver the last 112 years, the stock market has averaged an annualized return of 8.5%*.  If you were to invest a single dollar into the market and receive the average returns, in 30 years it will be worth $11.56 (see “The Power of Compounding”)!

Let’s translate this into a figure that will scorch an image into your mind that will hopefully transform your perception of the importance of saving and power investing.  Let’s talk in terms of something that keeps us away from doing what we want, when we want to.  Yes, that’s right… work!

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Start working for yourself without quitting your job!

Early RetirementWouldn’t you love to work for yourself?  Are you afraid to quit your job?  Surprisingly, you don’t have to!  You don’t even have to work any additional hours!  What am I talking about then?  It’s simple.  Start saving today!

Alright… at this point I’ve lost a solid percentage of my readers, individuals who simply aren’t willing to sacrifice their own “perceived happiness” just to save.  But hold up one minute there… what exactly is a sacrifice?

When I used to have to wait to purchase something I thought of it as a sacrifice as well, but as time has went on and wisdom has slowly creeped into my head I now realized that I had a threatening disease known as first-world slavery and that making the actual purchase is the sacrifice.  What?!  Am I completely nuts?  No, in fact I’m not!

Recover from these words, regain your composure and then continue reading my blog please.   It’s okay… you can do it.

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Quit gifting your financial freedom to the government

Financial freedomWhat if I told you that there is a legal way to pay less tax every year?  What if I told you that there was also a way to retire earlier and with more money than you would have if you continued down the path you’re on right now?  Would you take advantage of this?  Of course you would!  Well then keep reading and let’s get started…

Almost every individual has a tough time saving.  In fact, almost half of all individuals are living paycheck to paycheck… and sadly, this includes thousands of people making $100,000+ salaries!  Terrifying!

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