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Showing posts from April, 2017

Importance of Leverage

One mistake I made in my 20’s when I started investing was having a strong aversion to debt. While I was comfortable being 100% invested in equities I wasn’t comfortable leveraging my investments. I also made it a priority to pay off my mortgage. Which in retrospect wasn’t the optimal way to use my extra cash. As I got into my early 30’s I realized that although it’s far from a fatal mistake investors should be actively using leverage from as soon as they can responsibly afford to. Which in my case would have been around age 24. I was a little late to the game and didn’t start borrowing to invest until my early thirties.

There are multiple benefits to using debt to invest. The first being the tax advantages. If you borrow money to invest in either real estate or stocks/bonds than the interest paid on the investment loan is a tax deduction. You do have to be careful though because any stocks/bonds that you purchase with an investment loan have to generate income such as dividends or in…

Credentialism and Educational Inflation

Has anyone else noticed that jobs that historically didn’t require any formal education now often require post-secondary credentials. Jobs that required grade 10 now require a High School diploma, High School diploma jobs now have College or University requirements and basic jobs that used to require a University degree now require a Graduate degree.
This rampant credentialism has caused 4 things to occur:

1. On average people are entering the workforce older than they used to.
2. The debt level of students has skyrocketed. The average Canadian post-secondary student now graduates with over $25,000 in debt. While in the United States the average student debt comes in at just over $37,000.
3. Grades have been inflated A- is the new C+. So basically the quality of the programs has been watered down over the years to accommodate the demand.
4. Jobs that don’t actually require post-secondary now do. Post-secondary programs are being developed to accommodate every area of the economy rega…

How to Value Real Estate Rental Properties

I’m a numbers guy. However, when I started looking for rental properties there was one qualitative factor that I considered before any quantitative metrics, location. After the properties were filtered by location I’d filter the list further using cash flow modelling and cap rate. I’ll go over all three of these below:
LOCATION Now being a numbers guy location has never been something I’ve ever considered when making investment decisions. I own a number of publicly traded REITs (real estate investment trusts) and to be honest I don’t care if they are in good or bad neighborhoods. My only concern on these types of investments is if they make money. These large publicly traded companies have full time employees that handle all the tenant issues, maintenance, insurance, marketing, evictions etc…
My rental won’t be my full time job so I don’t want to spend more time than I have to dealing with tenants and repairs.  As a result, I’ve limited my search to working class neighborhoods. Most of t…

Real Estate Investment – Rental Property

Over the last couple of months I’ve been seriously considering adding a small rental unit to my passive income stream.  Although we have the equity to purchase a duplex or triplex we wanted to first test the waters with a smaller less expensive unit. This will allow us to see if being a landlord is for us without tying up a lot of equity.

So after a few months of searching I’ve finally found a small 2 bedroom bungalow that I think will fit the bill. It requires quite a bit of work (roof, kitchen, bathroom, landscaping) however, all these deficiencies were reflected in the price. Although I’m a white collar office dweeb I am pretty handy and have already renovated a few houses and built a few additions/garages so I am confident that I can do all the work myself. Another advantage of purchasing such a small unit is that the repairs are all much less expensive and won’t require as much of my time.

When looking at real estate I used two financial metrics to determine if the rental was a …

Retirement Portfolio Net Worth – As of April 1- 2017

The goal is an investment portfolio of $1,000,000 and an annual passive income of $40,000. We are currently mortgage free but won’t be including the value of our principal residence or cottage as we have no plans to sell either. We will also be omitting the value of our workplace defined benefit pension plans and RESPs.
ASSETS: Retirement Portfolio: $472,617

LIABILITIES:
Investment Loan: $42,407
Retirement Portfolio Net Worth: $430,210
*Dividends Received (year to date): $3085