Real estate - everyone's got to own a piece

Everyone’s priorities are unique, but for most people, the number 1 item is to put a roof over your head and then own the roof. Renting does not build equity, you are paying the landlord and his bank mortgage as well

Take for example, with rent of $1200, typically, $300 goes to utilities and condo fees, the next $700 goes to the bank in terms of interest and principle. The remaining $200 goes to taxes and profit for the landlord. At the end of 25 years, the mortgage is most likely paid off, and the landlord would have an unencumbered apartment and made some money along the way. In addition, the apartment would likely have appreciated in value (Capital gains). The renter would have ended up with nothing at the end.

Start with a small purchase of a condo, apartment or house that you can afford to carry based on your income. There is no reason why you cannot upsize later on in life. The objective should be to pay down the mortgage as soon as possible. The reason for this is mortgage interest payments are not tax deductible (at least in Canada) and the payments are using your after tax dollars.

Problem that some people get into is they over-stretch themselves and get an expensive home. They meet the monthly payments and pay the mortgage off in 25-30 years. This scenario is okay. Now picture this, if you accelerate your payments (because you got a smaller house and smaller mortgage), and pay it off in 15 years..... the $1500-$3000 in monthly mortgage payments in the subsequent 10-15 years goes straight into your pocket - how significant is that?

I was very fortunate to be able to live with my parents until I got married, this was pivotal in my ability to save enough money for a down payment on my first condominium, and that gave me a huge head start on a lot of people. I ended up renting out the condo and collecting a fairly decent return on my investment. Not only was cash flow positive,, I ended up with a fairly decent capital gain – tax free because Revenue Canada allows everyone to own a principle residence but rent it out for up to 4 years. This allowed me to put a sizeable downpayment on my home and avoid a large mortgage.

Here are some tips to buying real estate. Do your own research on market conditions and check out the builder, other properties, location, market trends, resale values and rental market thoroughly. Buy when the market is down and buy when sellers are motivated. When the market is red hot and prices are strong, stay away from making a huge investment.

I am by no means a real estate expert, but the rules I follow are pretty standard and basic. Buy real estate
- with good location
- that is accessible – close to public transit, roads, highways
- with good feng shui
- when the market is a trough or on an uptrend

Real estate is where the wealth of developed nations comes from. Take away real estate and most people in the world would hardly have a penny to their names. Most millionaires in this world made their first million from real estate. Immigrants from Hong Kong and Asia came to their wealth by selling their properties back home.

Over time, real estate appreciates in value, the value never goes straight up and at times it could be very volatile. To be successful in real estate, you must buy when buyers are few, and sell when the market is starting to overheat.

It is not easy to time the market, but the key thing to remember is location, location and location. Even if the value of the property falls, with good location, you can rent it out until the real estate prices recover.

If you have only one principle residence, your primary objective is to pay off the mortgage as fast as you can. The earlier you do, the faster you will get to your goal of financial independence.

Stretch your hard earned dollars .....

Our government taxes us on everything, first on our incomes and then again on our expenditures. Our progressive tax system takes a 50% cut out of any additional dollar you earn if you are in the highest income bracket. Plus, every dollar you spend, another 13% goes to the government in the form of GST/PST.

Here are some areas where you can save money.

Coupons – I am probably classified as a "less desired" consumer type in the world by large companies. I use coupons with a passion. Initially, it felt embarrassing to pull out a wad of coupons and search through them while waiting in line at the cashier. However, the amount of money saved over the years has added up. My annual “savings” add up to an average of $300 – let me know if you think it is not significant. I use coupons for free food, $2 off Pampers, $1 off Tide, two for one entrees at restaurants, buy one get one free, double air miles, bonus points etc. The best are coupons that offer free product for us to try – some examples that I have come across are disposable shavers, dishwashing detergent, sample food, cleaning and hair care products. I was nicknamed coupon king in university, but I saved a lot of money especially during the critical years immediately after school with a pile of debt and entry level job.

Loyalty/point programs
I participate actively in several loyalty programs like Air Miles, Aeroplan and Futura. Over the last decade, the amount of points that I have collected has enabled me to redeem the following:
Over $1000 in Dominion/A&P gift certificates via collection of AirMiles
30+ car washes (Air Miles and Esso points)
75,000 Aeroplan points (enough for a few flights within North American)
$500 in Futura dollars to put into an RESP for my daughters
$100 in Baby bonus gift certificates from Dominion (sorry, not available anymore)
$750 in Sears Club certificates
$50 Gift certificates from Bay and Zellers collecting Bay points.
$75 Shoppers Drug Mart points etc....

The loyalty points were collected buying things I was going to buy anyways. These are guaranteed; all they need is a little work on your part. In the past decade, my estimated savings are over $3,000 in loyalty rewards ~ $300 per year or $600 (pre-tax income).

Rewards credit card
Another guaranteed way of saving money is to use a credit card with rewards. I get 1% Canadian Tire money when I use my Canadian Tire Mastercard. It adds up! My monthly Mastercard statement comes in on average around $1600 – an average monthly rebate of $16 per month or $172 per year. These rewards do not cost me a single cent and there is no annual fee. Just remember to pay your balance off and never carry a balance, the interest rates that the credit card company charges will wipe out any benefits and more.

In addition to coupons and loyalty points, I always try to maximize from all directions. I look for a store sale, use a coupon, whip out my loyalty card and then use my rewards Mastercard. Wait, that’s 4 saving opportunities.