Net Worth Network

To incorporate or not, that is the question

Date: 18 May 2008 | Comments Off
Category: Real estate, Building your business, Entrepreneurs, Taxes

I have recently been taking steps to start on my path of financial freedom through real estate. My goal is to own several positive cash flow properties within B.C. and to also branch out of province too (Winnipeg is looking very attractive right now). The question that I really have unanswered is to whether to incorporate a company dedicated to acquiring rental properties. Using a property management company to manage those properties is also part of the plan. The flipside of the coin would be to personally acquire the properties while still using a property management company to take care of them for me.

There’s many reasons to choose either option. Tax considerations are the most important, but also the most complicated. I know of investors that do it all on their own, as well as investors that incorporate and run these properties through their businesses. Those who choose not to incorporate have had an easier time acquiring financing and since they have full time careers, have used the write offs to reduce their income. Others who have chosen to start a business tell me that their tax rate is much lower.

As an aspiring investor who still has not found the accountant that really specializes in real estate investments, this seems like a very important yet difficult question to answer. I will continue to educate myself as well as seek out advice in this area and will make my decision soon, as I want to keep making baby steps towards my goal of substantially increasing my net worth.

“Free Money” update

Date: 20 April 2008 | No Comments »
Category: Real estate, Building your business, Entrepreneurs, Personal Growth

A while back I took a leap of faith and parted with a tidy sum of money with the hopes that Chris Johnson’s “Free Money From The Government” course would help me come up with a down payment on an income producing property. I had already sat through a 90 min sales pitch at the Learning Annex’s Real Estate and Wealth Expo in December, so I thought that I had a good idea of what I was ordering. When the program was delivered, I quickly got right at it and started reading the manuals and I listened to the audio cd’s. The problem was that all of the information on the programs didn’t make a lot of sense to me without the explanation as to how I could use it as a novice real estate investor.

Enter Free Money University

After a couple of weeks debating as how to move forward, I received an invitation in the mail for Chris Johnson’s Free Money University. This was included in the price of the program, so I was looking forward to attending and finally figuring out how to get my hands on that free money. This was a two day seminar put on in a swanky downtown Vancouver hotel. When I arrived I noticed how diverse the crowd was. It appears that the lure of free money brings all types. Anyways I quickly realized that this seminar was as much as a marketing event as it was an informative event. There were some disappointed faces when our explanation of what government grants would most apply to us was interrupted (on six occasions over the two days) by other experts selling their programs for wealth creation. I did, however, find some of the opportunities quite interesting. Most notable was Dr. Al Lowry and his explanation of using leveraging to purchase undervalued properties. Again, it made me believe that if I follow a system, I could accumulate a portfolio of positive income properties. As far as the content that I was really there for, I did pick up many important tidbits of information. Chris walked us through the main programs available, the sites to investigate, and how to submit a winning proposal. This was all information that was available in his home study course, but it was easier to digest, as he was to relate it to how we could use it for our investing.

Where to from here

I walked away from this experience with more confidence and an action plan. I was given many tools, such as government websites and forms, to get started applying for grants and financing for my start-up real estate investing company. I also was able to network with investors that have used some of these processes to invest in income producing properties. As much as the education, I believe the opportunity to network and intermingle with successful entrepreneurs was invaluable.

I am now able to move forward to incorporate my company and expand my real estate portfolio. For those who believe that there’s no such thing as free money, I believe that I will be able to prove you wrong.

Financial “freedom” is the goal

Date: 21 March 2008 | No Comments »
Category: Basics, Finances, Personal Growth

When I envision what being wealthy looks like, I see myself being able to be free of the decisions that stress most of us. As I grow older those sources of stress have changed somewhat. No longer do I have to decide about which bill I have to shortchange to ensure that they all receive some sort of payment, nor do I worry about how to pay for gas when I spent my money on the gotta have toys. Now I wonder about whether it is better to spend my money on family vacations or should I make lump sum payments on the mortgage. The decisions are no less stressful but as I strive for balance in my life I find it interesting to think that what I’m really striving for is the freedom to make the decision making process less painful.

Real estate and investment portfolios are the vehicles that I hope will get me to this financial shangri-la. Along the way, as those tough financial choices are in front of me I will be holding onto the thought that life one day will be more about what I want to do than what I have to do. When that time comes, I know that there will still be difficult choices in life but they shouldn’t be concerning my ability to stay on top of bills or savings.

The freedom that I crave I am modeling after those who I know that can choose to work that day or month and not have to worry about meeting their financial needs. All of the luxuries that come with being wealthy are just that - a luxury. The real goal that I’m striving towards is to have the choices in life that follow my heart as much as my head. As I follow my plan towards this goal I will update the blog on how the decision making process is evolving for me.

Your “network” can save you money

Date: 16 March 2008 | No Comments »
Category: Saving

My wife and 4 year old daughter were sitting at the table following their ritual Tuesday night flyer shopping when they came across a beautiful pink and white bicycle. Anytime my daughter sees something that catches her eye we have shown her to circle it and show us the flyer when she’s done. We then explain how much that item costs and how much more she has to save up to purchase it. This particular bike was something that my wife and I were thinking about purchasing for her soon anyways so we told her that soon she’d be pedaling that lovely bike down the street.

Since my cousin worked at a local bike shop (Maple Ridge Cycle) I thought that I’d e-mail him and get his advice on this certain bike and what size would suit my daughter best. To my surprise he said that he’d bought the same bike for his daughter but she had outgrown it. For a minimal price he’d let us take the bike off his hands. Since we would be saving at least half the purchase price of the bike I decided to put the difference into her account. Even though the total output was equal to what I would have paid for a new bike, her account will have benefited from the generosity of family.

Now this is one small example of what help your network can do for you. We all know how great it is when a box full of hardly worn clothes for your children is loaned to you, or when an old friend has a swing set that doesn’t get used anymore that is a perfect fit for your back yard.

I’m very lucky to have a great network who will willingly help out at a drop of a dime.

Do your homework on pre-sale condos

Date: 9 March 2008 | No Comments »
Category: Finances, Real estate

Much has been said and written in the past year about the concerning problem of pre-sale condominium and townhome projects going into receivership. There have been some highly publicized cases in the Metro Vancouver area where developers have taken a project close to completion but due to rising costs and mismanagement have had to shut down construction leaving homebuyers in the lurch. Some people feel that this problem is growing and has been likened to the “leaky condo” issues of the 1990’s.

Buyers in this market have seen at least a half a dozen projects fall into financial difficulties in recent months. The most recent is the Brio in Abbotsford. It was touted as the tallest project between Surrey and Calgary. It was going to be a 28 story condominium tower with more than 170 suites with such amenities as concierge and valet services. It was marketed as a very luxurious option for buyers in the area with prices ranging from $279,000 to $1.1 million. The problem is that only 30% of the project sold. The developer has shut the project down for the time being and has decided to give full refunds with interest on deposits. With median condo prices in the area being only $187,000 it is quite obvious that price was the issue here.

For some a pre-sale condo is their only affordable way into the market. “Flipping” has become commonplace. As the project completes the prices reflect the rise in the market during construction. This makes it difficult for those who buy into the project after it is built as it costs thousands more. So what should you do when looking at a pre-sale project?

Make sure that you know who the developer is and what other projects that they have completed.

Legislation has been made to make it easier to find out if the developer has had any projects fail or any bankruptcies.

Seek out legal advice to ensure that all of the details in the contract have been explained to you.

If you speak with experts in the Greater Vancouver Homebuilders Association they will tell you that this issue is not as prolific as the media makes it out to be. in fact there have been more than 78,000 successful new home and condominium projects in the lower mainland in the last 4 years.

So, if you’re in the marketplace for a new home and you are considering a pre-sale project as an option please do your homework. The results could be devastating if you don’t.

The long and short of the 40 year mortgage

Date: 27 February 2008 | No Comments »
Category: Finances, Real estate

More and more home buyers are now opting for the 40 year ammortization period in the mortgage market. The biggest selling point that most will point out is the affordability factor. With lower monthly payments vs. say a 20 year mortgage it is a much more attractive option for those who are just entering the market. With housing prices hitting great highs in most major markets in Canada the monthly payments could seem out of reach. Enter the 40 year ammortization. While some may say that this may be the only way into some markets, a simple comparison can show how much more one would pay in interest for this option.

Here’s the math:

On a $350,000 mortgage @ 6.45% over a 40 year ammortization period weekly payments would be $465 with a total interest cost of $597,000.
That same mortgage over a 20 year ammortization would have weekly payments of $596 but only a total interest cost of $265,000.
The difference in interest costs over the two ammortization periods is a whopping $332,000
The 40 year mortgage costs you an extra 45% in interest charges over the 20 year mortgage.

The above example was taken from a Global TV report discussing the relatively new option of the 40 year mortgage. The main issue raised in the report was affordability vs. total interest costs. Many people looking at this option are not aware of how much more of their hard earned cash would end up in the hands of the bank. The flipside is that that same home buyer could buy more of a house with the longer term. So as each home buyer’s circumstances are different, one would have to weigh out affordable payments vs. total interest costs and make a decision that suits their financial situation and goals.

Trying to find the right accountant for us

Date: 18 February 2008 | No Comments »
Category: Finances, Taxes

My wife and I are in the midst of trying to find someone to help guide our decision making when it comes to taxes. We both have some interesting personal and business taxation questions and are hoping to find the right person to get the most out of our situations. It is our goal to maximize every deduction possible (as is everyone’s goal I guess) but also to educate ourselves as to what we can do in the future on our own.

This past year my wife has become self-employed as she has started a home based business (licensed daycare). We finished off our basement to make way for the “crazy-zone” and I believe that there are opportunities for writing off some of the construction costs and furniture for the daycare. Along with those deductions, we will also be looking to write off a percentage of the mortgage interest for the square footage designated for the daycare. Along with that my wife also has another home based business that she runs dedicated to the designing of personal cards and invitations (www.butterflybabydesigns.com). We have already used this business to lower our tax burden in the past.

For myself, I have been making interest only payments on a HELOC for a real estate investment (for more details read my last post). I will be looking to write those off as well. As for the future, I will be pondering the idea of turning this blog into a corporation for the tax benefits.

Along with all of these considerations, there’s also our RRSP’s and investment portfolios to account for at tax times. We would want to ensure that our accountant would be using every possible tax break to our advantage.

So, I’ve done some research online to get a good gut feel for the type of questions I should ask each of the CGA’s that we will talk with to figure out who should get us on the straight and narrow. One of the sites that I came across was www.taxtips.ca. It was full of insightful tips as well as links to other helpful sites. After all this reading I now feel much more comfortable in my search. I’ll update our search in future posts.

Using your HELOC to pay for itself

Date: 5 February 2008 | 1 Comment »
Category: Around the 'net, Banking

For a couple of years now I’ve been paying a large monthly interest only payment on a home equity line of credit (HELOC) that I had used for a real estate investment. I always thought that it would be a cost that I had to incur for the ability to grow my net worth. I was shocked to find out after reading a post on Million Dollar Journey that I have been giving my bank my hard earned cash for no reason.

As suggested in this post I could use the HELOC to fund itself by simply writing myself a check out of the line of credit and redeposit said money back in to cover the interest only payment. The post suggested that not all financial institutions would allow this, so I made an appointment at my bank (TD Canada Trust) and asked the question. The answer was “sure - no problem”. Holy cow! I just saved myself $600/month. What a windfall!

Now, I know what you’re going to think — when I was younger and not great with money, I used to do a cash advance on my credit card to make the card’s minimum monthly payment. The difference here is that I now have created much needed capital to reinvest on other projects that will only increase my net worth, rather than blindly handing my money to the bank.

I actually stumbled across this very important point while researching the “Smith Maneuver”. I want to do much more reading before commenting on the much touted financial plan, but I want thank Million Dollar Journey (financial blog) for opening my eyes and fattening my wallet.

My children’s “Giving Account”

Date: 30 January 2008 | No Comments »
Category: Saving, Personal Growth

After the spoils of our daughter’s birthday and Christmas gifts, my wife and I had a discussion about teaching our children the importance of donating to those less fortunate than us. We have decided to start an account for each of our children with the intent of donating to a charity of their choice next Christmas. We have called it their giving account and are letting our kids decide whether to put spare change into their savings bank or into their giving bank. We are also encouraging family members who would normally purchase a toy (we are already swimming in plastic dolls and toy trucks) to give our children money, of which they can split between their personal accounts and their giving accounts.

As time goes on, my wife and I are trying to link the value of a dollar to the things that most of us take for granted such as basic groceries and personal hygiene items. This will make the tie in to donating to the less fortunate take on a much higher meaning for them. When my daughter puts a couple dollars in her giving account I let her know that it could purchase a jug of milk or a bag full of apples for someone who struggles to do so on their own. At preschool she colored a picture of a $20 bill and when she showed it to me I related it to the amount of food that it could purchase from the supermarket. My daughter has taken great interest in learning what she can do to help people who can’t afford the basic necessities in life. It is this thirst for knowledge that I hope will help guide my children to make the decision to keep adding to their giving accounts.

Government sites that help guide new entrepreneurs

Date: 25 January 2008 | No Comments »
Category: Building your business, Entrepreneurs

I have recently spent many hours pouring over the resources that the federal government has developed to help start-up business get off the ground. I felt a little overwhelmed trying to educate myself on the nuances of creating a business. Since I am starting this process while working full time, I wanted to find resources that could quickly point me in the right direction. Not many people would think that with all of the bureaucracy that the government entails that their websites would be fairly easy to navigate, but I found them to be quite user friendly. So these are the sites that I hope will make my entrepreneurial dreams become reality, and maybe give your business hopes more direction.

Industry Canada

The Industry Canada site, formerly known as Strategis, has many useful resources for the entrepreneur. When I first logged on I used the Resources for Business button. Next I navigated to the Business Tools and Resources page which unlocked a virtual vault of information such as business name searches, developing a business plan, market research, etc. As I move forward, I know that this site will prove to be invaluable to me.

Canada Business

The Canada Business website also provides a wealth of information to the aspiring entrepreneur. It uses fact sheets and guides for references to pass along information such as ideas for home based businesses, franchise information, legal issues related to start-up, financing options and feasibility checklists. Again this site has many avenues to gain insight into the world of business.

Business Development Bank of Canada

The BDC offers a multitude of financing options for both existing and start-up businesses. This site is geared mainly towards providing funding through loans and grants for new and established businesses. On top of funding, they also offer many consulting options for businesses. The site also has a very useful link section where you can access more financing options as well as e-training for start-up businesses.

Canada Benefits

I stumbled across the Canada Benefits website after doing a search for government grants for start-ups. This site will be useful only to E.I. recipients looking to become self-employed. Certain criteria must be met, but grants could be offered up to get your business much needed capital.

So, as you can see, there are many opportunities on the web to educate yourself and become a savvy entrepreneur. I will be visiting these sites many times in the future as I follow my business plan.

Net Worth Network

To incorporate or not, that is the question

“Free Money” update

Financial “freedom” is the goal

Your “network” can save you money

Do your homework on pre-sale condos

The long and short of the 40 year mortgage

Trying to find the right accountant for us

Using your HELOC to pay for itself

My children’s “Giving Account”

Government sites that help guide new entrepreneurs

Industry Canada

Canada Business

Business Development Bank of Canada

Canada Benefits

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