That's great. I'm not sure why utilizing a HELOC for investment schemes or lifestyle changes isn't more well known. Perhaps because it requires a large chunk of equity, which most people don't have? Or maybe because leverage makes people uncomfortable (even though getting a mortgage is the same thing)?
The scheme I particularly like is BNL's hard money lending. He loaned out $92K for 2 points and a 12% interest rate using a 4% HELOC: http://www.bravenewlife.com/11/making-m ... al-estate/
My_Brain_Gets_Itchy's Journal
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
Thanks for the link/read @mds. What an amazing return..
Yes totally, I see a HELOC as somewhat analogous to investing in the stock market on margin, except you have to pay some interest, lol.
(I've never invested in the market on margin, but I imagine investing in some stable blue chip dividend stocks can really supplement your income as well).
I think the obvious caveats for a HELOC are not to spend it on consumption (unless it is very short term and you know you can pay it back) and if you do use it to invest, make sure you have a large buffer (ie. a large point spread).
I'm only taking out 53% of the the available credit in my HELOC, and the HELOC credit limit is only 60% of the assessed value of the property.
So here are the actual numbers:
PROPERTY VALUE of old place(prospective rental unit): $375,000
HELOC LIMIT : $225,000
HELOC LOAN : $120,000
MY new ERE place : $129,000
HELOC RATE: 3.5%
The important thing that I realized is the rate of return on the equity of the old place is ZERO without the HELOC investment.
I think I super lucked out with the price of the new place in terms of getting a place that suited my lifestyle. But if someone is less particular on the location of where live, than I think it is much more easily doable.
Yes totally, I see a HELOC as somewhat analogous to investing in the stock market on margin, except you have to pay some interest, lol.
(I've never invested in the market on margin, but I imagine investing in some stable blue chip dividend stocks can really supplement your income as well).
I think the obvious caveats for a HELOC are not to spend it on consumption (unless it is very short term and you know you can pay it back) and if you do use it to invest, make sure you have a large buffer (ie. a large point spread).
I'm only taking out 53% of the the available credit in my HELOC, and the HELOC credit limit is only 60% of the assessed value of the property.
So here are the actual numbers:
PROPERTY VALUE of old place(prospective rental unit): $375,000
HELOC LIMIT : $225,000
HELOC LOAN : $120,000
MY new ERE place : $129,000
HELOC RATE: 3.5%
The important thing that I realized is the rate of return on the equity of the old place is ZERO without the HELOC investment.
I think I super lucked out with the price of the new place in terms of getting a place that suited my lifestyle. But if someone is less particular on the location of where live, than I think it is much more easily doable.
Yeah sometimes I forget that it's real money (though it's OPM), so if something happens, like the house has water damage that wasn't found by an inspector, he could end up losing money.
One question though. What are the benefits of a HELOC over just getting another mortgage for your new smaller property? The flexibility of buying in cash (quick settlement)? The flexibility?
I'm really considering suggesting your setup to a family member who is currently living in a fully owned property that is way too much house for her. Instead of just selling it, and then moving to a new place, I think it would make sense to do what you did and turn her current residence into a rental. One downside is that when she moves she'll reset her $250,000 tax exemption as she'll be moving out of her primary residence.
One question though. What are the benefits of a HELOC over just getting another mortgage for your new smaller property? The flexibility of buying in cash (quick settlement)? The flexibility?
I'm really considering suggesting your setup to a family member who is currently living in a fully owned property that is way too much house for her. Instead of just selling it, and then moving to a new place, I think it would make sense to do what you did and turn her current residence into a rental. One downside is that when she moves she'll reset her $250,000 tax exemption as she'll be moving out of her primary residence.
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
@mds:
re: HELOC choice, good question.
In this scenario, three reasons why I chose a HELOC:
1. For a co-op, at least for Toronto, a traditional bank does not provide mortgages, you have to go to a Credit Union. While I do like credit unions, I don't have a history with them and I figured it would require a lot more paper work to do the loan from scratch, rather than my current bank, which I have a long relationship with. I wanted the deal closed quickly with as little resistance as possible.
2. For a co-op, they require 30% down payment. So, I would have had to liquidate a pretty huge chunk of my liquid cash reserves, in my case, close to $40k, which would have changed the return on investment. Instead, I only put in the deposit of $9000.
3. It made my candidacy for a prospective co-op owner (they call them shareholders) much better. Since there is no borrowing against the Co-op property (ie. against the Co-op corporation), and the borrowing is against my assets outside the co-op, in their eyes my offer is a total cash offer, i.e no institution has a lien on the co-op.
The co-op board has an interview process with the prospective candidate, and they pretty much are allowed to ask whatever they want and they also have the right to refuse you, pretty much at their whim (unlike a condo).
====
For me, if I was more comfortable with the stock market than real estate, I definitely would have sold it, and put the net proceeds into a dividend portfolio, as that is most likely the least amount of post-ERE labour and also the most tax advantageous (dividend income).
I've been a stock market investor longer than real estate investor, I have some market certifications, and I have read several books on dividend investing, but despite that, my returns and confidence in real estate is magnitudes higher than it is in the stock market.
Probably because for me, real estate is much easier to visualize or evaluate value investing than say a company or stock (ie. the Warren Buffet way). As well, the structured discipline in real estate (i.e. rent and payments,etc) probably suits me better.
I find the stock market plays way too much into the negative traits of (my) psychology (ie. speculation, gambling, dopamine rushes of selling, panic selling, etc), or at least for me they do! When real estate prices go down, I still see a home, and I don't panic whatsoever, when stock prices go down, I either get nervous if I am holding a position, or I have speculative thoughts to buy and then it goes down some more, lol.
re: HELOC choice, good question.
In this scenario, three reasons why I chose a HELOC:
1. For a co-op, at least for Toronto, a traditional bank does not provide mortgages, you have to go to a Credit Union. While I do like credit unions, I don't have a history with them and I figured it would require a lot more paper work to do the loan from scratch, rather than my current bank, which I have a long relationship with. I wanted the deal closed quickly with as little resistance as possible.
2. For a co-op, they require 30% down payment. So, I would have had to liquidate a pretty huge chunk of my liquid cash reserves, in my case, close to $40k, which would have changed the return on investment. Instead, I only put in the deposit of $9000.
3. It made my candidacy for a prospective co-op owner (they call them shareholders) much better. Since there is no borrowing against the Co-op property (ie. against the Co-op corporation), and the borrowing is against my assets outside the co-op, in their eyes my offer is a total cash offer, i.e no institution has a lien on the co-op.
The co-op board has an interview process with the prospective candidate, and they pretty much are allowed to ask whatever they want and they also have the right to refuse you, pretty much at their whim (unlike a condo).
====
For me, if I was more comfortable with the stock market than real estate, I definitely would have sold it, and put the net proceeds into a dividend portfolio, as that is most likely the least amount of post-ERE labour and also the most tax advantageous (dividend income).
I've been a stock market investor longer than real estate investor, I have some market certifications, and I have read several books on dividend investing, but despite that, my returns and confidence in real estate is magnitudes higher than it is in the stock market.
Probably because for me, real estate is much easier to visualize or evaluate value investing than say a company or stock (ie. the Warren Buffet way). As well, the structured discipline in real estate (i.e. rent and payments,etc) probably suits me better.
I find the stock market plays way too much into the negative traits of (my) psychology (ie. speculation, gambling, dopamine rushes of selling, panic selling, etc), or at least for me they do! When real estate prices go down, I still see a home, and I don't panic whatsoever, when stock prices go down, I either get nervous if I am holding a position, or I have speculative thoughts to buy and then it goes down some more, lol.
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
#017 19/03/2013 A Chicken with its head cut off
That's how I have been feeling for the last 2+ weeks or so since I took possession of my 'ERE Silver bullet' place. I am back to my full-time job this week, so I've finally had a chance to catch up somewhat with my thoughts.
During the last 2+ weeks, I have been transitioning,renovating, moving from my newer 2010 built high priced 600 sq foot condo to the 1960's <300 sq foot co-op.
I found downgrading my life from a certain standard was relatively easy (i.e. cutting down on everything) until it included my place of living, which is much more difficult. I do have faith however, that I will adjust.
My body is shot physically from 8-10 hours of manual labour for 18 straight days.
Psychologically/emotionally, I am sometimes manic, sometimes sentimental, and sometimes overwhelmed, but always mentally cluttered. They has been always so many little things to do, and everything is pressing.
Financially, I have been spending a lot of money in the short term, mostly on carrying two places (double bills, fees, etc), eating fast food, and on the renos. This gives me bouts of anxiousness, but it usually passes.
I am most definitely not in my comfort zone, and the status quo is definitely challenged. My old foundation is being torn down, and a new one is being built. In the meantime, I have neither to rest upon.
But...
It's what I signed up for and I shouldn't be expecting anything less. It rightly should be testing my conviction. Do I have what it takes to live the ERE life that I want?
I tell myself I won't reap the dividends till much later, so in the time being, learn to adjust, stay the course, things get worse before they get better.
I took the two weeks off work hoping to get all of the below items done (among a bunch of other small things):
-clean entire place with TSP
-new locks
-rip out carpet and underpad
-sand hardwood floor, paint and top coat
-paint entire place (walls, ceilings, bathroom, kitchen, living)
-rip out kitchen vinyl floor
-lay/cut kitchen ceramic tile (including thinset mortar and grout)
-new window coverings
-delivery of new stove and couch
-move all my stuff
I am doing this by myself. Which I am used to, and don't really see as spectacular in any regard. I don't expect a medal from anyone. However, at times, I think I am becoming dangerously too self reliant and independent (ie. lifting a 150 pound square sander into my compact car for example) or creatively moving items by myself that require two people. I already consider myself extremely independent, but the more success I have doing things by myself that I shouldn't be doing, the more I feel I don't need anyone, at all, for anything. This can be dangerous. It doesn't help that during this time I have been reading Solitude by Anthony Storr. I will have to reflect and revisit these thoughts post-move/renovation.
The place I was moving into was a mess. The previous owner was a heavy smoker with a cat, and had never really cleaned the place. The walls were caked in a lovely layer of 'nicotine brown' stain. The cleaning water pale of TSP turned into sludge toxic waste after the walls were cleaned.
During the two weeks off from my full time job doing these renovations, I learned a ton and gained a lot of new skills.
I never ceramic tiled before, and I never refinished hardwood floors before, among also a ton of small fixes I had to do.
I had a lot of anxiety and felt rushed because I needed to get things done during 9-5 hours (ie. building policy) and I had to get things done within my two weeks of vacation. There was a constant stream of problems to solve..quickly.
I suppose when you do anything for the first time and you have anxiety and feel rushed, the job is not going to be of the best best quality, but I suppose it also pushes you to get creative and do things you didn't think you can do.
It's incredible the resources available in our information age. I learned you do not have to develop a complete mastery of the skills required, just enough willingness to try,expect and accept mistakes, give yourself a little bit of practice, and develop a base level of competency to get the job done. If I had to do these things (i.e. the floors) a second time,the job would have been much better and quicker.
With the exception of the last two items of my to do list, all the items are more or less complete. I've moved about 60% of my stuff, but not my bed, or cooking stuffs.
I haven't moved into the place yet, hopefully this week. I will definitely put my ego aside and have friends help me move my mattress and larger items.
I still have a lot of work to do to get my previous residence ready for rental and finding a tenant. And the new place still has a lot of small things to be done. However even though there is still a lot of anxiousness, the most chaotic parts are over.
There is a great sense of intimacy and ownership of home and space doing everything yourself.
Finally, there was a few times in my life before that mirrored this feeling of being a headless chicken in relation to life change. But when I look back at those pivotal moments, they were all moments that made my life quantum leaps better.
That's how I have been feeling for the last 2+ weeks or so since I took possession of my 'ERE Silver bullet' place. I am back to my full-time job this week, so I've finally had a chance to catch up somewhat with my thoughts.
During the last 2+ weeks, I have been transitioning,renovating, moving from my newer 2010 built high priced 600 sq foot condo to the 1960's <300 sq foot co-op.
I found downgrading my life from a certain standard was relatively easy (i.e. cutting down on everything) until it included my place of living, which is much more difficult. I do have faith however, that I will adjust.
My body is shot physically from 8-10 hours of manual labour for 18 straight days.
Psychologically/emotionally, I am sometimes manic, sometimes sentimental, and sometimes overwhelmed, but always mentally cluttered. They has been always so many little things to do, and everything is pressing.
Financially, I have been spending a lot of money in the short term, mostly on carrying two places (double bills, fees, etc), eating fast food, and on the renos. This gives me bouts of anxiousness, but it usually passes.
I am most definitely not in my comfort zone, and the status quo is definitely challenged. My old foundation is being torn down, and a new one is being built. In the meantime, I have neither to rest upon.
But...
It's what I signed up for and I shouldn't be expecting anything less. It rightly should be testing my conviction. Do I have what it takes to live the ERE life that I want?
I tell myself I won't reap the dividends till much later, so in the time being, learn to adjust, stay the course, things get worse before they get better.
I took the two weeks off work hoping to get all of the below items done (among a bunch of other small things):
-clean entire place with TSP
-new locks
-rip out carpet and underpad
-sand hardwood floor, paint and top coat
-paint entire place (walls, ceilings, bathroom, kitchen, living)
-rip out kitchen vinyl floor
-lay/cut kitchen ceramic tile (including thinset mortar and grout)
-new window coverings
-delivery of new stove and couch
-move all my stuff
I am doing this by myself. Which I am used to, and don't really see as spectacular in any regard. I don't expect a medal from anyone. However, at times, I think I am becoming dangerously too self reliant and independent (ie. lifting a 150 pound square sander into my compact car for example) or creatively moving items by myself that require two people. I already consider myself extremely independent, but the more success I have doing things by myself that I shouldn't be doing, the more I feel I don't need anyone, at all, for anything. This can be dangerous. It doesn't help that during this time I have been reading Solitude by Anthony Storr. I will have to reflect and revisit these thoughts post-move/renovation.
The place I was moving into was a mess. The previous owner was a heavy smoker with a cat, and had never really cleaned the place. The walls were caked in a lovely layer of 'nicotine brown' stain. The cleaning water pale of TSP turned into sludge toxic waste after the walls were cleaned.
During the two weeks off from my full time job doing these renovations, I learned a ton and gained a lot of new skills.
I never ceramic tiled before, and I never refinished hardwood floors before, among also a ton of small fixes I had to do.
I had a lot of anxiety and felt rushed because I needed to get things done during 9-5 hours (ie. building policy) and I had to get things done within my two weeks of vacation. There was a constant stream of problems to solve..quickly.
I suppose when you do anything for the first time and you have anxiety and feel rushed, the job is not going to be of the best best quality, but I suppose it also pushes you to get creative and do things you didn't think you can do.
It's incredible the resources available in our information age. I learned you do not have to develop a complete mastery of the skills required, just enough willingness to try,expect and accept mistakes, give yourself a little bit of practice, and develop a base level of competency to get the job done. If I had to do these things (i.e. the floors) a second time,the job would have been much better and quicker.
With the exception of the last two items of my to do list, all the items are more or less complete. I've moved about 60% of my stuff, but not my bed, or cooking stuffs.
I haven't moved into the place yet, hopefully this week. I will definitely put my ego aside and have friends help me move my mattress and larger items.
I still have a lot of work to do to get my previous residence ready for rental and finding a tenant. And the new place still has a lot of small things to be done. However even though there is still a lot of anxiousness, the most chaotic parts are over.
There is a great sense of intimacy and ownership of home and space doing everything yourself.
Finally, there was a few times in my life before that mirrored this feeling of being a headless chicken in relation to life change. But when I look back at those pivotal moments, they were all moments that made my life quantum leaps better.
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George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
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RealPerson
- Posts: 875
- Joined: Thu Nov 22, 2012 4:33 pm
Very inspiring journal. Thoughtful, methodical, purposeful. You are clearly in charge of your life, intellectually, emotionally, spiritually and financially. Yours is an impressive journal to read.
It makes me realize even more how much more entangled my own life is. I own a business, a suburban house and I have a family. Even though I am FI, the many ropes and chains don't really make me feel ERE. Most of these chains I put in place myself! I am in the process of removing chains so that I can experience the freedom you are close to enjoying, not just purely financially but emotionally as well.
Thanks again for the inspiration.
It makes me realize even more how much more entangled my own life is. I own a business, a suburban house and I have a family. Even though I am FI, the many ropes and chains don't really make me feel ERE. Most of these chains I put in place myself! I am in the process of removing chains so that I can experience the freedom you are close to enjoying, not just purely financially but emotionally as well.
Thanks again for the inspiration.
Thank you for the update! Your journal is my favorite and I find myself looking forward to every new post. I also know the feeling of being a headless chicken having moved 15 times in the last 15 years across continents, countries, and states. Your progress is truly inspirational and I wish you smooth sailing for the rest of the move.
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
@RealPerson:
Thank you so much for those words. I don't know if I live up to your statements, as I am very much a work in progress both in my ERE and as a person.
Getting to be FI, running a successful business, and supporting a family is incredible in itself. A wife and family may or may not be in my future, but I'm thinking I'd have very similar scenario as you if I did.
@mfi:
Thank you very much for saying that. What an incredible journey of life to live in 15 countries in 15 years. Your life and experiences are truly unique. I consider myself having strong transient values now because I moved every 5 years when I was younger, so I can only imagine how it must be for you.
@pooablo:
Thanks for the offer but I wouldn't torture with work on your trip
Thank you so much for those words. I don't know if I live up to your statements, as I am very much a work in progress both in my ERE and as a person.
Getting to be FI, running a successful business, and supporting a family is incredible in itself. A wife and family may or may not be in my future, but I'm thinking I'd have very similar scenario as you if I did.
@mfi:
Thank you very much for saying that. What an incredible journey of life to live in 15 countries in 15 years. Your life and experiences are truly unique. I consider myself having strong transient values now because I moved every 5 years when I was younger, so I can only imagine how it must be for you.
@pooablo:
Thanks for the offer but I wouldn't torture with work on your trip
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
#018 22/03/2013 Driving the wrong way on a one way street
That's how it feels to do be downsizing.
The direction of the street of life goes something like this:
Live at home with parents, move out in university to live with room mates or dorm, rent to live on your own, buy a starter place, upgrade size and luxury, upgrade size and luxury, repeat, etc, etc.
We drive in this one way direction usually at the speed the engine of our car (ie our income) can take.
Or we drive at or above the speed limit of the road we are driving on.
When one disregards these rules, say driving 25 km/h in a 100 km/h zone, or say driving a Ferrari at 25 km/h, some guy, honks at you.
He yells an obscenity at you.
He wants to race you.
He zips off..
Mutters another obscenity when you don't even look his way.
You are in fact driving so slow that you appear to be moving backwards.
But as you drive at a Sunday Drive's pace, as cars zip by you, you can actually see the world around you.
The world and your place in in it is no longer a blur..
You drive like this lost in thought.
But then the traffic begins to slow.
You brake your thoughts to see what happened.
That guy..that honking, obscenity hurling guy, racing guy..
Crashed and flipped his car..
That's how it feels to do be downsizing.
The direction of the street of life goes something like this:
Live at home with parents, move out in university to live with room mates or dorm, rent to live on your own, buy a starter place, upgrade size and luxury, upgrade size and luxury, repeat, etc, etc.
We drive in this one way direction usually at the speed the engine of our car (ie our income) can take.
Or we drive at or above the speed limit of the road we are driving on.
When one disregards these rules, say driving 25 km/h in a 100 km/h zone, or say driving a Ferrari at 25 km/h, some guy, honks at you.
He yells an obscenity at you.
He wants to race you.
He zips off..
Mutters another obscenity when you don't even look his way.
You are in fact driving so slow that you appear to be moving backwards.
But as you drive at a Sunday Drive's pace, as cars zip by you, you can actually see the world around you.
The world and your place in in it is no longer a blur..
You drive like this lost in thought.
But then the traffic begins to slow.
You brake your thoughts to see what happened.
That guy..that honking, obscenity hurling guy, racing guy..
Crashed and flipped his car..
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My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
#019 24/03/2013 Normalizing the Taste Buds of my life.
This post is about the on-going transition from my past hedonistic values to a path of stoicism.
==My Nephew==
My four year old nephew goes crazy over fruit. He reacts to receiving/eating fruit the same way a normal child reacts to receiving sweets (candies, cakes, cookies,etc).
That something so natural, healthy and simple as an apple can bring such joy to my nephew, brings a smile to my face when I watch him react.
My sister in law, who is health conscious and controls my nephews diet, has done a great job of not exposing him to the un-natural, taste bud exploding, white sugar sweets (candies, cake,cookies,etc).
Once you acquire a taste for these un-natural sweets, it is very hard to appreciate the apple in the same way again.
That is how I look at my transition from hedonistic values to my ERE path of stoicism, going from processed artificial sweets, to the fruits of our natural selves.
==Relapses==
As I've been transitioning from my 600 square foot condo to my <300 square foot co-op, I've spent a lot of money.
I got rid of a lot of my old furniture and things that couldn't fit into my new space, and replaced it with new furniture and 'stuff'. Among the big ticket items, I bought a love seat to replace the two couches I sold on Craigslist, a new ceramic flat top stove to replace the old semi functional grease filled stove, and a wall dividing book case, to create a sense of separation from my bed and new love seat.
In addition, I have been regularly (near daily) going to Home Depot for the renovations and also buying small 'things' to make my place look 'nicer'.
I rationalized that because the space was so small, and because the property was very 'affordable', spending money on 'things' one time was worth the investment as largely, as the theory goes, the move will eventually pay for itself. However, the lines between necessity and luxury became blurred.
Whether or not this rationalization is justified, the realization was that my consumeristic juices that were largely shut off were flowing again.
Spending a lot of money, being in retail shops often, spending a lot of time on line browsing for 'things' to buy, and eating junk food to whatever my hunger fancied, I felt I regressed somewhat from some of the tranquility, discipline and focus I had over the past year.
Also, in the evenings after long days of renovations, and my mind racing with things to do and unable to control my thoughts, I drank most every night, to numb my brain and calm my nerves. I didn't think I'd be able to sleep if I didn't.
So during this time of transition and somewhat instability, I regressed on drinking, spending and eating. Oh yeah, during these three weeks or so I haven't exercised once
==Stabilization==
Now that things are slowly beginning to settle down (even though there is tonnes to do!), I'm slowly trying to cut back on all these things, and back to stoicky ways.
While I do see these regressions as small, ie. they haven't had made me living to the pure pleasure ideals of the past, I realize that it is a slippery slope, especially as I begin a new pattern of life, I do not want these regressions to become the norm.
==Taking a bite out of the apple==
I guess this post came about, because I finally got to take a bite out of the apple in my new place, this 'sunny' Sunday morning, and it brought attention/realization to the things noted above.
Today,
I woke up early.
I made a fruit smoothie for the first time in my new place for breakfast.
I grabbed my book ('Eccentrics' by D. Weeks and J. James), headed to the coffee shop, and read for two hours.
I took a walk in the park.
I felt clarity, vividness and mindfulness
I felt present
It made me feel good.
These simple things brought me joy.
This post is about the on-going transition from my past hedonistic values to a path of stoicism.
==My Nephew==
My four year old nephew goes crazy over fruit. He reacts to receiving/eating fruit the same way a normal child reacts to receiving sweets (candies, cakes, cookies,etc).
That something so natural, healthy and simple as an apple can bring such joy to my nephew, brings a smile to my face when I watch him react.
My sister in law, who is health conscious and controls my nephews diet, has done a great job of not exposing him to the un-natural, taste bud exploding, white sugar sweets (candies, cake,cookies,etc).
Once you acquire a taste for these un-natural sweets, it is very hard to appreciate the apple in the same way again.
That is how I look at my transition from hedonistic values to my ERE path of stoicism, going from processed artificial sweets, to the fruits of our natural selves.
==Relapses==
As I've been transitioning from my 600 square foot condo to my <300 square foot co-op, I've spent a lot of money.
I got rid of a lot of my old furniture and things that couldn't fit into my new space, and replaced it with new furniture and 'stuff'. Among the big ticket items, I bought a love seat to replace the two couches I sold on Craigslist, a new ceramic flat top stove to replace the old semi functional grease filled stove, and a wall dividing book case, to create a sense of separation from my bed and new love seat.
In addition, I have been regularly (near daily) going to Home Depot for the renovations and also buying small 'things' to make my place look 'nicer'.
I rationalized that because the space was so small, and because the property was very 'affordable', spending money on 'things' one time was worth the investment as largely, as the theory goes, the move will eventually pay for itself. However, the lines between necessity and luxury became blurred.
Whether or not this rationalization is justified, the realization was that my consumeristic juices that were largely shut off were flowing again.
Spending a lot of money, being in retail shops often, spending a lot of time on line browsing for 'things' to buy, and eating junk food to whatever my hunger fancied, I felt I regressed somewhat from some of the tranquility, discipline and focus I had over the past year.
Also, in the evenings after long days of renovations, and my mind racing with things to do and unable to control my thoughts, I drank most every night, to numb my brain and calm my nerves. I didn't think I'd be able to sleep if I didn't.
So during this time of transition and somewhat instability, I regressed on drinking, spending and eating. Oh yeah, during these three weeks or so I haven't exercised once
==Stabilization==
Now that things are slowly beginning to settle down (even though there is tonnes to do!), I'm slowly trying to cut back on all these things, and back to stoicky ways.
While I do see these regressions as small, ie. they haven't had made me living to the pure pleasure ideals of the past, I realize that it is a slippery slope, especially as I begin a new pattern of life, I do not want these regressions to become the norm.
==Taking a bite out of the apple==
I guess this post came about, because I finally got to take a bite out of the apple in my new place, this 'sunny' Sunday morning, and it brought attention/realization to the things noted above.
Today,
I woke up early.
I made a fruit smoothie for the first time in my new place for breakfast.
I grabbed my book ('Eccentrics' by D. Weeks and J. James), headed to the coffee shop, and read for two hours.
I took a walk in the park.
I felt clarity, vividness and mindfulness
I felt present
It made me feel good.
These simple things brought me joy.
Hey MBGI, I read your whole journal so far and I've very much enjoyed it. Your writing has reflected and articulated many of my thoughts and impressions. In case you haven't already read it, I think you would find Practical Nomad by Edward Hasbrouck informative for your travel life planning, especially the section on Background Reading. Also onebag.com has many practical equipment tips for indefinite travel out of only 1 carry-on sized bag. Learning
-
My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
@learning:
Thanks for the book recommendation and your words.
I will definitely check out Practical Nomad. I've read Vagabonding (by Ralph Potts) which I thought was very decent.
Just read through some of your past posts and I definitely can see the similarities. In particular your thoughts and experiences as a north-easterner in Florida, and the love of the beach.
Thanks for the book recommendation and your words.
I will definitely check out Practical Nomad. I've read Vagabonding (by Ralph Potts) which I thought was very decent.
Just read through some of your past posts and I definitely can see the similarities. In particular your thoughts and experiences as a north-easterner in Florida, and the love of the beach.
@MBGI Thanks for the rec on Vagabonding. I've seen it before on the Amazon product page for Practical Nomad but haven't checked it out.
My current personal take on travel and ERE is that we (my gf and I) are living in different places for long periods of time. Instead of living in the US (my country of birth) and traveling, including long-term travel like our 2 book recommendations suggest, what we are experimenting with is living in one cool place in the world for a while, fully learning the language, studying in a university something of interest, making close friends and getting to thoroughly know them, maybe starting a business, working, investing, volunteering. I'm looking at inexpensive major world cities with top universities. I like living in cities that have a lot to offer and I like living in a university environment. A top university draws many highly intelligent people who are usually less expensive to hang out with than their higher-spending corporate counterparts and there is a wider array of intellectual interests than in the businesses I have worked in. There are, of course, all the university problems, but overall, I find it a good environment for me. Some of the major cosmopolitan cities seem to be more affordable than others, so the less expensive ones seem to be a way of having a high quality of life frugally. By moving from one language/national/literary tradition group to another from time to time, I hope to maximize the amount of self-education in my life. Always learning and perfecting a new language, new literature, educated people from a new country, the daily learning experiences, the shocking surprises. By not actually traveling that much in the sense of moving around from day-to-day, we hope to eliminate the less ERE aspecats of travel. Of course, there are the expenses of the moves every few years, but living frugally means not acquiring too much to begin with, so the moves are cheaper than otherwise and an expense that I'm willing to make in return for the educational value. And it's probably all cheaper than keeping a home in the Expensive (eh-hem, Rich, no Developed, no First, no Western) World. I've even found that key people who live back home want to come visit, thus eliminating the expense of having to go visit, and they can bring those purchases that are best acquired back home. And, we hope to pre-learn the next language while still living in this one, at least partly, to facilitate the transitions during the moves. Then, any travel that we do is regional (less expensive, bus, low cost regional carriers, etc.) to get to know the region we are currently living in, and exploratory, to consider the next places we will live before making the investment (expenditure?) of time, money, energy to learn the language and move there.
Well, it seems like a good idea so far, but putting it in practice will reveal the problems and maybe some unforeseen benefits. So, we're planning to visit Mexico City with its UNAM and Ciudad Universitaria with 300,000 university people within a few months, with the idea being to move there by the end of the year if all goes well. And, maybe a visit to Sao Paulo and USP sometime within the next year or 2, although that is more exploratory because of language and possibly cost of living. Maybe somewhere like Mumbai or Bengaluru in a more distant future, and I still have to research more about where to live in Africa. It's all an idea and life experiment in progress, really. But the info in the books is very helpful. You may also like the Moon Living Abroad in [China, Costa Rica, India...] series and similar books. They tend to have practical information on livable cities and neighborhoods, costs of living, how to get internet service, food, etc.
Learning
My current personal take on travel and ERE is that we (my gf and I) are living in different places for long periods of time. Instead of living in the US (my country of birth) and traveling, including long-term travel like our 2 book recommendations suggest, what we are experimenting with is living in one cool place in the world for a while, fully learning the language, studying in a university something of interest, making close friends and getting to thoroughly know them, maybe starting a business, working, investing, volunteering. I'm looking at inexpensive major world cities with top universities. I like living in cities that have a lot to offer and I like living in a university environment. A top university draws many highly intelligent people who are usually less expensive to hang out with than their higher-spending corporate counterparts and there is a wider array of intellectual interests than in the businesses I have worked in. There are, of course, all the university problems, but overall, I find it a good environment for me. Some of the major cosmopolitan cities seem to be more affordable than others, so the less expensive ones seem to be a way of having a high quality of life frugally. By moving from one language/national/literary tradition group to another from time to time, I hope to maximize the amount of self-education in my life. Always learning and perfecting a new language, new literature, educated people from a new country, the daily learning experiences, the shocking surprises. By not actually traveling that much in the sense of moving around from day-to-day, we hope to eliminate the less ERE aspecats of travel. Of course, there are the expenses of the moves every few years, but living frugally means not acquiring too much to begin with, so the moves are cheaper than otherwise and an expense that I'm willing to make in return for the educational value. And it's probably all cheaper than keeping a home in the Expensive (eh-hem, Rich, no Developed, no First, no Western) World. I've even found that key people who live back home want to come visit, thus eliminating the expense of having to go visit, and they can bring those purchases that are best acquired back home. And, we hope to pre-learn the next language while still living in this one, at least partly, to facilitate the transitions during the moves. Then, any travel that we do is regional (less expensive, bus, low cost regional carriers, etc.) to get to know the region we are currently living in, and exploratory, to consider the next places we will live before making the investment (expenditure?) of time, money, energy to learn the language and move there.
Well, it seems like a good idea so far, but putting it in practice will reveal the problems and maybe some unforeseen benefits. So, we're planning to visit Mexico City with its UNAM and Ciudad Universitaria with 300,000 university people within a few months, with the idea being to move there by the end of the year if all goes well. And, maybe a visit to Sao Paulo and USP sometime within the next year or 2, although that is more exploratory because of language and possibly cost of living. Maybe somewhere like Mumbai or Bengaluru in a more distant future, and I still have to research more about where to live in Africa. It's all an idea and life experiment in progress, really. But the info in the books is very helpful. You may also like the Moon Living Abroad in [China, Costa Rica, India...] series and similar books. They tend to have practical information on livable cities and neighborhoods, costs of living, how to get internet service, food, etc.
Learning
-
My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
-
My_Brain_Gets_Itchy
- Posts: 267
- Joined: Fri Mar 02, 2012 5:29 pm
#020 27/03/2013 My 10 Year 6.75% Fixed Income Investment Plan
A fixed income return of 6.75% doesn't exist in the stock market as far as I know.
But if I told you could get a 6.75% return on a fixed income investment that's locked over the next 10 years, would you do it?
On top of that, what if it drastically improved your taxes/expenses in ERE?
As I juggle some numbers, and delve deeper into :
-debt restructuring and consolidation
-RRSP (retirement savings account) investing
-tax rules and real estate investing
I think my plan will work. I am hoping that someone can point to any flaws/holes/mistakes in this plan, or alternatively, validate it.
Firstly, a little long winded background, that will challenge your ability to not scream out loud 'get to the f*n point with your post'.
==I am $227,000 in Debt==
As of today, I am $227,000 in debt. Doesn't really sound like someone aspiring to be FI this year.
Fortunately, the current value of the properties make the equity to debt ratio at over 3:1. Also, the projected rental returns can suffer a large drop in the rental rates and still cover costs.
-I have an approx $80k business loan for a rental property under a LLC
-I have a $115k interest only HELOC loan on personal rental property
-I have a ~$32K RRSP mortgage on personal rental property.
Technically, on paper, the third property, the cheap primary residence I live in now, is paid off but really it was the HELOC that financed the purchase.
I am using this debt as leveraged income through real estate, three properties- two rentals and a primary residence.
==An Omen==
In my ERE financial planning in combination with personal reflection and analysis inherent in any ERE transformation, it's becoming clear I don't have the mental make up for stock market investing.
A while back I read The Alchemist, and since then, I've become a lot more 'mystical' about things. I try and pay attention to the 'signs' in my life.
I recently had another mega-super dud in my market investing.
Atlantic Power Corporation (AT -US or ATP- CAN).
Its a utility company which (had) a very nice dividend.
I bought in around the $13 range. It was part of my buy and hold diversified dividend portfolio in my RRSP retirement account.
Today? its at about $4.80 with a dividend cut, lawsuits pending, and very little hope that I will ever recover that money. There is increasing fear the thing is going to go belly up.
I understand utility companies have risk and fluctuation, but how is it that I get another bad apple in my portfolio?
'You need to diversify!'
'You need to balance your portfolio!'
These are the common 'external' voice I hear. In particular, its something that a beginning real estate investor will struggle/battle with in deciding where to place they savings.
But you know what I have concluded now?
FUCK IT.
Seriously, Fuck it.
==My name is My_Brain_Gets_Itchy and I'm a Stock Market Idiot..==
Stock Market investing brings out the worst in me, speculative behaviour, and financially igonrant decisions. Picking a stock.. how much do a i reaallly know about the company?
I've decided to fully align my assets to where my competencies are. Where I feel confidence and knowledge, not what conventional wisdom says I should do.
I will live and die by my own sword. So what. I'm already following an 'ERE-Extremist' path, creating rules for myself that best suit me, so why should this be any different?
After about 20 years or so in the market,it's time I realize that I just don't have what it takes to put a large portion of my savings into the market. It's just not me.
My losers usually far outweigh my winners (GWO was one of my best winners so far in my div portfolio).
My historical trail of disasters: Nortel, HNU, Atlantic Power Corp. (among others)
I say this as one who escaped the 2008-2009 market downtown turn unscathed. Most of my assets were in metal and real estate at that time.
Over the life of my time in the market, I have no idea what my return is. I find it impossible to track a real return.
I just can't escape the fact that the market to me is a big casino.
My typical behaviour, is I buy at what I think is low, then it goes lower. I dollar cost average again at that lower price and then I am unbalanced.
Shoot me, I'm a market idiot.
==Real Estate Investing==
For me, I see real estate investing as more of an art than science. Although there is still heavy math and numbers involved, with real estate I see recognizing value more to do with abstract intangibles, things like location, layout, demographics, trends, good tenants, etc.
It's much much easier for me to recognize value in looking/studying a property than it is to study/examine corporate statements.
I can control/effect my investment to a much greater degree: replacing a thermostat to decrease utility costs, painting, renovating, upgrading, etc.
The beauty is that the things I do to control my investment, also give me tremendous upgrade in practical web of skills.
This comes free.
There is also an economy of scale that starts to kick in, as well as being able to 'expense' some personal living expenses into your real estate investing.
An example:
I'm sick of painting. It takes a ton of time, and my wrists kill. And still my paint jobs do not turn out always the greatest, as sometimes I see the different colour variations and paint roller strokes.
As a lesson learned after the fact, now that I have three properties, it dawned on me that I need to get a paint sprayer. It will save me a ton of time in the future, and I can use it for personal use, while expensing as a rental expense.
So, I ordered this:
A high end entry level paint sprayer
Also, by painting all three units the same colour, an almost white off-white, I can buy the paints I need for my rentals in bulk and also use it personally.
So in conclusion, the art of real estate investing, the economies of scale, the improved web of skills, and ability to expense the personal, have made me decided to heavily weigh my assets towards real estate.
==The 6.75% Fixed Income Plan through Debt Consolidation and an RRSP mortgage re-financing==
So here is the meat of this post/plan.
In 2015, the year I plan to retire, my total debt and RRSP balances will be equal, approx $175k or so. It is also the year my RRSP mortgage will be up for renewal.
(Read More about RRSP mortgages here).
CURRENTLY,
1. I am paying interest on my business loan that goes to the bank (6% rate).
2. I am paying interest on my HELOC that goes to the bank (Prime+0.5% = 3.5%).
3. I am paying interest on my RRSP that goes to me (5.99%).
For 1 and 2, they happen to be a significant chunk of my real estate expenses.
However, I recently read that there are no restrictions in using an RRSP mortgage in terms of primary residence versus a rental property.
The no brainer revelation was to re-finance my RRSP mortgage, an amount that will cover all my debts and consolidate them all into one RRSP mortgage.
The rate I get to choose for my RRSP mortgage is the banks posted mortgage rate, not necessarily the discounted rate the bank will offer.
The posted mortgage rate for a 10 year closed fixed mortgage:
6.75%
I would 'pay-off' my business loan, and then the business owes me back this money.
I would pay off the HELOC.
In my RRSP retirement account, I will be making a 6.75% fixed return funded by my rental income.
The beauty of the numbers is that I can claim the interest expenses for the rental, even though those interest payments go back to me into my retirement account.
The higher the interest expense on the rental, the better.
And that is the gist of this story.
The annual interest alone on a $175k mortgage at 6.75% is $11,812.50, which does not obviously include the net income from the rental properties.
==Final Thoughts==
I may opt towards a 5 year fixed return at 5.14%, or a 6 year at 6.16%, but given all three choices, for the type of person I am, I prefer this return rather than gambling in the stock market. I get my growth from property appreciation, although I am far less concerned by a downturn, as long as my rental rates provide their 'dividend'.
I visited the bank last week to ask them if I could refinance and do what I described, and they said they see no reason why I cannot.
I am now re-aligning my RRSP retirement account out of a dividend portfolio into cash to fund this structure in 2015.
Thanks for listening.
A fixed income return of 6.75% doesn't exist in the stock market as far as I know.
But if I told you could get a 6.75% return on a fixed income investment that's locked over the next 10 years, would you do it?
On top of that, what if it drastically improved your taxes/expenses in ERE?
As I juggle some numbers, and delve deeper into :
-debt restructuring and consolidation
-RRSP (retirement savings account) investing
-tax rules and real estate investing
I think my plan will work. I am hoping that someone can point to any flaws/holes/mistakes in this plan, or alternatively, validate it.
Firstly, a little long winded background, that will challenge your ability to not scream out loud 'get to the f*n point with your post'.
==I am $227,000 in Debt==
As of today, I am $227,000 in debt. Doesn't really sound like someone aspiring to be FI this year.
Fortunately, the current value of the properties make the equity to debt ratio at over 3:1. Also, the projected rental returns can suffer a large drop in the rental rates and still cover costs.
-I have an approx $80k business loan for a rental property under a LLC
-I have a $115k interest only HELOC loan on personal rental property
-I have a ~$32K RRSP mortgage on personal rental property.
Technically, on paper, the third property, the cheap primary residence I live in now, is paid off but really it was the HELOC that financed the purchase.
I am using this debt as leveraged income through real estate, three properties- two rentals and a primary residence.
==An Omen==
In my ERE financial planning in combination with personal reflection and analysis inherent in any ERE transformation, it's becoming clear I don't have the mental make up for stock market investing.
A while back I read The Alchemist, and since then, I've become a lot more 'mystical' about things. I try and pay attention to the 'signs' in my life.
I recently had another mega-super dud in my market investing.
Atlantic Power Corporation (AT -US or ATP- CAN).
Its a utility company which (had) a very nice dividend.
I bought in around the $13 range. It was part of my buy and hold diversified dividend portfolio in my RRSP retirement account.
Today? its at about $4.80 with a dividend cut, lawsuits pending, and very little hope that I will ever recover that money. There is increasing fear the thing is going to go belly up.
I understand utility companies have risk and fluctuation, but how is it that I get another bad apple in my portfolio?
'You need to diversify!'
'You need to balance your portfolio!'
These are the common 'external' voice I hear. In particular, its something that a beginning real estate investor will struggle/battle with in deciding where to place they savings.
But you know what I have concluded now?
FUCK IT.
Seriously, Fuck it.
==My name is My_Brain_Gets_Itchy and I'm a Stock Market Idiot..==
Stock Market investing brings out the worst in me, speculative behaviour, and financially igonrant decisions. Picking a stock.. how much do a i reaallly know about the company?
I've decided to fully align my assets to where my competencies are. Where I feel confidence and knowledge, not what conventional wisdom says I should do.
I will live and die by my own sword. So what. I'm already following an 'ERE-Extremist' path, creating rules for myself that best suit me, so why should this be any different?
After about 20 years or so in the market,it's time I realize that I just don't have what it takes to put a large portion of my savings into the market. It's just not me.
My losers usually far outweigh my winners (GWO was one of my best winners so far in my div portfolio).
My historical trail of disasters: Nortel, HNU, Atlantic Power Corp. (among others)
I say this as one who escaped the 2008-2009 market downtown turn unscathed. Most of my assets were in metal and real estate at that time.
Over the life of my time in the market, I have no idea what my return is. I find it impossible to track a real return.
I just can't escape the fact that the market to me is a big casino.
My typical behaviour, is I buy at what I think is low, then it goes lower. I dollar cost average again at that lower price and then I am unbalanced.
Shoot me, I'm a market idiot.
==Real Estate Investing==
For me, I see real estate investing as more of an art than science. Although there is still heavy math and numbers involved, with real estate I see recognizing value more to do with abstract intangibles, things like location, layout, demographics, trends, good tenants, etc.
It's much much easier for me to recognize value in looking/studying a property than it is to study/examine corporate statements.
I can control/effect my investment to a much greater degree: replacing a thermostat to decrease utility costs, painting, renovating, upgrading, etc.
The beauty is that the things I do to control my investment, also give me tremendous upgrade in practical web of skills.
This comes free.
There is also an economy of scale that starts to kick in, as well as being able to 'expense' some personal living expenses into your real estate investing.
An example:
I'm sick of painting. It takes a ton of time, and my wrists kill. And still my paint jobs do not turn out always the greatest, as sometimes I see the different colour variations and paint roller strokes.
As a lesson learned after the fact, now that I have three properties, it dawned on me that I need to get a paint sprayer. It will save me a ton of time in the future, and I can use it for personal use, while expensing as a rental expense.
So, I ordered this:
A high end entry level paint sprayer
Also, by painting all three units the same colour, an almost white off-white, I can buy the paints I need for my rentals in bulk and also use it personally.
So in conclusion, the art of real estate investing, the economies of scale, the improved web of skills, and ability to expense the personal, have made me decided to heavily weigh my assets towards real estate.
==The 6.75% Fixed Income Plan through Debt Consolidation and an RRSP mortgage re-financing==
So here is the meat of this post/plan.
In 2015, the year I plan to retire, my total debt and RRSP balances will be equal, approx $175k or so. It is also the year my RRSP mortgage will be up for renewal.
(Read More about RRSP mortgages here).
CURRENTLY,
1. I am paying interest on my business loan that goes to the bank (6% rate).
2. I am paying interest on my HELOC that goes to the bank (Prime+0.5% = 3.5%).
3. I am paying interest on my RRSP that goes to me (5.99%).
For 1 and 2, they happen to be a significant chunk of my real estate expenses.
However, I recently read that there are no restrictions in using an RRSP mortgage in terms of primary residence versus a rental property.
The no brainer revelation was to re-finance my RRSP mortgage, an amount that will cover all my debts and consolidate them all into one RRSP mortgage.
The rate I get to choose for my RRSP mortgage is the banks posted mortgage rate, not necessarily the discounted rate the bank will offer.
The posted mortgage rate for a 10 year closed fixed mortgage:
6.75%
I would 'pay-off' my business loan, and then the business owes me back this money.
I would pay off the HELOC.
In my RRSP retirement account, I will be making a 6.75% fixed return funded by my rental income.
The beauty of the numbers is that I can claim the interest expenses for the rental, even though those interest payments go back to me into my retirement account.
The higher the interest expense on the rental, the better.
And that is the gist of this story.
The annual interest alone on a $175k mortgage at 6.75% is $11,812.50, which does not obviously include the net income from the rental properties.
==Final Thoughts==
I may opt towards a 5 year fixed return at 5.14%, or a 6 year at 6.16%, but given all three choices, for the type of person I am, I prefer this return rather than gambling in the stock market. I get my growth from property appreciation, although I am far less concerned by a downturn, as long as my rental rates provide their 'dividend'.
I visited the bank last week to ask them if I could refinance and do what I described, and they said they see no reason why I cannot.
I am now re-aligning my RRSP retirement account out of a dividend portfolio into cash to fund this structure in 2015.
Thanks for listening.
-
George the original one
- Posts: 5406
- Joined: Wed Jul 28, 2010 3:28 am
- Location: Wettest corner of Orygun
As if you need any encouragement, 6.75% annual rate is higher than my assumed return of 6.5%, so, yes, I'd take it 
I just peeked at Canadian government bond rates and was shocked to see that they're yielding less than USA treasuries! Between the energy wealth and those low rates, I think you'll want to plan on hiking rents above inflation for the next 10 years.
I just peeked at Canadian government bond rates and was shocked to see that they're yielding less than USA treasuries! Between the energy wealth and those low rates, I think you'll want to plan on hiking rents above inflation for the next 10 years.