My story so far...
The Basics:
25 year old, single INTJ male in London Ontario, Canada. Working as a Chartered Accountant. Current religious views: Be Excellent To Each Other. Also Libertarian in political orientation.
Total gross income from job 49K, Net 38.5K
In January bought a house. House was previously a student rental. (six bedrooms (though two are pretty small), two bathrooms, Kitchen & Kitchenette) Cost 173K, mortgage amortized just under 20 years. Currently renting out 3 of the bedrooms, and intend to continue to rent out 2-4 rooms for the foreseeable future.
Monthly operating costs:
Total monthly operating costs of the house approx $1,500 (>$400 principal payment) Current rental income $1,000. (Comparable rent for accommodation I have $400-600) My opinion is that con of being tied down to one location, and having a large financial obligation is outweighed by the fact that the total impact on my cash flow (approx -$500mo, 400 of which is principal) is what comparable rent would be. Would be willing to hear anyone’s opinions on this. (I know if I rented out another room that I would be even better financially off but right now have a great group living with me, and don't want to rock the boat and have someone decide to leave)
Rental Property:
In May purchased a rental property with 2 other friends/colleagues. (1/3 ownership ea) Student rental in highly desirable location to school where monthly rental for bedroom can be over $500. Purchase price 239K with 20% down. There were a lot of hassles issues with the purchase (seller was a non-resident etc) City of London Ontario (though being a university city in many opinions, dislikes student houses, and devises their by-laws accordingly, I’ll leave it at that for now) House is being aggressively paid off (15 year amort, assuming interest rates will stay low for next couple of years, that a whole other discussion though)
Rental Operations:
6 bedroom 2 bath one Kitchen, each room rents for $475; Cash flow currently in the $100-400 range (though one bedroom is not rented, and it's too early to be able to make reliable predictions on if current cash flows are likely to stay constant, as we are new to this solely rental property game) Current principal payments of approx 900mo.
Spending & Saving:
So I am currently saving approx $1200-1700mo on average (not counting cash flow from rental or principal payments on either property). Have a Car which work requires (though the expense reimbursements cover approx 50% of the total cost of operating & maintaining) Largest vice is alcohol & social activities. (Have a severe dislike of "stuff" & status symbols etc). One of my business partners has expressed an interest in getting into another investment property (and I'll be in a position to do so in approx 6months time if things stay on course). Also I plan to start budgeting once life slows down (I assume the older & wiser folks will tell me that life never slows down... A guy can hope) "Life moves pretty fast. If you don't stop and look around once in a while, you could miss it." -F.B.
So originally I was going to build a real-estate empire and make top lists of wealthy Canadians... (Or at least that was my intention in University). But then I discovered that it was hard and also discovered Jacob's Blog and ERE. I think I originally wanted to do the whole empire thing because I have a tendency to view life as a game, and it seemed like one of the best ways to get a high-score (at least in the eyes of others).
Then this whole discovering ERE thing happened and I am starting to wonder if the rules of the game have been changed or if I've been playing the wrong game.
Not sure if this post has a true purpose, really just an excuse to try and flush out what I want to do with Life, the Universe and Everything.
Willing to take any advice, pointers etc from anyone. (Also love to hear from anyone who's done the real estate empire; and I’m also willing to meet up with anyone from southwestern Ontario)
Sorry for the long meandering post, but thanks for sticking with me to this point.
-Matt
Matt's Journal: ERE vs Real Estate Empire
I assume that means you went to Western? That automatically lowers my opinion of you (I keed, I keed... I went to Waterloo once upon a time).
1. I like the idea of renting parts of the house you live in now.
2. I might be careful about over investing in real estate, but frankly good on you for putting your money to a better use than say a new Acura early on in your life. I think for the purpose of ERE you need to have liquid assets that provide income that you can use to pay for your life when you aren't working. Its hard to do that with real estate.
Re: life slowing down. At 25 you have more free time and life is as slow as it will ever get!!! Career demands + family demands will step up exponentially in the near future. Honestly, you don't know sleep deprived and fast-paced life until you have kids. I'd also throw out "doing a startup" or "owning your own business" as ways to push your life-pace up exponentially.
1. I like the idea of renting parts of the house you live in now.
2. I might be careful about over investing in real estate, but frankly good on you for putting your money to a better use than say a new Acura early on in your life. I think for the purpose of ERE you need to have liquid assets that provide income that you can use to pay for your life when you aren't working. Its hard to do that with real estate.
Re: life slowing down. At 25 you have more free time and life is as slow as it will ever get!!! Career demands + family demands will step up exponentially in the near future. Honestly, you don't know sleep deprived and fast-paced life until you have kids. I'd also throw out "doing a startup" or "owning your own business" as ways to push your life-pace up exponentially.
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Mattamatics
- Posts: 5
- Joined: Thu Jul 22, 2010 3:27 pm
Thanks dpmorel for your input.
Didn't go to western, slacked off way too much in H.S. to get into the likes of Waterloo or Western, so I was Guelph bound.
The over investing in real estate is a real concern of mine. It's just that on paper (ignoring the additional risk of highly leveraging yourself) it's pretty hard to get similar returns. For example with our current rental property lets say my share of the cashflow is $75mo (900 a year, on the 17K cash I put down, approx 5% return on cash) then if you factor in the mortgage payments (900mo principal a mo 1/3 of which is mine all of a suden my total return is 4.5K on 17K invested) now whether this can be consistently maintained, only time will tell, but it is a real temptation to further invest. (Also obviously ridiculously low interest rates are significanly increasing the current profitability)
I know my one partner, had never considered it till I had asked him to run his own numbers and see what he came up with. Now after we have invested in this property he is the one pushing hardest for another.
Also by the way I checked out your blog(linked to your username) lots of interesting stuff there to read, especially liked your discusion on the current fight of RIM vs Countries & Google vs Individual. I was aware of both, but never really considered them together, and the interesting dichotomy/path they may lead to. (here's hoping for RIM)
Didn't go to western, slacked off way too much in H.S. to get into the likes of Waterloo or Western, so I was Guelph bound.
The over investing in real estate is a real concern of mine. It's just that on paper (ignoring the additional risk of highly leveraging yourself) it's pretty hard to get similar returns. For example with our current rental property lets say my share of the cashflow is $75mo (900 a year, on the 17K cash I put down, approx 5% return on cash) then if you factor in the mortgage payments (900mo principal a mo 1/3 of which is mine all of a suden my total return is 4.5K on 17K invested) now whether this can be consistently maintained, only time will tell, but it is a real temptation to further invest. (Also obviously ridiculously low interest rates are significanly increasing the current profitability)
I know my one partner, had never considered it till I had asked him to run his own numbers and see what he came up with. Now after we have invested in this property he is the one pushing hardest for another.
Also by the way I checked out your blog(linked to your username) lots of interesting stuff there to read, especially liked your discusion on the current fight of RIM vs Countries & Google vs Individual. I was aware of both, but never really considered them together, and the interesting dichotomy/path they may lead to. (here's hoping for RIM)
Guelph is nothing to be ashamed of! Thats a great school.
I'm partly worried about using debt (mortgage) to build investment income, mostly because I think interest rates are going up.
I also think the core strategy of ERE is to increase margins as much as possible by having your costs as LOW as possible, Second and third mortgages are a debt with a monthly obligation. Simply investing that money maybe isn't...
But if you know your market well, and can generate income, there's nothing to say that you can't retire early by following a path other than ERE! In fact if you've got a hot building that will generate good income, feel free to email me up!
I'm partly worried about using debt (mortgage) to build investment income, mostly because I think interest rates are going up.
I also think the core strategy of ERE is to increase margins as much as possible by having your costs as LOW as possible, Second and third mortgages are a debt with a monthly obligation. Simply investing that money maybe isn't...
But if you know your market well, and can generate income, there's nothing to say that you can't retire early by following a path other than ERE! In fact if you've got a hot building that will generate good income, feel free to email me up!