July 2015 Update

“In school, the person who makes the fewest mistakes wins. In life, the person who makes the most mistakes wins.” –Robert Kiyosaki

Hey guys!

Once again, July’s update is super boring. I had hoped to see the fruits of recent changes, but they have yet to take effect. For now, I’m embracing what they call the ‘J-curve’: lower cashflow now, while I optimize, experiment and tweak things. It’s boring, but it’s all about being transparent and sharing the journey. And for now, the journey is anything but glamorous.

Let’s discuss what’s new:

(**Update Sept 2015: Please see discussion of MIC’s in Aug 2015 Update. I no longer recommend investing in any publicly traded MIC!).

TZZ:

Holy crap! A stock that pays >10% dividends on a monthly basis? Yes. I shuffled money out of the e-savings 1.6% and into this. If you hold stock on the third to last business day of each month, you get paid dividends around mid-month the following month. They also offer a DRIP program. My purchase price was $6.82/share and monthly dividends are currently $0.0583/share for a 10.3% annualized return. It seems too good to be true and alas might be: in their latest financials, due to loan defaults, they mentioned a possible dividend reduction in October, and the stock performed accordingly. It’s possible the dividends might be reduced to around $0.046/share/month, or ~ 8% annualized return based on my purchase price of $6.82. This seems to be typical of the luck I tend to have: they have steady dividends for 3 years and the moment I buy it could be reduced by 20%. Gah! I can’t tell you how many times similar things have happened to me lol :S

Other point to note is that People’s Trust has continued to reduce their interest rates: what was once a 3% TFSA when I signed up in Jan is now 2%, and the e-savings has gone from 1.8% to 1.45%  (Do you see the pattern emerging with my timing here?). This is in step with several government policies (more TFSA contribution room, lower Bank of Canada interest rates) and certainly makes them less attractive products, but still a good ‘placeholder’ option.

Ok that’s it for news! So we’ve already gone from 1.8% and 2.25% vehicles a few months ago, to finding over 10% returns, all as monthly cashflow. BUT it doesn’t take a rocket surgeon to figure out even compounded 10% returns won’t get me close to my goal in 2 years. Maybe in 10 years with super-frugal savings, yes. But continuing to live the kind of frugal lifestyle I’ve been for the past 3 years, as well as working the jobs and schedules I’ve had during this time, for the next 10 years, simply isn’t acceptable. It’s going to take much more creative, bold strategies.

ENTER REAL ESTATE INVESTING

The only vehicle I’ve been able to find that could achieve my goal in 2 years is real estate. Within real estate there are myriad approaches, niches and variables. Over the past several months, I’ve finally defined a clear goal (3k net permanent monthly cashflow by July 2017 starting with 75k capital) and have been examining different REI (Real Estate Investing) strategies that might achieve this. I networked with real estate agents, lenders and local investors, toured homes for sale, emailed lots of people, talked to friends also into REI, etc. (By the way, if you or anyone you know is into REI, let me know! Networking has been the single biggest tool and help so far, and you never know what you might learn. I’ve met some amazing contacts that either are, or might one day be, part of my ‘team’). A common theme has been that potential cashflow is higher in the US than Canada, due to the housing crash we didn’t have. Furthermore, prices are lower in certain markets, affording someone with limited capital a lower point of entry. A great resource has been Bigger Pockets. One strategy I looked at really closely was applying the BRRR method, both in Victoria and Nanaimo. Unfortunately, several pieces were still missing (capital & financing/refinancing chief amongst them) for these to be a really good fit locally. It was more realistic in Nanaimo than Victoria, but again, the pieces and fit wasn’t quite right.

So I’ve recently decided to turn my energies southwards, for the time being. With my summer job not panning out, the timing is ripe. I’m excited to see what happens over the coming months, and will report here as things actually unfold (but not before hand as I don’t like speculating). I’m taking a risk, I’m scared as hell, but it’s what I have to do to achieve my goals and dreams, and hopefully we’ll have some exciting progress and things to talk about on here soon!

Stay tuned and happy cashflowing!

June 2015 Update

“Opportunity is missed by most people because it is dressed in overalls and looks like work.” -Thomas Edison

Hello again friends.

June’s update isn’t as exciting as I had hoped. But there are exciting things to talk about. I’m still waiting for some changes to take effect, which I’ll talk about after the graphs:

Ok, so you immediately notice 2 things: Cashflow has decreased (Not a big deal, I’m shuffling funds, 2 steps forward, 1 step back right?) and there’s some new items. Cool! Let’s talk about them:

KV MIC:

I transferred my RSP (previously in mutual funds, cash & stocks) into 2 funds offered through an “exempt market dealer” (islandlifefinancial.com). One is a MIC (Mortgage Investment Corporation) that has averaged 8.9% over the past 6 years (since 2009). This one is run quite conservatively. It pays monthly dividends, which I have signed up to have reinvested through a DRIP. It’s called KV Mortgage Fund. Another option is to take the monthly dividends as cash. I need to grow, drop by drop, so for now it’s the DRIP strategy. This compounds my returns monthly; and remember we like compound interest 🙂 Also, this is in an RSP, so my options are limited. The disadvantage: penalties for withdrawing money before 5 years. Annual RSP admin fee of $150. Funds are only semi-liquid now.

Clearsky Silverado (Albuquerque):

This is a more unique vehicle: essentially a pooled real estate investment offering. Tax structure similar to a REIT. It will pay quarterly dividends (from rental income) and a lump sum return in 3-5 years when the investment is sold. This is a strategy to grow my capital (aka money) for now, for more cashflow later. Essentially investors pool funds, and a management team with a proven track record takes our money, buys a commercial multifamily rental property, improves the value (through things like reno’s, increasing rents, decreasing expenses. This affects the property’s overall revenue. Since multifamily’s are valued via CAP rates, increased net revenue = increased property value to a buyer) and sells it in a few years (while earning rent during the holding period). They take a cut, we hopefully make a decent ROI (return on investment) and hopefully everyone goes home happy. This is riskier than the KV MIC, but is projected to pay a higher return (double digits annualized, their target is 14%+). Disadvantage? Funds are no longer liquid, but locked-in until our investment is sold, which we have no control over. Did I mention this is riskier?

What’s the exempt market?

It basically means the private market. That’s why you’ve probably never heard of it: Banks and Credit Unions make money offering their own products: GIC’s, Term Deposits, Mutual Funds, Brokerage Accounts. They don’t offer exempt market products/securities, so that’s why you’ve probably never heard of them. But they’re very real, and so are their returns. It all sounds sketchy at first. But dig beneath the surface. Pension Funds invest in some exempt market products, such as private REITs. And I’m comfortable in Island Life Financial’s groundwork in vetting out some of the higher quality products this market has to offer, and I’ve certainly asked a lot of questions and learnt enough to be satisfied. To invest in this market you often need to go through an Exempt Market Dealer. There are definitely bad eggs in this market, so approach with caution! It took me nearly 2 years from first learning of this market until I invested in it. To each their own.

Let’s talk about MICs:

I’ve heard a friend tell my Mom that if you’re getting a guaranteed 9% return, then it must be fraud. Well MICs aren’t technically guaranteed, but damn they’re reliable. I feel they’re less risky than mutual funds. Certainly the returns are more reliable and predictable. I encourage you to do your own research into this piece of the investment puzzle, because unfortunately each person I’ve talked to about them has immediately assumed 9% = risky, without actually knowing what they’re talking about. I’ve started researching other, publicly traded MICs. There’s a few on the TSX that currently return 7% – 10% (eg. TZZ, TMC). Wow! How come everyone doesn’t invest in these? (**Update Sept 2015: Please see discussion of MIC’s in Aug 2015 Update. Now I know why (volatility, devaluation), and I no longer recommend investing in any publicly traded MIC!). I’m not sure, but a friend named Aaron Blair once said: People out there in the real world are lazy. People just aren’t researching this stuff I guess. It seems like a no brainer to me. Now that I’ve researched publicly traded MICs, I feel this is a superior place for me to put my money than in the private MIC offered through Island Life Financial: the returns are on par with KV MIC, and they’re much more liquid: I can exit whenever I want with no penalties. So I’ve (re)opened a brokerage account with TD Waterhouse, and will move funds from the People’s Trust Savings accounts into this brokerage account to buy these publicly traded dividend paying stocks. I anticipate using this as my new “placeholder”. Here is an article on MICs to start you on your own research. Disadvantages: trading fees when buying/selling the stock. Also, the stock price fluctuates, albeit modestly compared to other stocks, so depending on your timing, one might sell at a loss. If you’re in it for an extended period of time, this should be a non-factor after taking your dividends into account. MICs certainly aren’t the end-all be-all of this game, but for me they are proving to be one piece of the puzzle.

(**Update Sept 2015: Please see discussion of MIC’s in Aug 2015 Update. I no longer recommend investing in any publicly traded MIC!).

Important notes:

1) Transferring funds to/from People’s Trust is FREE! I hate fees. Also, did I mention how fucking awesome their customer service is? Each time I phone I’m speaking directly with a human within seconds who can help me. This is super rare in this day and age and I fucking love it. I can’t recommend them enough to someone who wants a simple high interest savings account. Fuck your bank’s term deposit or GIC and get with People’s Trust!

2) Reason for opening brokerage with TD Waterhouse: you can link the brokerage (stock trading) account to your bank account at TD Bank (in my case I only have a FREE savings account with them), and transfer funds back and forth for FREE. Whilst Qtrade and Interactive Brokers are generally better brokerages that I’ve used in the past, they have fees for transferring money OUT of your account (as well as ongoing “Admin” or “maintenance” fees which eat away at your profits). That is not good if you want to live off of monthly cashflow, and are projected to withdraw money every month. This should all be seamless, quick and free with TD’s linked bank-brokerage accounts. **Update Sept 2015: yes it was!

I’d also like to thank those of you who’ve commented and written to me with suggestions, strategies and products. I have to still research some of them, and didn’t have room to write about them here as this post is already quite long. Please keep the comments coming, every new idea might be another piece of the puzzle!

What do you guys think of these new changes? What are you doing to increase your monthly cashflow? Leave a comment if you have one.

Happy cashflowing!