how'd you make your fortune?

[joncnca]

there are clearly some posters here who seem to have (over the years) set themselves up very nicely, financially. i think i speak for most people on the forum when i say that much of the advice and nuggets of wisdom imparted by these posters have been invaluable, particularly for those of us at the earlier stages of our working careers. so i want to start off with a hearty 'thank you.'

it got me curious though, for those of you who have pretty much mastered the basics (i.e. out of debt, good financial habits, quickly paying down or already paid down mortgage, etc.) and moved onto actually building wealth (i.e. built a strong investment portfolio, cash positive rental property, entrepreneurs, etc.), how'd you get there, and more importantly, how did you start off?

for example, the first time you bought an investment property that made you money, did you already know to calculate the cap rate and to account for unforeseen expenses? or did you just jump in and learn about these things as you went along, and if so, did it work out the first time or did you have to overcome several failures before finally getting right? what made you take that first leap?

that's just a real estate question, but it applies to any other method by which you made your fortune. how did it begin for you? =)

[Jungle]

Well I'm not worth a fortune and my job is not really high paying by any standards. I started working for money when I was young, paper route, for my dad etc. Then continued in high school at a department store, then when I was 18 I started working full time in fast food for several years. Kept going from crappy job and went to school for two years, worked two part time jobs while in school and paid for everything myself including rez for half a semester. After that worked a few more jobs, but then landed one when I was 26 with OK pay, benefits and pension.

I continued to spend and save responsibly, then bought a house when I was 27. Started doing RSP and contributing to company pension. Kept saving and making extra mortgage payments. Starting putting money in TFSA. Worked on the side to make extra money. I got married and could not sell my house, so I started renting it out. Cap rate is not that good, but seem to be doing OK with it so far, been renting it our since 2008 without any vacancy or substantial repair costs. Marriage with no debt and everything was paid with cash from saving money. Parents helped pay for the venue. (big help) Read a lot of books and blogs about investing and saving money.

Got married to a like minded wife, she bought real estate same time I did, had RSP and pension. With dual income, we live frugally and save a lot of money. We paid off over half the mortgage and then reborrowed it and bought stocks.

Purchasing assets that increase in value or make money seem to take really take a long time to build sustantial wealth. Like I know in 30 years it will be worth it, but for now, getting a good job and spending less than you earn is likely to set up up faster. It starts like a snow ball being pushed off the top of a mountain, than it builds speed faster and faster as it goes down the hill. We're not even making good money with our stock investments over the last few years, so that thing takes a long time.

[Jungle]

Here is some interesting stats about us: (two adults)

Just turned 30.
Both incomes are in the 40K range.
Last year we spent $20K total! (Does not include mortgage interest)
Net worth is up 78% since Jan 2010!!
Investment retuns suck, last year we lost money. Avereage 4 year return on pension is only 4% per year!! ( the rest I dindn't track back then)
Over $215K in stocks and mutual funds - 99% equity
$210 in tax deductible debt
No credit card debt
Operate with one car
Usually never any liquid cash on hand ( don't like emergency funds)

Goal is for an early retirement and to start a family.

[P_I]

Personally the following has served us very well and I'd recommend it to anyone.

1. Spend less than you earn.
2. If you must borrow, two things 1) Make sure there is a margin of safety in your calculations. For example, at around the time I got married we bought our first house. We made sure that the mortgage payments could be handled on a single salary, thus protecting ourselves from "life events". and 2) Plan to reduce and eliminate the debt as soon as possible. We used the mortgage double-up feature and annual lump sum payment priviledges to accomplish this.
3. When you have funds available for investing, minimize expenses. Fees matter. Returns can and will be variable and you don't control them. You do have control over your expenses, so keep them as low as possible, you'll benefit in the long run.
4. Think long-term, but have an emergency fund just in case. The emergency fund should have NO risk associated with it. Yes the return will likely suck, but remember it is for an emergency -- it has to be there!.
5. Expect the unexpected. Does your investment plan depend on a specific set of parameters to occur for it to be successful? If so, what happens if things don't go to plan? When we moved provinces a while back, we retained a property in our original province as a fallback plan if the move didn't work as expected. As part of our planning, we considered the possibility that the house could remain empty for a period of time, no income, but expenses still occur. For the first five years, we always had occupancy, so things worked out well. Then things changed, our last tenants left end of August 2011 and the house remains empty. Because of the conservative assumptions we'd made, while not desirable, this has still been workable. It just meant other trade-offs that we'd considered before hand. We never formally considered calculating a cap rate, although we probably did it informally now that I reflect on it.

[kcowan]

Key to my success
1) Got a good education
2) Got a well-paying job
3) Always on the lookout for better paying positions
4) Unafraid to take risks
5) Learned from my mistakes
6) Never stuck with previous decisions when they no longer make sense
7) Always lived below our means.

I have held 25 different positions in my career.
Each move involved more ego on the line and increased earnings.
Have owned a rental apartment building but flipped it for $150k profit in my first 10 years.
Have owned a very large estate property for leverage.
2 kids and 2 wives.
Amassed a medium 6-figure investment portfolio.
Portfolio is Corporate Bonds, Individual Equities and selected foreign funds.
Retired and living in Mexico with a summer place in Vancouver.

[Just a Guy]

Well, in the early 90's where job prospects looked slimmer than Twiggy, I was forced into becoming self-employed. Did fairly well, but knew nothing about investing. My mother-in-law was someone who I thought knew a lot, so I followed her advice and bought a mix of mutual funds for my RRSP. Like most mutual funds, their value today is basically the same as when I bought them.

Figured it was time to stop being lazy and learn something about how money works, so I started reading a lot, and THINKING about what I read...not all of it was good advice.

Bought my first rental house when I sold my first house. Everyone I knew told me how stupid I was for doing it. I had run the numbers though, and it was, in my opinion, a no lose investment.

Ran into some problems with my company, and had to look into taking contracts I didn't like and that didn't pay well...started having kids...bought a few more rentals (putting myself in a lot of debt, at a time when my income wasn't all that stable...but the properties I bought were high cash flow, no risk types (I'm actually a very conservative investor, I don't like risk).

As the stock market crashed, I bought companies that I knew. Most of them payed a dividend, and forgot about them. To me, I never invest money I need and consider any money I've invested to be spent money...gone, can't access it anymore.

I went though some pretty lean years, learned to spoil my kids cheaply, and one day while working on a bad contract, started to look at my portfolio for a bit. I realized, that the market was making me more money in a day than my company was...my rentals were paying my bills...and I somehow wasn't broke anymore, and hadn't been for some time.

Got a bit cocky, tried to buy some stocks that were being manipulated, or the fad of the day, and got burned by them. I soon realized I wasn't an investing genius, and went back to my boring ways.

Eventually, I changed the focus of my company, started working on things I wanted to. Picked my projects, and my prices, bought more real estate and stocks. Still have people thinking I'm crazy/stupid since I've never had a well paying job, I don't budget, don't like "advisors" and never did things the traditional way...

I've never been focused on money, have no drive for it, I focus on my family and live modestly. I don't have a lot of toys, and I'm disciplined at keeping investments as investments and my money as my money. I wouldn't call myself rich, but I do have the freedom now to choose my lifestyle.

[joncnca]

just a guy,
sounds like you're being modest but i think you're very successful in the way that i want (not to diminish the achievements of the other posters), of course i'm a little more anal and pour over how beautifully my budget is laid out, haha. anyway, for instance, when you bought that first rental property, you ran the numbers...what numbers were important to you? also, were you well prepared at the outset, or did you run into problems with your numbers that needed to be corrected after you were already in the thick of it? luckily, sounds like everything worked out, but did you find yourself thinking 'how'd i get myself into this' and how'd you convince yourself to keep going (or did you feel like you were already committed, couldn't give up?)

kcowan,
when you owned the rental that was later flipped, did you have the projected earnings all worked out before you bought the place, and if so, did it work out as planned? it's just one line in your response, but could you elaborate on some of the trials and thought processes? did you already have an idea that it would give you such a substantial gain? if not, how did you convince yourself to go ahead with purchasing and operating the rental anyway? what were some big lessons that you learned from your mistakes?

P_I,
i like to build some pretty conservative estimates into my projections, but sometimes i'm afraid of being too conservative. i'm fortunate that i'm not in any kind of 'desperate' position, so i'm not swayed by get-rich-quick schemes. and while conservatism has it's place, i want to be a participant not a spectator. lots of people talk about money and investing, but i feel relatively few actually act.

jungle,
you guys are awesome. i'm still trying to work out the details of cap rate, particularly NOI and what it includes...cause i'm a little confused and haven't gotten around to looking at it more.

===
i think my curiosity boils down to this....when you started with your investment (whatever it was), how much of the ultimate gain was due to planning alone, and how much was unforeseen? you might run some numbers, and it might have been a pretty lackluster 2% gain or something, but ended up returning much more because people bought more of the stock, or something was built to drive up rental rates/property values? looking back on events, it's easy to say "i flipped something and got a good return" but in the moment, how were you feeling about it?

[Just a Guy]

just a guy,
sounds like you're being modest but i think you're very successful in the way that i want (not to diminish the achievements of the other posters), of course i'm a little more anal and pour over how beautifully my budget is laid out, haha. anyway, for instance, when you bought that first rental property, you ran the numbers...what numbers were important to you? also, were you well prepared at the outset, or did you run into problems with your numbers that needed to be corrected after you were already in the thick of it? luckily, sounds like everything worked out, but did you find yourself thinking 'how'd i get myself into this' and how'd you convince yourself to keep going (or did you feel like you were already committed, couldn't give up?)

If I were to write a beginner's book on real estate it would be this one... www.easysafemoney.com/book/

My numbers are a little simple...Mortgage, fees, insurance, taxes, etc. vs. Rent in a bad market. My first condo cost me around $450/month. Current rents at the time were about $700, the lowest rent I'd heard of in years was $500...it was a no lose situation. I now rent the same place for $950/month, but I refinanced it years ago to buy more places.

The one tough part was believing in the investments. There was a time I was running up debt, had I liquidated I could have been even, but would have lost the passive income. It's hard to stay the course during times like that, but I knew it was only temporary, and it would be stupid to liquidate and be left back at the beginning. I also remember when the business first started to suffer and I bought another property...things were going south and I intentionally put myself a further $80+k in debt. My in-laws and family weren't too happy. Of course, I selected another no-lose property and the profits wound up paying my personal mortgage for the rough patch. It's hard to go ahead without support, I read that only 5% of Canadians invest in real estate, that means 95% of people will think you're crazy...not to mention the 3% who probably get burned by doing it wrong...

[brad]

I worked hard.

[Jungle]

i think my curiosity boils down to this....when you started with your investment (whatever it was), how much of the ultimate gain was due to planning alone, and how much was unforeseen? you might run some numbers, and it might have been a pretty lackluster 2% gain or something, but ended up returning much more because people bought more of the stock, or something was built to drive up rental rates/property values? looking back on events, it's easy to say "i flipped something and got a good return" but in the moment, how were you feeling about it?

Well the rental property was unforeseen, but it does make sense right now. It does cash flow positive and when I get 60 emails in two days for tenants, I know there is a market. Now I just lowered interest rate at 2.79% for three years and increased amortization to 30 years for cash flow and to pay less taxes. With no risk accounting (IE no vancancies, eviction, repairs, taxes etc) I could say it's cash flowing $313 per month plus paying down about $$250 month on principal right now. The cash flow is being invested in TFSA and paying down non- tax deductible debt. Now throw a bad repair or default and it goes out the window. No risk= no reward. Also I am advantaged because I do my own work and repairs and seem to be good and saving money on stuff. ( like the free dryer on kijiji for tenant! )

In 2011 I paid tax on $600 rental income.. pretty good IMO. We had lots of deductions.

We did not expect the condo value to increase like it did, but hey look at Toronto Real Estate it's gone retarded anyway.

The stock purchases and strategy was planned. Use tax deductible debt (in form of cheap mortgage) to buy Canadian dividend stocks on sale that increase dividends beyond inflation. Use dividends to reinvest. Cash flow pays the loan on a 30 amortization, 2.79 for three years. Extended for more interest deduction and pay less taxes. The plan was to buy stocks on sale, This was not easy to do during the last crash,

Behavioral finance screwed up my TFSA, RSP and pension. I sold all our bonds back during QE2. Then stocks crashed again last year and I had no means to rebalance... which was the whole point of the couch potato strategy we use. Now I am paying the price like last year returns but I have learned from my mistake and started an investment statement policy and telling my self not to screw around with market timing.