# Financial snapshot, suggestions please!



## plaza (Sep 16, 2010)

First I would like to compliment the site and help other members offer here. I have learned a lot in past couple weeks.

Here is my situation. I am 33 male, self employed, married with 4 children (all under 10). I believe I have done well with certain things (I hope) but lack on others like life insurance, investments to make my money grow and so on. Here goes:

Cash for both of us: $40k
RRSP: 37k (wife) and 5k for me (I contributed mostly under her name for tax benefit.
House: Mortgage free with a value of $700k
Real estate properties for rental income: 
I have two condos which are mortgage free and have a value of 175k each generating $16k/year net in my pocket
A multi-unit property with a value of $550k (this one has a mortgage of 335k) which generates about $5k/year now which I would probably dump back into the mortgage, but once clear would generate 34k/year net

In my business, which is an incorporation, but I am the only shareholder, there is 800k in cash.

We have two cars worth 40-50k together (which I am thinking of selling one because they will depreciate so fast in next few years, but we need something big and reliable for a family of 6 and two cars would be ideal)

So that's what my finances look like now. My only debt is that mortgage. Absolutely no credit card debt or car loans.

Now here is where my mistakes come in. I have no TSFA yet, No RESP, no Life insurance and no investments (besides the real estate). My cash is making me $0 right now. 

Here are some questions i have and where I need help with.

1. RRSP ....Should I be contributing more and more to this every year? My accountant tells me that if I contribute to my RRSP, my money is locked in and I could never make any money now with the money I have (ex. buy more real estate, a business, etc)

2. RESP ... How much should I be looking at putting into this? I have 4 kids, but will they all go to school? Chances are at least 2/4 might not go, even though we will push as hard as we can to convince them.

3. Insurance ... I was considering term insurance at least in the amount of my current mortgage and maybe more for future real estate purchases, but also likes the option of Universal quick pay plans which let me pay for 10-15 years and then have a guaranteed amount for my kids/wife regardless of when I die.

4.Investments ... Believe it or not ten years ago when we got married, I lost all my savings (80k+) and had to go in debt for another 20-30k on credit cards just to pay for our daily expenses. Since then I am shitless scared to invest my money in the market again. I know I need to overcome that fear and make my money grow, but have no clue on how to do it properly.

My business has gone down a lot since the US economy started doing bad, which is a bad thing, but at the same time I am fortunate to have saved my money when it was high and also enjoying the extra time with family (was working 16-20 hour days for past 12 years). I would like to semi retire if possible or even just take a lower paying part time job somewhere with reasonable work hours where I can spend lots of time with family, but can I afford to??

I have tried to see some financial advisors, which i first interview by phone and tell them about only a fraction of the assets I have. When we meet in person and disclose my assets, I feel like all of a sudden I am seen as a pure dollar sign and they are now suggesting products that might earn them more $$. I thought I would have better luck asking others here for advice/tips on what they thought about my whole situation.

Thanks


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## Four Pillars (Apr 5, 2009)

I'm continually amazed at the people who come on here asking for "help", when it is they who should be dishing out the wisdom. 

I'll just make 2 quick points:

1) Insurance - You are one of those rare young persons who probably doesn't need much, if any life insurance. The biz has $800k, you've got 2? rental properties which could be sold - even with the mortgage, your family would probably be ok. If not, then just buy some term to make up the diff.

2) You have a lot of real estate. Nothing wrong with that, but if you want to diversify a bit, then that might not be a bad thing.


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## HaroldCrump (Jun 10, 2009)

I echo FP's statements.
You have indeed done well and deserve praise for turning your financial situation around within 10 years.
If you don't mind, I'm sure most of us would like to hear more about _your_ financial journey to success.
What line of business are you in?
How did you acquire and manage to pay off 3 properties, including your $700k home, which is high by any standards in the country.
Was all of this accomplished within the past 10 years since you got out of debt?


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## plaza (Sep 16, 2010)

Thanks for the advice Four Pillars. I had a feeling someone would say something like you have a good asset worth...go pay to get this advice and not trying to get it free  As mentioned....I am trying to get unbiased opinions/advice from people who are not looking to make the most $$ they can off of me.

Understand what I mean?

I was thinking the same for the term insurance, but at same time I would like to be able to leave some $$ to my kids when I pass which is why I considered the universal one with a quick pay (since I don't know if I can afford to pay it all my life). Also if I know I have X amount of $$ for my kids in a policy when I go, I think that will allow me to spend more of my retirement savings with my wife or kids/grandkids to enjoy things like vacations and stuff while I am still alive.


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## plaza (Sep 16, 2010)

Thanks Harold. I am an IT Consultant. It did quite well for me when the economy was strong, but lately is really suffering so I always have that uncertainty of will I still be doing this in a few years or will I have to go work for someone making 40-50k/year. I thank God for giving me such an opportunity.

It was long hours and many sleepless nights, but most of all I have an understanding wife, because not many would stick around with someone that is working so much. When all our friends were out partying and having fun, we were home cuz I was working. We still enjoyed our life, but just not daily outings/spendings. We spend much of our free time doing small things with our young kids and spending my money paying off my debts. I have to say that the market has helped me also and not just me. I bought my first condo at 18 for 55k which is now worth 175k

Yes, I lost everything I had saved (besides the condo) since I started working at 12 years old (delivering newspaper) about ten years ago. It was over 100k. I still have not sat down to calculate to the exact $$...It hurt too much and decided to think of it as an expensive tuition rather than sober over it. Don't get me wrong....it was definately tough to think of everything you saved for all your life was gone and now you are in debt! It's a nightmare I have once in a while, of happening to me again. Maybe this is why I am over-paranoid with investments, insurance, etc


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## ashby corner (Jun 15, 2009)

that's an amazing story. Holy crap.

4 kids under 10? I can't even imagine. I have ONE kid (total), and we can just barely manage life with him (not that he's not awesome, but man kids are a lot of work).

800K in the business. That's a lot of do-rey-mi to be sitting on. I ain't a tax expert, but might it be worth it to declare a dividend (taxed less than income, I believe) and dump that onto your last remaining bit of mortgage...and invest another chunk into something safe (ish) like some blue chips? THEN, assuming you've been paying yourself a salary that attracts RRSP room, max-er-out. THEN, I'd max out the RESPs also, to get the government chunk (and I believe it can be 'pooled' if only X of Y kids go on to post-secondary school).

800K. 4 kids. Still processing.


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## plaza (Sep 16, 2010)

Thanks Ashby. If I can do it...anyone can, but my wife deserves most of the credit on the children. I got lucky with her 

I have made mistakes and I am sure I could be doing things better to make my money grow...that's why I came here to ask the pros


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## plaza (Sep 16, 2010)

any more suggestions please? So many views and not many comments! 

Don't be shy 

Would appreciate anything so I can put what I need in order.


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## the-royal-mail (Dec 11, 2009)

Sorry plaza. I read this earlier but didn't say anything as there isn't really anything that causes alarm here. You are doing REMARKABLY well to have your mortgage and most of your rental properties fully paid off. At 33? Wow. You have property in your name worth over $1M! Did you win a lottery? Shouldn't it be you giving us advice? 

Speaking for myself, I'm not sure I can say anything to help you. It doesn't look like you need help. The only area where I might be able to sneak in a few comments is:

>... Believe it or not ten years ago when we got married, I lost all my savings (80k+) and had to go in debt for another 20-30k on credit cards just to pay for our daily expenses. Since then I am shitless scared to invest my money in the market again. I know I need to overcome that fear and make my money grow, but have no clue on how to do it properly.

I understand how you feel as I have very similar feelings but for different reasons. Without getting into specifics, you've saved for retirement and you have $40K in cash. What's the cash for? Is it rainy day money?

I would suggest moving that $ to TFSAs for both you and your wife. Right now that accounts for $20K ($10K for each of you. In January 2011 you'll be able to sock away another $10K into these two accounts ($5K per person).

When you setup the TFSA, you need to be ready to tell them what you want to do with the money. You can leave it as plain cash and get 1.25% interest which should bring in something more than a plain old savings account (POSA).

For the other $10K, why not apply that to tier 2 and set it aside in some other "high interest" savings account?

After you've done this, I would recommend your future savings go into your RRSP and TFSAs for future years.

Keep up the GREAT work!


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## GeniusBoy27 (Jun 11, 2010)

I think you're doing wonderfully, but you have to diversify the risks.

First off, I think you need to seriously insure yourself, (and your wife), so as to provide enough income for your kids if something occurs.

I would also maximize some of the savings in the TFSA.

I'd be using the cash in the business to reinvest in our things, such as property. I'd also hope that your properties were set-up as businesses, as you're getting large enough to benefit from property incorporation, and also to reduce potential liabilities.

RRSP's make sense if you have high income (reducing your marginal tax rate). However, that may not be your situation, and having your wealth in non-RRSPs does have advantages.

The key thing that is missing is what is your retirement plan? RRSPs do force you to control for retirement, but is that the best way? I'm not sure but that retirement thinking is required.

However, at your age, you're doing incredibly well. Keep going!


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## dilbert789 (Apr 20, 2010)

plaza said:


> Thanks Harold. I am an IT Consultant.<snip>


I hate it when people do that! It's like saying 'I work with cars'. That could be a mechanic, designer, test driver, guy that works on an assembly line, or the CEO! 

It's probably just the jealousy talking...  I'm a software developer.


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## break_thru (Jan 22, 2010)

I really like your story, I really relate to it. I hold similar properties in $$ value but have some diversification. I am not as close as you to retirement, a few more years yet 

I would turn your current company into a holding company, take the $800k and go buy a couple condo's (5 condo's at $150k apiece, $50k that's left covers legal and property transfer tax expenses), and retire.

Personally I would go a little for more riskier buy 9-10 condo's with a 50% mortgage on each, and hand them off to a property manager to handle.

I have diversified a quarter of my portfolio into other investments (shares and bonds) but these don't give me anywhere as close to the return I get from rental income and property capitalization combined.

I know many of the other comments to this forum thread have suggested diversifying, but if you buying property with no mortgages and holding long term, the risk is exceedingly low. Who cares if the value of the property value goes up and down, as long as there tenants in those properties paying for your early retirement.

Good Luck!!


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## Jungle (Feb 17, 2010)

break_thru said:


> I really like your story, I really relate to it. I hold similar properties in $$ value but have some diversification. I am not as close as you to retirement, a few more years yet
> 
> I would turn your current company into a holding company, take the $800k and go buy a couple condo's (5 condo's at $150k apiece, $50k that's left covers legal and property transfer tax expenses), and retire.
> 
> ...


With that amount of capital, I would be looking very closely at my taxes. Rental income on 10+ properties= lots of tax


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## GeniusBoy27 (Jun 11, 2010)

I agree with break-thru, as that's what I've done. The key is the incorporation into a holding company to avoid the tax, or at least, defer, if need be.

I think diversification is important, as minimizing the risk is an important component. I also don't know what you love doing, so maybe retirement isn't for you per se, and you want to continue doing your IT work. One of my friends owns close to 50 rental properties, but he still loves doing his IT work, fixing servers and building databases for companies.

I'm not saying buying property isn't bad. My portfolio ways heavily to the buy, hold and sell concept on properties, but I think that proper diversification could lead to lower risk though similarly lower returns.


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## Jon_Snow (May 20, 2009)

My real estate holdings are similar in value, yet unlike the OP, my properties generate ZERO income for me... in fact they cost me money.


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## plaza (Sep 16, 2010)

Thanks for the responses guys! Yes I was thinking of setting up my company or possibly starting a new one as a holding company and buying property with my cash. Only problem is that all my cash is in USD$ and I was waiting for the loonie to drop a bit but the way it's going now analysts say the loonie might hit $1.20 when just a month ago the USD$ was going to 1.15. It seems like they have no clue. 

So at I am at a position now where do I convert my cash now before I lose more and buy property, or do I invest in some US equities untilthe loonie falls a bit again.


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## wonderdollar (Oct 13, 2010)

plaza said:


> any more suggestions please? So many views and not many comments!
> 
> Don't be shy
> 
> Would appreciate anything so I can put what I need in order.


Hi Plaza,

First of all congratulations for your financial achievements far. I hope you continue on the road to success.

Most of the stuff has been suggested by other posters so I am not going to repeat that. However, I have noticed no one mentioned (or I missed?) the benefits of RESP for your kids. You have 4 kids under 10 and have not done any RESP for them so far. You should be seriously looking in to it and start the plan as early as possible and start catching up the CESG you have been missing so far. The Government gives you at least 20% safe return on your money (up to $2500 contribution every year per child) so this should be one of your top priorities.

Secondly, you have dead equity in your houses which is presently not working for you. You should be thinking of taking advantage from that as well.

Even though you are working fine your selves, I would suggest you see a couple of no fee financial planners and discuss your situation with them. Have their suggestions, analyze and then take decisive actions which you feel are in your best interest.

Good Luck.

Pramod Chopra


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## the-royal-mail (Dec 11, 2009)

wonderdollar said:


> ...you have dead equity in your houses which is presently not working for you. You should be thinking of taking advantage from that as well.


Please elaborate!


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## HaroldCrump (Jun 10, 2009)

the-royal-mail said:


> Please elaborate!


C'mon....borrow to invest!!
Where have you been last 4 years?


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## the-royal-mail (Dec 11, 2009)

Blech. Work harder, not smarter?


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## plaza (Sep 16, 2010)

Yea I have setup Helocs on all my property, but the multi-unit because I bought this one in Feb 2010 and bank told me I needed to wait a year before. I borrowed from my condo to put down for multi-unit. I have a lot left but nothing of an opportunity to buy has come up yet. I won't buy something just to say I have another property. Numbers have to make sense and has to carry itself!

I was able to get 80% of the evaluations for my HELOC, but I was reading now that TD is doing 125% which might be time to re-evaluate.


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## Eclectic12 (Oct 20, 2010)

A couple of comments:


"2. TSFA ... How much should I be looking at putting into this? I have 4 kids, but will they all go to school? Chances are at least 2/4 might not go, even though we will push as hard as we can to convince them."

I'm not sure why you are worried about the kids for the TFSA. Perhaps you mean RESP?

The Tax Free Savings Account can have money put in and withdrawn without tax implications ( ... unless you make the mistake of putting too
much in!!). It shelters the gains of interest, dividends or whatever the 
contributions are invested in. Unlike the RRSP though, nothing stops you
from contributing in January and when a great business is available in Oct,
withdrawing to help with buying it.


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