# My freedom chase



## Fmonay (Nov 20, 2016)

Hi there fellow members,

I am new to this posting, but have followed reading this forum for a while, and came across the money diaries. I found myself enjoying reading the path of many
and that there are a lot of knowledgeable members with good feedback. This is great, because in the real world, I think its rather difficult asking for advice, let alone talking about money with friends and family because it is a sensitive subject. A lot of my friends are still in party mode, getting the latest and greatest gadgets and fine dining like money is going out of style. Most of them are still living with their parents, and are just starting their careers, so I find myself hard to relate to them. Being anonymous is great in that there's no one judging, and feedback is objective. Hopefully this will help me and other members stay on track and be comfortable. As i learn to post and update please feel free to give me feedback good or bad. i appreciate it! 

Here is our journey, My girlfriend and I are pretty open about our finances and we have the same goal. I think that is one of the most important factors of a successful relationship.

I am a Tradesmen, and she is in Finances. Here we go! I am going to round down the numbers for assets , and round up costs on liability for simplicity sake. Its something I've always done. Plus it always gives me a pleasant surprise when i really calculate.

About Us 
Me-29yrs Her-30yrs
salary- 95,000 
Side hustle and OT over the last 10 years average- 8,000
Spouse salary-85,000
Rental income-30,000
Dividend-11,500

Total-229,500

assets
Non-registered -160,000
RRSP- 85,000
TFSA- 56,000 
Savings-45,000
Rental Property (2016 assessment)- 1,200,000
Primary residence - 305,000

Spouse account
Non-registered -25,000
RRSP-51,000
TFSA-32,000
Savings-14,000

Total-1,973,000

Depreciating asset (fair market value as per craigslist)
Car no.1- 10,000 
Car no.2- 11,000

Liability
1st mortgage- 420,500 5 [email protected] 2.96% Refinancing in 2018
2nd mortgage- 245,000 5 years @ 2.7% Just Financed

Total-665,000

Assets minus liability=1,308,000






I wont be including budgeting for food gas groceries phone etc because I feel that that is a part of life, and that portion of expense is something that me and my partner is generally pretty good at keeping fair, plus we aren't extremist on frugality or splurging. We know whats a deal, what is fair, and what is a rip off. We like to treat ourselves every here and now. 
My focus here on out is working on my Passive income stream mostly from dividends and investing so i will be updating on portfolio purchase, and ask for opinions on financial choices.
Let this diary begin!


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## nobleea (Oct 11, 2013)

Where do you live?

The rental income is very low given the asset size. You could easily beat it by selling the rental paying off the mortgage (not sure which one is registered against it, assume the 1st?) and buying an REIT (if you feel real estate is where you want to be exposed) or some dividend paying blue chip. You could get 35K+ income that way, and it would be tax friendly dividend income (depending on the investment). Plus no hassles from renters and growth above inflation.

Other than that, your savings and registered accounts looks great. GF needs to up her game a bit on the savings, but appears to be doing ok.


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## Fmonay (Nov 20, 2016)

nobleea said:


> Where do you live?
> 
> The rental income is very low given the asset size. You could easily beat it by selling the rental paying off the mortgage (not sure which one is registered against it, assume the 1st?) and buying an REIT (if you feel real estate is where you want to be exposed) or some dividend paying blue chip. You could get 35K+ income that way, and it would be tax friendly dividend income (depending on the investment). Plus no hassles from renters and growth above inflation.
> 
> Other than that, your savings and registered accounts looks great. GF needs to up her game a bit on the savings, but appears to be doing ok.




Welcome Nobleea! feels great to have you reading my entry. you were one of the first guys I've read about and you were featured on other blog sites and made me wanna post! 

I live in the lower mainland in BC, so as you may have read on several headlines, real estate here is pretty crazy. seems to have cooled down since the new tax and rules etc.

I have thought about your idea, and to clarify, the 1st property is referring to the rental as it was my first purchase, and 2nd one is where i live with my girlfriend. I paid about half of what the assessed value is. i guess it was luck and timing. all the homes skyrocketed the year after i bought it. Based on the down payment i paid, the rental income is ok. i will get my down payment back in rental after next year. Also, the reason i have a larger than usual cash savings, is because i think the market has rallied enough and i dont mind sitting back waiting for a pullback. Also wednesday may be a wild ride as the US feds will be talking about the interest rate. So we will see what happens. 

The current rental home, I actually had planned to move in later on when We have kids, as currently we are in a 1 bedroom condo. we would probably rent out the basement still, and then rent out the Condo. but I will update when the time comes. Anything can happen, but thats the plan right now.

My girlfriend helps out with her family alot, and she just got her designation not too long ago, so I give her slack.


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## Steve Divi (Jul 14, 2016)

Good job.

I would sell that 1.2 mil house in a hurry. 

Vancouver is way overvalued. Watch interest rates.


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## Eclectic12 (Oct 20, 2010)

nobleea said:


> ... The rental income is very low given the asset size. You could easily beat it by selling the rental paying off the mortgage ... and buying an REIT ... or some dividend paying blue chip.
> 
> You could get 35K+ income that way, and it would be tax friendly dividend income (depending on the investment). Plus no hassles from renters and growth above inflation ...


Maybe this is already known but since a lot of people I talk to assume REIT cash payments are dividends - it seems important to highlight that REITs typically pay mixed types of income that may or may not be all that tax advantaged.

RioCan is large and liquid where the last time it paid dividends was 2001 (0.94%). 
Over the last ten years, it is a mixed bag where the tax advantaged return of capital (RoC) has ranged from a a low of 0.52% to a high of 63.14%. The high tax income types of "Other Income" and "Foreign Non-Business Income" have combined for a range with a minimum of 35.8% to 70.25%.


While one is dropping a lot of work with renters etc. when replacing a rental with a REIT, where it pays RoC means adding the relatively simple but tedious yearly work of adjusting one's cost base. It won't change that the tax being paid is the tax advantaged capital gains but when the cost base becomes negative, the capital gain is no longer deferred to the sale but is to be reported as it is paid.
http://howtoinvestonline.blogspot.ca/2010/07/return-of-capital-separating-good-from.html
http://www.theglobeandmail.com/glob...our-head-around-reit-taxation/article5575073/


REITs can make sense ... for example, 95% to 100% RoC where there was a positive cost base all year meant I could pay down my mortgage with 100% of the $$ paid as the capital gains was deferred to the sale. Missing the required bookkeeping as well as tax implications (as I did) can at best mean one is surprised or at worst, add painful work.


Cheers


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## Fmonay (Nov 20, 2016)

Steve Divi said:


> Good job.
> 
> I would sell that 1.2 mil house in a hurry.
> 
> Vancouver is way overvalued. Watch interest rates.


Thanks Steve Divi, as much as I agree about overvalued, one concern is having a place to start my family. A 1 bedroom is barely enough room for 2 adults. The though of selling has crossed my mind, but like i mentioned, i paid far less than the assessed value, and if i sold it, I wouldn't have a place to look forward to in the future nor would i be able to buy something similar later on without over paying, even if there was a correction as i dont see it dropping down more than 10-15%. Moving out of the central city is out of the question to as I've tried driving around the portman, alexfraser, and massey tunnel and any other bridge at various hours over the years and one thing for sure is that i would not relocate outside to buy a home and bank some profits. the commute would drive me nuts. Despite all there efforts to try and reduce bottle necking and bumper to bumper, it hasnt helped, soon all bridges will be tolled at a premium. 





Eclectic12 said:


> Maybe this is already known but since a lot of people I talk to assume REIT cash payments are dividends - it seems important to highlight that REITs typically pay mixed types of income that may or may not be all that tax advantaged.
> 
> RioCan is large and liquid where the last time it paid dividends was 2001 (0.94%).
> Over the last ten years, it is a mixed bag where the tax advantaged return of capital (RoC) has ranged from a a low of 0.52% to a high of 63.14%. The high tax income types of "Other Income" and "Foreign Non-Business Income" have combined for a range with a minimum of 35.8% to 70.25%.
> ...


Thanks for the info Eclectic12, the info is great. I am aware REIT does not pay eligible dividends and are mostly a mix bag of income. I have a small allocation of REIT placed in my TFSA to alleviate the tax issue.


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## lonewolf :) (Sep 13, 2016)

Would sell rental with some GICs @ 2.4% would get 28,800 only 1200 less then getting now with less risk & work. 

Though could you really get 1,200,000 for property if value is based on tax man calculations it will most likely be almost impossible to sell for that amount.


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## mordko (Jan 23, 2016)

^usually the taxman undervalues properties, although right now Vancouver might be different.


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## TomB19 (Sep 24, 2015)

lonewolf :) said:


> Would sell rental with some GICs @ 2.4% would get 28,800 only 1200 less then getting now with less risk & work.


Good point on the liability and work. The GIC won't pay more next year, though. ... or the year after that... or the year after that.

Rental housing is a way to go long on inflation. Short term, the GIC will usually win. Long term, the GIC has no chance.


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## Eclectic12 (Oct 20, 2010)

Fmonay said:


> ... I am aware REIT does not pay eligible dividends and are mostly a mix bag of income ...


Good news ... though eligible dividends *may* be one of the types in the mix. Without at least checking what the recent past has been, one may end up with a completely different tax profile than one was expecting.




Fmonay said:


> ... I have a small allocation of REIT placed in my TFSA to alleviate the tax issue ...


It takes care of the Canadian taxes (annual plus time of sale) plus the need to update one's cost basis. Some choose to put REITs into their registered accounts just to avoid the bookkeeping. As the RRSP goes away eventually, I prefer to understand the process as I can't see far enough into my crystal ball to see if the REITs will all fit in the TFSA. :biggrin:


Cheers


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## Fmonay (Nov 20, 2016)

lonewolf :) said:


> Would sell rental with some GICs @ 2.4% would get 28,800 only 1200 less then getting now with less risk & work.
> 
> Though could you really get 1,200,000 for property if value is based on tax man calculations it will most likely be almost impossible to sell for that amount.


Care to share where I would be able to get GIC at 2.4% without having to lock the money in for more than 5 years? I could not find any, and prefer not to lock my money. Plus arent they only good for protection up to 100k? 

As i mentioned before, selling it at this point isnt really in my books because I will need a place as we are starting to plan for our new family, and will most likely need the space in 3-4 years time. 





Eclectic12 said:


> Good news ... though eligible dividends *may* be one of the types in the mix. Without at least checking what the recent past has been, one may end up with a completely different tax profile than one was expecting.
> 
> 
> 
> ...


Thanks for that, My girlfriend would be more familiar with the tax equations so shes starting to look into these things as we slowly combine our finances more.


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## lonewolf :) (Sep 13, 2016)

It was on of the online Manitoba credit unions I think Acheiva 5yr 2.3, 7yr 2.4


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## nobleea (Oct 11, 2013)

Fmonay said:


> Care to share where I would be able to get GIC at 2.4% without having to lock the money in for more than 5 years? I could not find any, and prefer not to lock my money. Plus arent they only good for protection up to 100k?
> 
> As i mentioned before, selling it at this point isnt really in my books because I will need a place as we are starting to plan for our new family, and will most likely need the space in 3-4 years time.


Locking the money up in a GIC is probably still more liquid than locking it up in an expensive home.
I have no idea what rental rates are like in your area, I think they are high. But can you rent a decent family home for 3-3.5K a month? If you sold both places, invested the proceeds and just rented with the dividends, you'd have no out of pocket costs. No cash flow going to housing and almost 200K in income (and rising) - early retirement would be guaranteed along with a great lifestyle.
The pain of a financial loss is way worse than the joy of a gain. Could you stand to lose 400K in equity in your rental as the market goes down? That's entirely possible in GVR.


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## hboy54 (Sep 16, 2016)

Hi:

If you are chasing freedom ... you might be running in the wrong direction. Money can be a piece of freedom but it isn't the actual thing.

I'd like to sail the world in about a 40 foot 10 year old sailboat. In the past year, my gains are such that I could purchase that boat and finance my and it's upkeep for longer than I would have the physical stamina to carry on.

The thing is, I still have 4 parents and in-laws, that are starting to fall and break things, starting to go blind. In general at average age of about 79, getting really wobbly. Then, they all have me tapped to help out when the inevitable happens and somebody has to look after the estate. For some reason, because I do well investing it means that I have some ability with tax and estate law?

Then there is my daughter to worry about. She does not function at a high level. 

Can I really disappear off the edge of the earth for 5 or 10 years?

Then there are my health issues...

Contrast that to say age 19 when I bicycled from Winnipeg to Vancouver and lived in my tent. If I had known at the time that I would like to seriously sail one day, I could have stuck my thumb out on a dock in say Annapolis, or Florida somewhere and gone on some 60 year old couple's boat. Sure, we would have stared at each other with suspicion initially, but I am a reasonable person, and most middle aged people are too, so their money and my stamina and youth would have been a very good partnership. I could have gotten back after a few years, and today only be a few hundred thousand down for my few years MIA.

No, if freedom is what we are discussing here, I suggest it can be found closer to age 25 than 55, and does not have much to do with money. Freedom lies before spouse, children, career, and old age. It likely can only really be spotted by someone for whom it is already impossible. For others, it is but a shadow moving, but when you turn to look, it is already gone.

hboy54


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## Fmonay (Nov 20, 2016)

nobleea said:


> Locking the money up in a GIC is probably still more liquid than locking it up in an expensive home.
> I have no idea what rental rates are like in your area, I think they are high. But can you rent a decent family home for 3-3.5K a month? If you sold both places, invested the proceeds and just rented with the dividends, you'd have no out of pocket costs. No cash flow going to housing and almost 200K in income (and rising) - early retirement would be guaranteed along with a great lifestyle.
> The pain of a financial loss is way worse than the joy of a gain. Could you stand to lose 400K in equity in your rental as the market goes down? That's entirely possible in GVR.


GIC just doesnt appeal to me. and Rental prices here are very high with very low vacancy. I think this thread got a little sidetracked over the assessed value of my home. I didn't pay anywhere close to the worth, and I would rather sell my condo first, and use the proceeds towards the first mortgage. Renting is out of the question for me although I understand your point. it would cost much more to rent a similar sized home in Vancouver than to just pay my First mortgage. Even after factoring in taxes and what not. Plus We are located centrally to work, family, and friends. But i would very much like to own the home clear despite whatever the value may be in x amount of years, and take necessary steps with investing to achieve that goal. My main focus is on my investment portfolio in the mean time without using the proceeds from selling my home.



hboy54 said:


> Hi:
> 
> If you are chasing freedom ... you might be running in the wrong direction. Money can be a piece of freedom but it isn't the actual thing.
> 
> ...


Thanks for your insight. Freedom is subjective and everyone lives a different lifestyle. Great to hear your about your gains and that your doing well financially, and i hope one day im there too.
I just want to own my home clear, have enough money in the bank to take care of my soon to be wife, and make sure our kids are well taken care of, that i have plenty of time and youth to enjoy it with them, and to not have to ever think twice about making a purchase. That is my freedom. I think your getting freedom and fun time mixed up =P but everyone here can have both.


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## Dmoney (Apr 28, 2011)

Great progress, quite impressive for your ages!
While I would echo the sentiment several others have expressed on the rental property (value relative to rental income seems out of wack), particularly with all the noise going on in the BC/national housing market (massive price run-up, foreign buyers tax, tighter mortgage rules, long-bonds rising), it sounds like the property carries itself, and it is more than just a financial decision.
Given vacancy rates and demand in the region, I doubt renting the place will ever be an issue, and even if the market crashes, rents likely won't plummet. 
If your plan is to live there down the road, and owning the property doesn't stretch you financially, then it's not a terrible idea to hold on, even if the value could fluctuate significantly.


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## My Own Advisor (Sep 24, 2012)

"A lot of my friends are still in party mode, getting the latest and greatest gadgets and fine dining like money is going out of style. Most of them are still living with their parents, and are just starting their careers, so I find myself hard to relate to them."

Sounds like you've got a good 10 year start on your friends, maybe more. Well done.

First, congrats on the good jobs. A high income will be a huge enabler to early retirement, if you want it.

Second, some observations:

-I would max out your RRSP and TFSA before non-registered investing. Not sure about your RRSP on that but I suspect you are close?

-Same goes for your girlfriend, her TFSA seems low based on savings available?

-I would establish a good emergency fund/contingency fund for your rental. Maybe up to $20k. Maybe that's your non-reg cash?

-After TFSA and RRSP are maxed, I would aggressively kill your debt even at low mortgage rates. Once your debt is gone (likely mid-40s), you'll be laughing because all the money you make can be for your living expenses and not paying others (the banks) first.


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## Fmonay (Nov 20, 2016)

Dmoney said:


> Great progress, quite impressive for your ages!
> While I would echo the sentiment several others have expressed on the rental property (value relative to rental income seems out of wack), particularly with all the noise going on in the BC/national housing market (massive price run-up, foreign buyers tax, tighter mortgage rules, long-bonds rising), it sounds like the property carries itself, and it is more than just a financial decision.
> Given vacancy rates and demand in the region, I doubt renting the place will ever be an issue, and even if the market crashes, rents likely won't plummet.
> If your plan is to live there down the road, and owning the property doesn't stretch you financially, then it's not a terrible idea to hold on, even if the value could fluctuate significantly.


Thanks Dmoney, you are right, theres no black and white, right or wrong way looking at this housing situation, to each their own right? Look forward to your entries, and also you opened a new page for me on options. Keep it up!


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## Fmonay (Nov 20, 2016)

My Own Advisor said:


> "A lot of my friends are still in party mode, getting the latest and greatest gadgets and fine dining like money is going out of style. Most of them are still living with their parents, and are just starting their careers, so I find myself hard to relate to them."
> 
> Sounds like you've got a good 10 year start on your friends, maybe more. Well done.
> 
> ...


Thanks My Own Advisor, I remember reading your articles a few years back ( and still do), and you've helped me get on track with my finances. 

-My TFSA is maxed out, so its whatever growth from my investments. I just started to invest about 2 years ago, prior to that it was just in dumb mutual funds/cash. so hopefully i can get it going better myself. As for my RRSP it is maxxed out as well. I didn't mention in my first post that I have a defined pension plan, as i guess i didnt think at the time it would fall under my assets. While it is, I dont see it or have control over it until i get my statements, so i haven't included it. That has affected my Contribution room into my RRSP as it turns out after the the pension adjustments, i am left with a few hundred dollars of room per year as of the last 3 years.

-On my girlfriends side, as i mentioned, she does help her family financially, so its not for me to say where her money can and can not go, as because of that, it has slowed her savings rate a bit. She has a higher income potential than i do from her career, so as time goes, she should catch up to me no problem. 

-for my emergency fund, my savings account should suffice, but i also have about 10% cash in my portfolio that i allocated for opportunities that i could pull from if need be.

As for my mortgages, they are on the accelerated weekly plan, and i rounded up the payments to the nearest hundred. While i occasionally put $500 here and there if I find myself not making any purchases in the market.


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## Fmonay (Nov 20, 2016)

just a mini update before the year end not much has changed, I don't think i'll be doing much in terms of investing for the rest of 2016. Last paycheck of the year, with more OT than expected. total ended up being a bit more than my expected salary based on hourly rate.
Markets been pretty sideways, but nice to see it where it is. 

End of 2016: (mine)
Salary 97,800(+2800)
assets
Non-registered -163,400 (+3,400)
RRSP- 87,500 (+2,500)
TFSA- 56,800 (+800)

Portfolio Total 307,700 (+6700) 

Rental and Dividends unchanged.
Savings-48,200 (+3,200)

Will be expensive month going into January with shopping and utility tax bills around the corner and the Christmas credit card surprise.

*GOALS FOR 2017*

- I will try to increase my Rental Unit's rent as lease comes up and try to get a minimum of 5% increase, if not more should the tenant choose to leave. Then I could possibly get more.
- Deploy atleast 25k into the market from my savings
- Put more lump sum into my mortgage (minimum $7500 as a goal)
- Try to have girlfriends finances more streamlined with mine and create a joint account.


What are some of your goals?


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