Canadian Real Estate Market Back to Post Recession Levels

From everything that I hear and read, signs are that the Canadian real estate market is back to its post recession strength.  Is this a good thing, or a bad thing?

I consider it a good thing, knowing that I purchased my first home at a great price, with the best interest rate on my mortgage available in years.  On the other hand, the markets are primed for over-inflation, bidding wars, and sky rocketing prices.

Who are these conditions going to benefit? Well, sellers.  But sellers are only half of the equation, and every seller is inevitably going to be a buyer somewhere else.  My first instincts have always been to buy and then wait out the madness!  But there are external factors that would make me relocate for work reasons, and I may well be one of those seller/buyers who gets burned in this renewed hot market.

This could be a good sign for all though – recessions in the past took nearly a decade to recover from.  In a little over a year, we are back and as strong as ever.

Perhaps this time we will learn from our bad debts, foreclosures, and bankruptcies.  Or maybe we will repeat the entire cycle, and suffer another catastrophic economic collapse that really puts us out.

In the mean time, the dollar bills are shining in my eyes as the market value of my new home blasts off.

Smart Women Finish Rich by David Bach – Book Review

Smart Women Finish Rich was the first financial planning book I ever purchased, read, and actually used.   I bought it in my early twenties, when I was finally ready to make some changes in my financial life – I had been so anxious about the state of my finances that I was finally committed to making some changes.

Now, years later I still go back to this powerful book, which I consider a staple in my financial management diet.  I re-read chapters and absorb the lessons, and try to put a little finesse into the details.

When I first read it I thought I was so clever – because the book really appeals to the emotional side of managing your money.  David Bach wrote the book with a very positive emotional angle that I think seriously appeals to women, and motivates them.  It did for me anyways.

About Smart Women Finish Rich

It’s surprisingly easy to read.  When you read it, it’s like you’re having a casual conversation with David himself.  He’s charming, and caring, and flattering.  He makes you feel like a genius – just for having picked up the book and reading it.  And while you’re being shmoozed so thoroughly, you actually learn a lot of things about money and personal finances.

He peppers his book with anecdotes about his grandmother that are very quaint and charming, and that actually sound sincere.  The most important reaction from all of this buttering up – is that you actually want to take action.  I felt like following his advice would obviously work, because he’s an expert, and his manner of writing is so sure and confident.

The Finish Rich Steps

He touts nine big steps in his book, which are absolutely fundamental to your financial prosperity, and you could even go as far as to say your life’s happiness.

Step #1 – Learn the Facts – and Myths – About Your Money

Step #2 – Put Your Money Where Your Heart Is

Step #3 – Figure Out Where You Stand Financially…And Where You Want To Go

Step #4 – Use The Power of the Latté Factor

Step #5 – Practice Grandma’s Three-Basket Approach

Step #6 – Learn the Ten Biggest Mistakes Investors Make and How to Avoid Them

Step #7 – Raising Smart Kids to Finish Rich

Step #8 – Follow the 12 Commandments of Attracting Greater Wealth

Step #9 – FinishRich Success Stories

My Call to Action

After reading the book – actually, while I was still in the middle of it – I went out and started to do exactly what he suggested.  I started to figure out where all of my money was, and where it was going.  I got all of my records straight – and in doing that I realized that I had been overpaying to an institution $450 a MONTH, and had been for 14 months.  So – I got my money back.  That was worth the price of the book hundreds of times over.

How did that happen, you are probably asking.  Well, years before I had those payments taken off of my pay directly.  And when my service ended, they didn’t stop the payments – and I didn’t notice, because I never looked at my paycheck!  I didn’t know where my money was going.

When I realized that David’s first step to being a Smart Woman was so fruitful, I took the second step.  I set up an RRSP account and made those payments automatic.  My goal was to save up enough to buy a house with the Home Buyers Plan.  (For more info – read my post on the Home Buyers Plan)

Then, three years later, thanks to David’s fantastic advice that really got me off my ass – I achieved my dream of home ownership.  Now I’m part of the mortgaged majority!

Use the Exercises and Worksheets

I filled out the exercises and worksheets when I first got the book, and when I re-read it a few months ago I noticed how some of my goals have changed, but most of them  have stayed the same (for example – I don’t necessarily want to do a Master’s in Political Studies anymore – but I do still want to go to graduate school, and take and MBA perhaps.)  That’s the advantage of planning your finances around your fundamental beliefs and values.   Those don’t really change, even if you short term goals do.

The worksheets that help you figure out where all your money is coming from, and going to, are so helpful.  But not only that – it helped me be a real grownup.  I bought myself a filing cabinet, and started to organize ALL of my important papers just like adults do – like university correspondence, insurance papers, medical info, vet bills, phone bills, Hydro – you can organize anything once you have the system in place.  Now I’m organized like a fox.  And on Saturday mornings when my husband sleeps in, I can do a little filing – totally undisturbed.

Why It’s So Important For Women

My husband saw Smart Women Finish Rich by my bedside, and took a look.  He said to me “why don’t you get Smart Couples Finish Rich?  It worries me a bit that you’re doing this without me”.  He was totally right, and I did get the book for couples.  But, I bought Smart Women Finish Rich before we met, and I will stand by the principles to the end!

I explained to him the lessons I learned through the book – that most women are sadly under prepared for their retirements, and end up living below the poverty line.  Historically, women have relied so much on men (fathers, husbands, sons) for their care in old age, they can be left disappointingly under-prepared when old age comes.

The reasons for this are many:

• women statistically make less than a man, even for the same work
• women are in the workforce for a shorter amount of time (leaving to have children, raise families, or take care of elderly parents)
• women in lower-paying jobs don’t have the benefit of pension plans
• women outlive men by an average of 6 years, and therefore have to stretch their smaller retirement incomes farther than men do

So, my justification to sticking to my worn out copy of Smart Women Finish Rich, with writing in the margins, tabs, and dog ears, is that I had to take care of myself first.  And then I could enter into our partnership as an equal, and equally prepared for our future.

The One Minute Millionaire by Mark Victor Hansen & Robert G. Allen – Book Review

I walked by this book in the bookstore at least a half dozen times before I actually picked it up.  Why? Because I made the great mistake of judging a book by it’s cover.  This cover is bright purple and yellow, and at first didn’t really inspire me as to it being factual and achievable.

When I did pick it up, I was a bit confused.   The One Minute Millionaire is laid out like I have never seen before.  The left-hand pages are a non-fiction book, with charts, tips, and techniques.  The right hand pages are a fictional story about a woman named Michelle who recently lost her husband, and had her children taken away by her in-laws.  She wagered to get them back if she could raise $1 million in 90 days. The story follows her as she applies the One Minute Millionaire techniques to raise the money and get her kids back.

Why such a strange layout?  Well, it’s quite clever in fact.  Knowing that people learn either with their logical or emotional minds, the authors made a book for both.  My suggestion is to read both – in whatever order you like.

I started with the fictional story about Michelle.  Not only was it moving, but inspiring.  It was a much more developed story than you would expect to get – all of the characters undergo personal transformations, and you follow them through their emotional struggles.  I found myself experiencing a range of emotions, from joy, calmness, hope and excitement, to disappointment and frustration.

I read the non-fiction side second.  It helped to flesh out the details that I was a bit confused about in the fiction side.  The non-fiction side provides actual technical details, like what to look for in a prospective profitable investment property – the how-to’s.

The compilation is not without it’s weaknesses.  The fiction book can weigh very heavy, and seem too didactic at times – but only because the “lessons” Michelle learns seem so textbook compared to the emotional struggle she goes through to regain custody of her two kids.

The non-fiction side can seem very preachy at first – but how else can a hard-facts book teach you lessons about spirit, intuition, and “aha” moments? In the end, I let go of those weaknesses, and just tried to absorb the lessons.

The premise of the book is that you can make decisions that take a minute (or less) and substantially change your financial situation, namely, achieve your goal of making a million dollars.

Following a pattern I have seen in many motivational and financial books, they walk you through the affirmations, and personal realizations (called “aha” moments) that apparently all very wealthy people have adopted.  Sometimes I wonder if truly wealthy people do these kinds of exercises, or if it is ingrained to their way of thinking – not so forced and rote.  When I get to that place – I’ll be sure to write about it!

Although I may not have followed all of the exercises to the letter, I think that it personally motivated me, and inspired me to try things I have been too scared of doing.

This book may honestly change your life – if you let it.

In The One Minute Millionaire they played on the idea of intuition heavily.  I can identify with that, because my intuition was what led me to start my business.  I had this idea that just wouldn’t stop popping into my head.  It kept me up at night, thinking about plans, and ways and means.

One day I had to promise myself that I would start the business, and built it to it’s greatest potential.  My sub-conscious would accept nothing less.  I take this as being my intuition forcing me to wake up to a fantastic idea and opportunity.  So far things are going well with the business, and I can see a world of opportunity for expansion.  But like anything, it will take a commitment and effort to make those things happen.

I recommend this read very highly, but make sure to read both halves, otherwise the learning experience will only be half of what it could.

Home Renovation Tax Credit

I am a new  home owner, and like every other first-time home buyer, we got a nice place that needed some work to make it “perfect”.   The most important factor, according to my husband, is the garage.  If it were up to my husband, we would live in a giant garage and/or warehouse with little else.  I’ve never asked where we would sleep, because I’m afraid the answer would be something like “in a van down by the river”.

In that vein, our garage needed fixing-up to meet his exacting standards – and who better to do the manual labour than us!  We diligently took measurements of the space, did research on which supplies and tools we would need, and budgeted months in advance.  That part went quite well – even though our final estimates were double the original.

The biggest disappointment were our dashed expectations when we looked into the home renovation tax credit.  We realized what a tiny amount we would get back from spending literally thousands on building materials and supplies.  Really – you get back 15% of your costs.

Here are the calculations they use:

$10,000 (max allowable claim) – $1,000 (base amount you have to subtract)
= $9,000

Return:
=$9,000 x 0.15
= $1350

In reality, you are getting back:

$1,350 / $10,000
= 13.5%

Now, I’m not one to turn up my nose to a tax credit, but this falls seriously short.   Like I’ve mentioned before, taxes are the biggest financial investment you make in your lifetime.  A person in the middle class pays more income tax in a year than they pay down on their mortgage!

Anyone who can afford to put thousands of dollars worth of renovations into their homes will likely not feel “credited” by this system at all.  If you make monthly contributions into an RRSP or RESP you would get better tax savings.  If your pay office over-deducted you in the course of the year you would have a balance owing on your return.

Now maybe I was so disappointed because I thought the Home Renovation Tax Credit was going to work like an RRSP.  The amount contributed into renovating your home would be taken off of your taxable income – that would make a big difference in the amount of taxes owed! Alas, it will never be.

I should have known better.  There are very few methods for legally and simply reducing your tax burden, and the best is to contribute to RRSPs.  Now there may be others, but none that can be explained without the use of flow charts.

Nevertheless, the garage is now nearly perfect – and soon my husband will be tinkering away blissfully.  Tax credit or no, it’s worth it to him.

Getting Ready for the Holidays

Well, it seems that this year it is particularly difficult to keep on budget.   With my husband’s family visiting, we took stock of everything that we needed to get ready, and nearly panicked!

From mattresses and bedding, to a kitchen table and extra freezer space, we just weren’t prepared for the whole gang when we invited them for the holidays at our new home.

Our biggest advantage was that we started in October, and set aside money each paycheck – on top of our regular savings – to help with the costs.  This has helped us stay afloat, and determine how much we will spend on the house, and how much we will have to spend on gifts and outings for the family.

Every pay check we determined what items over $200 were absolutely necessary, and then planned when we would buy them.  This way, we’ve solved our problems of beds, freezer space, and a kitchen table.  We even got a fantastic deal on our kitchen table, since we had the money saved up, we jumped on a great deal when we saw it advertised!

Since the family is  traveling from far and wide, we’ve decided that we will limit the amount of gifts, since it’s difficult to travel home with them anyways.  The best presents we plan on giving are tickets to shows, events, and excursions in our great city.  Quality time will make this season so much more memorable.

Our guests are just about to arrive, and thanks to advanced planning and some early budgeting, we will have a stress free and fun holiday.

Investment Property – Top 5 Cities in Canada

The Canadian Real Estate Magazine published an article in their September 09 Issue, which takes an in-depth look into the best investment property markets in the country, and narrowed it down to the top 5 cities (in no particular order) –

– St. John’s, Newfoundland
– Kingston, Ontario
– Regina, Saskatchewan
– Winnipeg, Manitoba
– Quebec City, Quebec

No city was ranked above another, because the markets are just so differrent. What kind of investment property you are interested in depends on what kind of renters you are looking for. For example – Kingston ON is a univerisity and government town. But those two groups are vastly different; one is highly volatile (changing nearly every year) but a constant source of renters, and the other would be mid-term (3-5 year) families looking for higher quality housing.

Economic Indicators –

Some of the economic indicators that the magazine used in their evaluation were: population, new jobs and/or unemployment, cost of a monthly rental for a 2-bedroom apartment, and the average housing purchase price.

Following this article, I did a bit of research of my own – to see what market would be the best for the type of investment I am interested in: a duplex with 2 or 3 units for approx $140,000.  Some further criteria I’ve decided upon is that each unit should have minimum 2 bedrooms and 1 bath.  This will increase the renter base for each unit.

My criteria for top-earning markets –

Here is my evaluation of the 5 top-earning markets (listed from west to east) based on my criteria, and what I am looking for in an investment property, calculated using this handy Investment Property Calculator :

http://www.goodmortgage.com/calc_investment_property.htm

Regina, Saskatchewan
(* No property matching exact criteria was found, but an estimate of a 4 bedroom, 2 bath potential convertible house was taken)
Property $124,900 with 20% down and 4.0% interest rate
Monthly Income: $1600
After Tax Cash Flow: $7,196 per year
Yearly Addition to Net Worth: $16,386
ROI: 2.3 years

Winnipeg Manitoba:
Property $134,900 with 20% down and 4.0% interest rate
Monthly Income: $1600
After Tax Cash Flow: $7,091 per year
Yearly Addition to Net Worth: $17,049
ROI: 3.8 years

Kingston, Ontario
– Currently no listings matching my criteria for under $215,000

Quebec City:
Property $159,900 with 20% down and 4.0% interest rate
Monthly Income: $1800
After Tax Cash Flow: $6,900 per year
Yearly Addition to Net Worth: $19,741
ROI: 4.6 years

St. John’s, Newfoundland
(* No property matching exact criteria was found, but an estimate of a 4 bedroom, 2 bath potential convertible house was taken)
Property $144,900 with 20% down and 4.0% interest rate
Monthly Income: $1500
After Tax Cash Flow: $5,180 per year
Yearly Addition to Net Worth: $15,874
ROI: 3.1 years

Financial Management Software

I’m a pretty low-tech kinda girl, and I use the old steady Excel spreadsheet function to manage my finances.  I’ve been looking into other software options, and have come up with some criteria that I need in good financial management software.

Firstly – I need something that doesn’t drastically change the method I already use.  A spreadsheet is nice and simple, and I can just make a copy of it when I want to manipulate numbers, or tweak formulas.

Secondly – I want something that isn’t expensive, and doesn’t have yearly user fees.  I hate paying user fees.  This particularly annoys me, because as I’m getting my business up and running smoothly, I’m noticing all of these monthly and annual costs.  They really add up.

Thirdly – I need something that does my taxes.  I like doing my taxes – only because taxes are the biggest financial investment I will make in my lifetime.  I heard that somewhere (don’t know where – too bad I can’t give them the credit).  It’s true – every year I pay over 20% of my income in taxes – that’s over $12,000!  That’s more than I will make in mortgage payments in a  year, and more than I can contribute to my RRSPs, which maxes out at 12% of your income.  Taxes are a huge investment – so I think it’s the most important thing to do well.

Fourthly – I don’t want to have to do a whole bunch of data entry.  I don’t itemize every purchase I make by category now – nor will I ever.

Fifthly – I want a financial management software program that has some valuable calculators.  The older versions of Excel have what’s called an Amortization calculator that figures out the payments, interest, and period of an amortized loan.  By playing around with it, you can clearly see what a difference it makes when you make a few extra mortgage payments a year.

Lastly – I ask myself if my expectations are just too high – or if I’m just looking for what I already have – but more willpower to use it properly?

The Value of Home Insurance

If you’ve read any of my previous posts – or are planning on it, you’ll know that I just recently bought a house, which is all a part of my master plan to increase my net worth, and eventually reach my financial goal(s).

This is an ongoing learning process, that me, as a normal non-financial guru is just starting out on.  But let me tell you about how having home insurance just recently saved me – big time.

Here’s the story –

Living in Canada, we are sometimes affected by freak weather incidents, as happened with a hail storm in August while my husband and I were on vacation.  It always happens when you are on vacation, doesn’t it?

Well, this hail storm caused some serious damage to our roof, and to just about every home in the 20km radius from us.  We heard about it from our neighbor when we got home, and my husband immediately checked the roof for damage.  Of course, we weren’t spared.  There was/is significant damage, that will need to be repair as soon as possible (that part is key).

When we got in contact with our insurance agent, we had in mind that we would have to pay half of the cost for a new roof.  And roof’s are expensive!  There goes my promotion money – we thought.

But – to our great joy, we only have to pay the deductible – and we get a new roof!  When I heard that, I felt like I had won the lottery. We will get a $7000 roof, and only pay a $500 deductible.

You may never have to call in a claim on your insurance, but the value is much more than the cost!

Book Review – The Rules of Wealth by Richard Templar

100 rules divided into 5 sections makes for quick and easy reading.  Richard Templar’s Rules of Wealth is best described by a phrase he himself uses in the book –  behavioral financial advice. He doesn’t give you the nitty gritty how, or how much aspect of financial planning, but he gives you the when, why and more importantly, to what end.

Richard Templar divides the book into five sections that are equally engaging and important to consider when you are planning a rich financial future: thinking wealthy, getting wealthy, get even wealthier, staying wealthy, and sharing your wealth.  He ends on a very high moralistic note with his section on sharing your wealth, and puts the entire wealth accumulation process into perspective.

What I liked most about his advice was that he encouraged modesty and humbleness, despite also giving you tips on how to think like a financial mogul.  That seems to be lost in a lot of financial planning books – even the ones who encourage you to follow your dreams, they are also encouraging you to shout about your success from a rooftop (perhaps so you can name drop the title of their book, and increase sales).

Some of his rules of subtlety include #4 – Keep it under your hat, and #94 – Find ways to give people money without them feeling they are in your debt.   It really seems that his advice is geared towards you not only living the lifestyle you want by increasing your money management skills, but to keep the quality of relationships you are accustomed to, and not have your increased wealth cause tension.

In Only by Looking Wealthy Can You Become Wealthy (rule #22) he even goes as far to say ” Restrained elegance is what we shall aim for.  Old money.  Quality.  Simple lines.   Good haircut.  Clean nails.  You know the sort of stuff I mean.”  This is fantastic advice, and personally identify with it.

The book is a quick read because it is divided into so many easily consumable pieces.  You can read 2 or 3 pages at a time, and get the concepts.

It is an interesting read, even if he doesn’t invent any new financial systems for earning money.  But that is the whole point, isn’t it – these rules have worked for countless people who have accumulated wealth.  So, in theory, they can work for us too.

Economy in Recovery

It’s great to hear on the news that the economy is finally in recovery – but I started to wonder how I had personally been affected by it over the last while – nearly two years.

Signs of a depressed economy –

I have a very stable job, and wasn’t worried about losing my income, so I can say that in that regard, I didn’t feel the pressure of a downed economy.  I thought that I would see greater impacts on my friends and family who are skilled tradesmen, working in Alberta and Saskatchewan.  Yet, everyone I know continued to work throughout the entire recession.  That must be a lucky thing for the people I know – because there certainly were tons of reports of people who lost their jobs.

How was I affected?

I could tell when the recession began, because around mid-2008, my investments started to take a nose dive, and they have just started to recover now that the the recession has lifted.  But I wasn’t that seriously affected.

During this past year, I used the Home Buyer’s Plan to use my RRSP investments as a down payment on my first home.  The market was great for first time buyers, and I bought a beautiful home for a great price. 

I would say that was a positive aspect of the recession for me.  But on the other hand, I had to use my investments, which were significantly reduced to purchase the home.  So, in reality, I lost money on my investments.

Despite all of that, I still managed to put down a decent downpayment, and bought a dream home.  If I had lost my job, or been harder hit, I certainly wouldn’t have been able to take advantage of lower house prices.

Things were cheaper to buy –

I noticed that everytime I went shopping – everything was on sale.  Recession prices were fantastic.  I don’t think I’ve paid full price for a single item in the last 2 years!  I almost feel like I came out on top – only because I was still making the same salary – but everything else was so much cheaper.

When we bought our house, we needed all kinds of furniture to go with it.  And we got a great deal with recession prices.  It almost feels like the higher prices that will come from this recovery will hurt more than the recession did.

What does the recovery mean to me?

In the recession, everything was cheaper.  Groceries, a tank of gas, vacations.  We could buy just about everything for less, and it left more money in our pocket.  With the recovery, everything will be a bit more expensive – but I think that the cost of things will be balanced with a greater sense of calm by everyone. 

People will feel more confident and secure with their finances, knowing that the crisis is behind us.  And what does that mean for me?  Well, I do own a small business that hinges on people’s ability to spend disposable income.  So, with people feeling better about spending money – I’m sure my business will flourish.

Until the next turn of the wheel, that is.