Investing with other people

Some people who are involved in this blog assume that investing with other peoples money is a great idea. I have fought tooth and nail to prove that it isn't.
Mr. Rayban has gone ahead and invested in property with friends with the purpose of fixing and selling. That, I would like to state is not a bad idea. Everyone puts in money, everyone does the work, then everyone reaps the benefits. That is like buying shares in a short term job.
However, this individual is talking about a longterm contrarian investment in an apartment block with investors who are strangers. But problems arise when there are different opinions involved. For instance:

1. I've been researching this area for a year and a half, and payed to travel there and meet professionals in the industry, and see if it was a viable opportunity. My trip cost $4000. So can I include my research time, and the cost of the trip as part of my share?

2. People are fickle, and tend to change their minds often. An investor grows impatient after his 10k is tied up all year, and returns have been minimal. Even though he has signed his money over and can't have it back until property is sold or shares are bought out, he is angry at the investment manager, and keeps bringing up how he could make more in an rrsp.

3. Additional costs add up. Lawyer and accountant fees accumulate making the profit margin even smaller. In fact, each investor could actually end up paying extra each month with additional expense.

I realize (as disposable joe will point out in the comments) that it's a good starting point for someone who has no cash, but if their lacking funds, their share will be small, and they won't see much return anyways.

This is why the most important thing I suggest is to get your spending under control, and save a down payment of your own, or rob a bank, or marry rich and old.




Mr. Taylor #2 - Soars like a solo flying turkey

Foreign Markets - Foreign Currencies - Double Double

So I was meeting with Master Song again and he opened my eyes to another cool and simple thing. Here is the summary of our long meeting.

1. US market takes a hit (ie. new random war starts, Donald Trump sneezes, Bill Gates farts)
2. Foreign markets feel the fluctuation exponentially more (he had a reason for this but I can't remember the details)
3. Foreign markets go down a lot, US not so bad.
4. Canadian dollar = pretty good. So, us Canadians keep our eyes on crashing solid markets. Our example was Hong Kong.
5. We buy index (I don't even know how to write the verb....we 'buy on the index' we 'invest in the index"??) in that market
6. US market turns around and goes up single digit percentage while the HK market double digit recovers.

So you're thinking... cool. I just saw double digit growth! But that's not all. Sometimes the currency can also work in your favour. During these tricky times, often their currency takes a hit simultaneously. So you buy their crappy market prices with strong Canadian loonster against their poopy currency and you gain twice.

There you go. Now, hopefully I won't be like the average J...person and just watch these things slip me by!

MF's The Continuing Epic

Dispositional Joe has laid out the basics of investing in a mutual fund. And I will agree that if you can't find the time to look into good companies and read balance sheets, it's an okay way to go. There is of coarse fees attached to this endeavor. I'll lay them out:

1. front end load - fees up front, facing your victimizer
2.back end load - hold onto your ankles, pay when you sell
3.no load - a trick.

No load has you buy in for free, and every year you hold, the fee goes down. and when you sell, if you held for around 5 years, there is no fee. However, if you sell early, you'll have to sell that corvette limo to pay your fees.

It's no wonder that Peter Lynch who operated the magellan fund, earning an average of 30% annually through good times and bad advises people to invest on their own.

He went into Dunkin Donuts, had a good cup of coffee, then bought shares. Women everywhere started buying Hanes Leggs, he noticed and bought the shares. He doesn't make buying a decent stock into some mystical wiccan ceremony. That's why you should buy the book "One Up on Wall Street".

Anyhow, I gotsed to go to the lawyers office.





Mr. Taylor (#2) - Holds his ankles when he buys MF's.

Paying It Forward

Is it really worth it to pay off an investment mortgage early?


Every year you can write off the interest as a direct expense, and if you have renters, they are basically paying your taxes down all year dollar for dollar. However, if you pay the mortgage off outta your hard earned money, and are still working you'll be paying more in tax (up to 50% in BC). You're basically giving money to the government with no perks. No my friends, I work as hard as possible to keep myself in the lowest tax bracket possible, and I don't need the rent to throw me over the top (yet). I think it is much better to save your cash for a new investment to gain more leverage. I could take 20K and throw it on my mortgage so I'm paying less interest in the long run, or I could use it as 20% down on a new building that will cause that money to triple in the next two years.

Brace yourself Taylor #1, this requires ... discipline. That hundred bucks you want to give to the foreign market could be crateloads of kimchi, so put it in a safe place, keep your income to a minimum, and stay true to your heart, soldier.

It's hard for me to remember what it's like to not have at least a million in the bank, but let me say this to the poor of society:
"take $40'000 out of your savings account and put a down payment on a house, then rent it out."

Because the sooner you do it, the sooner it will be paid down and working for you.







Mr. Taylor (#2) - thinks like a millionaire

Investing in Foreign Stock Markets

Word up, gents.

I wanted to start a thread on the topic that I hinted at in another thread about investing in the Korean stock market. However, let's keep this thread more generic because other markets might come into play.

Have either of you invested in a foreign stock market directly? If so, can you please describe your experience?

The reason it looks appealing to me is a) you can score on the high loonie value right now and b) other markets are probably rocketing faster than ours...of course.. I wouldn't know a good stock market from an Egyptian hyeroglyphic. That aside, my pride won't let me be humble so I'll cover up somehow.

Why don't we take, say, $100 each and give it a 'trial run' just to see how the process works?

but you guys are all talk so why do I bother?

I want investors with good old fashioned...balls. It felt rude to write that. 'Balls'. How carnal. It felt even ruder, but yet more humourous, to put the adjective 'old fashioned' before the balls, indicating somehow that modern balls aren't made the way they (more spiritually accurately 'He') use to make them.

Accept my apology. May this post never come back to haunt me and my dynamic investing career.

The Feeling Ain't Mutual

Every one considers the mutual fund at one point in their life. It sounds safe. It sounds sure. But what is it really?

Well, it's a good debate topic. Instead of investing in a stock, in which you generally have no control over the performance of the return, you can invest in a mutual fund (MF), where a licensed broker will manager a portfolio of stocks in order to return the most stable return.

On the outside, we can see the following analogy when you trying to get your money from point A to Point Z:

Stocks = "riding in a car with no steering wheel" - Mr. Kiyosaki
MF = riding in a car with a taxi driver (Yes, he has a steering wheel... or does he?)

That's usually how MFs are sold anyway. There are two major types of MFs: Registered (RSP), and Non-registered.

RSPs usually require a minimum amount to be inputed every month. That amount is also taken before taxes, and will not be taxed. Returns are generally higher than Non-registered MFs; however, your money will be locked in for some time.

Non-registered MFs allow a lot more flexibility and act a little bit more like a savings account. Somewhere along the line, the bank opened a "savings account" for me that was really a Non-registered MF. As soon as I decide what I want to do with that money, I can redeem it. Except that:
** An early redemption fee may apply if this Fund is redeemed or transferred within 30 days of purchase. (90 days for certain e-Series units). Please see the Fund’s Prospectus for details.

It's a difficult debate because mutual funds definitely have shown returns, but are the right things to do with your money?

My dad told me a story once about how he lost a bunch of money in the stock market after a big crash. He then decided that it was safer to invest in a mutual fund, so he dumped his money in an MF. A few days later the market went back up again, but the money in his MF did not change. The moral of the story is: how can anything be a real worthy investment if it doesn't respond to the market. My dad still doesn't believe in MFs.

If the market isn't in control of a mutual fund investment, then who is?

A lot of MF brokers will tell you than they can get you to point Z in 50 years, and chances are that they can. But your money will be locked in for the long run.

What do you want to do with your money?

If you want to be an investor, then do your homework and invest in the things that will bring you to point Z faster without tying up your cash.

If you don't know what you're doing, or do not want to do anything with your money, then perhaps a mutual fund is worth considering.

Group Investing - Worth looking into

I just wanted to post an idea that I've been thinking about for some while. I have been approached by several people that if I were to head up some real estate investment 'thing' that all these people would invest what they could in it.

So I started thinking (gotta stop doing that!).... Couldn't I just start up a corporation, open a bank account, take all their money, and then buy something like a house or a huge appartment block? Or do you have to climb through a wack of CRA red tape before being able to do something like this (more like a fund of sorts)?

I have felt restricted in my investing because I can only leverage so much on my own with the personal net worth I have. But if we took 5% of 20 people's net worth, we could do a bunch more, I think.

Could it work like simple shareholders?

Thanks if you've given this some thought.

My advise for the Poor in wallet

I think it's only fair that I start this post with a picture of me in a different phase of life. It shows that everyone starts somewhere, as I laid out for my young padawan this very evening.

Young Chris I'll call him to preserve his identity said to me "Peter, Master, I have accumulated debt, but I want to be like you one day, where should I start?"
I looked upon him with kindness and asked how much debt we're dealing with. He said it was somewhere short of 50'000 in student loans, credit and vehicle. I had to think hard. I've a lot of places in this life, but never that far down the debt road, and I've obviously never paid for education. I took three long sips of whiskey, bummed a cigarette, then pulled an answer out of my posterior.

"Chris, it's going to be a while before you're out of debt" I said "the best thing you can do is consolidate to a single loan payment with a ten year term which will cost around 550 a month. You can then write off the interest. The next thing is to make sure you have a home business to obtain as many write offs as possible. Then exercise some discipline, and put something into savings each month."
I know he makes a worthy wage, and so I told him my secret to wealth: "Buy East Coast Canada. The rent to purchase ratio is very much in favor of the investor."
He told me that he thought of buying a love pad for him and his wife, but upon reading B.L.I.P. he realized it ain't such a hot idea. His rent is in the 900 range so he needs to stay renting and put aside 500 a month to purchase his first investment.
I told him that as a treat, when he purchases he can have the privilege of being an admin on this blog, because until he buys, he ain't got nuthin to say.




Mr. Taylor (#2) - reached full jedi status

What Inflation???

As Taylor #1 already knows, I'm a man of few words,
so I found a pic that speaks thousands about the Vancouver market.

This 2 bedroom shack with it's 9 sq/ft yard is selling for $669'000. In other words, a tiny building lot in a less than desirable (commercial drive) area of town is selling for almost 3/4 of a million bucks. In some more developed parts of the world, this price tag would be warranted, but considering it was worth 200'000 5 years ago, I think the potential buyer is sending the seller to his retirement. My uncle said houses in this area were selling at 80G in 1988. THAT was a good time to buy Taylor 1.

If you want to figure out what a society can sustain as far as housing prices, look at some of the higher paid individuals like family doctors. They make 14'000 a month (government regulated) After tax, they have $10'000 in their account a month. A bank will give them a mortgage based on 33% of their income, so their mortgage payment can be $3300 a month, or a $550'000 mortgage.

A DOCTOR CAN'T EVEN AFFORD THIS SHACK!

And people look at me like I'm crazy for buying an apartment on the east coast for $100'000 that rents for $22'000 a year.

Doomsday Prophesy

I'm not saying that property here will go down, but how much more can our economy support? Our dollar is strong, so our exports are down. Our pine trees are lying dead in the forest, and even if we make them into wood pellets, we will need to export them to profit. Basically, we'll have people out of work eventually if our dollar stays like this, so maybe....just maybe property could take a hit.

Keith Green once said "If God wants to get our attention he do three things.

First: He'll touch our ecology (In BC that's the pine trees, and if you don't believe me, then you've never been north of Vancouver)

Second: He'll touch our economy (A strong dollar isn't always a good thing)

Third: He'll raise up an army to overtake us. (Hopefully we've learned by this time)





Keepin it reeeeeeeaaaal
Mr. Taylor(#2)

Buy Near Skytrain - Taylor 1 Makes a Hunch

I wanted to post a prediction. I don't usually have strong convictions but when I have I was bang on correct in the past. This one isn't as hard to believe as other ones but it is like this:


Buy real-estate and all available land near any existing or soon to be existing Skytrain station.

I lived for 2.5 years in Korea. I didn't have a car.... and life was better without it. I got where I was going faster and I was less angry. I also started reading...investing books! Which actually lead to my first investment property.

When I came back to Canada I immediately started looking for a place to live that was walking distance to the Skytrain and found one. Life was continually much easier than I remembered it in Canada before I went to Korea. So I tested the theory and borrowed my parents car and got stuck in rush hour traffic. I became an animal within a few short moments.

Then a few months later we bought our first primary residence right by the SKytrain. I was speaking to the construction top-dog guy and he said that in Germany the highest price real estate in the country is basically anywhere along the train line. Then I thought again about Korea - same thing! Then I realized... this isn't a Korean thing - this is a global thing. And it's going to hit Vancouver before you can say Bob's your uncle.

More good news if you take action now. The big 'hold up' for some people to not buy near the Skytrain was the supposed problem of crime. I did a little research on that topic and found that it's actually not true. Check for yourself. The highest crime seems to be near Broadway and Kingsway if I recall correctly. There isn't even a Skytrain station there. And, to top it off, apparently they are going to finally put in the long-awaited turnstiles. This will certainly reduce the ease of certain individuals of abusing substances and then stealing things along the Skytrain line to feed their habit. I have to admit this is an issue but am convinced it'll be greatly curbed when the turnstiles are in place.

And there you have it! Anyone got a few hundred thousand kickin' around so I can buy more?

Exit Strategy Part 1 - Real Estate

I realize that there are quite a few exit strategies in the world. Most things you can enter you can usually also exit (except for, perhaps, North Korea). But in the business world and investing I have come to realize the importance of the exit strategy. I have failed miserably in stocks because of this. I'll write another post about my famous stock tragedy of my young teen years but just trust me when I say that you shouldn't be emotional or sentimental with stocks. If they are plumetting, it's usually for a reason. I'd be about 6K richer if I knew this. Maybe more.

Since I also now have investment real estate, I realized that it is also meet (I like King James English) (and I careth not if I use it incorrectly) to plan a real estate exit strategy. When I first got involved, I was just happy to get the initial decision process and gut wrenching fear of taking action behind me that I never sat down to consider when I'll actually sell this investment for a profit! Go figure. So today I started doing so and I came up with a cool new revelation. Let's use 100K in all my examples because I got 51% in Math 12... or was it Math 11? Whatever. I suck at Math is my point.

100,000 - here's your house
10,000 -here's your deposit
5,000 - here's your closing costs (don't forget these are all random numbers guessing my way)
90,000 - here's your mortgage amount
6000 - rent for the year at $500/month

enough detail already! Details are for weirdos anyways. Systems are for cool people...moving on.

Point is this. Let's say at the end of the year you've put out 15,000 + lose some on interest of course. Your renter is paying down your principal so let's say there was 30% interest and 70% principal (who knows how random I'm being now). That'd be 4,200 paid off the outstanding 90K. Say... $86K left. Here's the point. Your amount owing went down. And here's the beauty part as we all know - The market generally goes up. Let's say it goes up conservatively by 3%. Now your 100k is worth 103k market value and the amount owing has dropped from 90k to 86k.

I know. You're thinking 'duh. Who doesn't know this stuff?" And Taylor #2 might say "You're wasting blog space. Go away." But it's just cool to me. If the market shoots up, so up goes those numbers on the value side. Probably also bumps up the rent potential too.

Meanwhile, buddy over at Mind-ur-Life Financial is trying to get you to dump your 10K in a volatile foreign market fund that you have no control over. I dunno. Maybe I've just got a bad taste in my mouth about those thangs but real estate sure seems more tangible and acheivable for someone with limited time.

You boyz have anything intelligent to say about real estate exit strategies or are you readin' this goin', "Dude...he's right. I have to sell this thing one day, don't I?!"

Be well. Stay out of hell.

Investment House #2 - 'The Dream Shack'

Look.




Well I'm obtaining my second investment property, but this time, I'm just turning it for profit. Here's a list of expenses:

$220'000 - Purchase price
$1500 - Closing costs
$12'000 - Improvements
$8'000 - Realtor fees (selling)
$4000 - Mortgage payments (3 months, with only 300 going to the principle)
________
$245'500 is my approximate cost.

Now, places in the building are selling around $245, so is there money to be made? Should I shoot to make it higher end? I was told the places that sold were livable, but not fancy. So I began wondering if I should put in higher priced flooring & nicer appliances. The building itself is only sub-par.

What do you think?




Mr. Taylor (#2)...investor

Dif'rent Skoolz of Thawt

Taylor Number 1, Thou standeth on sinking sand.

OWNING VS. RENTING: The debate continues.

I thought I had schooled you in this subject before, but alas, I see you still stuck in the mindset of an industrial revolutionist. Being an IP means doing whatever it takes to grow your empire until it is supporting your butt, then when you are financially set, you can buy your corvette limousine.
I realize everyone likes to own stuff. It makes us feel secure. However my logic has not wavered. I'll lay it out for all the people to see, thus showing my infinite wisdom. We'll do it over ten years so it is feasible to all.
Let me preface this exercise by saying that rent in this part of the world we live in is quite a bit less than the average mortgage, thus making this logic of mine make sense.

Owner
$216'000 - Mortgage Payment for a 300'000 house over 10 years ($1800/month)
$ 10'000 - Land tax
$ 5'000 - Improvements
___________
$231'000 - for ten years of livin'

Luckily your house has appreciated @ %5 every year for the ten years, and is now worth $346'000. So you sell, and pay the bank back the remaining 235'000 . Leaving you with 111'000 which you promptly pay income tax on to the tune of %35 (depending on your tax bracket I'm too lazy to figure it out) So you are left with 72'000. Not bad considering you lived for free the last ten years.

Now lets look at the other side

120'000 - Rent payment for 10 years ($1000/month)
$0 - tax
$0 - Repairs

Now, of course you've been putting the additional $800 away in an RRSP fund each month earning a modest 8%. You've earned 146'000 without taking on the risk of a high mortgage, or a volatile housing market.

Of course you could say the housing market has gone up %10 a year recently, but then you're just gambling. Tradition trends have the market going up at 4% per year.

I'm getting a headache from thinking so hard.
Does this make any sense?

Mr. Taylor (#2)

Buying a House You Can Afford

In this article, Jim Yih talks about buying only what you can afford in real estate. Some people buy sexy homes that are worth more (surely) but may pay a heavy price to do so. Also in this article he discusses 'other investing' versus putting your savings into your home.

Buying versus Renting a Home

The Vancouver Sun had this article published on December 28th. Jim Yih explains his opinion about why it's better to own a house, rather than rent one. This topic of buying a house as an investment versus saving the extra money you WOULD have spent on the mortgage and investing it wisely, is a valid and interesting discussion. So let's discuss!