A while ago, I started a financial independence retire early (FIRE) interview series where I interviewed Canadians who are either financially independent, retired early, or close to these key financial milestones. The reason for the series is to bring more Canadian perspective as I feel there are many American FIRE stories out there but there are not as many Canadian FIRE stories.
It has been almost a year since the last interview post. Reason being finding Canadians and getting them to participate in an interview. So if you are a Canadian and are either financially independent, have retired early, or are close to these milestones, I would love to hear from you.
For this post, I am happy to welcome D, a single mom in her mid-50’s who became financially independent in her mid-40’s but has continued to work a few days a week on her business today.
Q1. Your FI story is inspirational. It’s amazing to hear that you hit FI in your mid-40’s despite being a single mom with a moderate income. Could you speak about your path on how you got to this point? What sparked your interests in personal finance and realize that financial independence is possible?
My decade between 35 and 45 was a bit of a blur. Given our modest lifestyle, I may have hit FI earlier but I never looked at that as a goal then. I worked full time and my daughter was an active kid so we were often out 5 nights/week with her groups/clubs/lessons. My only plan, if you can call it that, was to dump all of my earnings into managed investments. It wasn’t until many years of this routine that I actually sat down and worked out the math on my mutual fund performance and I wasn’t impressed. After my advisor took his 3%, I was left with 2 or 3% and while 5-6% performance sounds very reasonable in 2019, the 1999-2009 period of stock market performance was quite good.
I had always been “handy” – both out of necessity, as a budget conscientious single parent, and out of interest. Once I figured out that most home repairs are simply a matter of knowledge, patience and the right tools, I actually sought out home projects as a way to relax and do something very different than my professional skill set.
I had done some research on owning /renting real estate. After some calculating, I determined that if I self-managed my rentals, the profits would be closer to 15%/year once cash flow, mortgage pay down and 4% property appreciation was taken into account. And because I was not against renovation work, I could buy houses that needed a bit of TLC and force additional appreciation in slightly under market value properties.
I went to a few seminars for real estate investors and researched as much as I could. When I pulled the trigger and bought 4 houses within 6 weeks, my realtor was a bit shocked – and pleased!
My financial advisor was quite the opposite when I withdrew all my funds – shocked and displeased! Nothing like an older dude wagging his finger in disapproval over what he considered an imprudent decision to question one’s wisdom! I’d love to see his response now if he were privy to my financial situation!
Anyway, over the next year I bought 4 more houses for a total of 8 in under 2 years. On average, each cost around $250K and I paid 20% down to avoid CMHC fees. Each cash flowed about $700/month. Since I was still working full time, I just paid down mortgages, at a rate of about $5K/month.
Q2. For 15 years you were regularly contributing to mutual funds. What made you realize this was not the way to go?
My generation was really marketed heavily to by this industry and since their track record was reasonably good, I really didn’t question that it was the way to save for my retirement between ages 30-45…and I did OK but certainly not as well as if I had been more analytical sooner. I was quite annoyed once I realized that the average portfolio did about 9% over those 15 years I barely made 3% under my particular financial advisor. When you do the projections on a portfolio of several hundred thousand over 15 years at 3% vs 9%, you’ll know why I became a bit irritated.
Q3. When we talked, you said you sold the entire investment portfolio and bought 8 rental houses. What made you decide to go with real estate investing rather than stock investing?
I had a few mutual funds that had done very badly and when I pressed my advisor for answers, I was left with the impression that many funds didn’t have much in the way of hard assets. That as well as a lot of middlemen to pay along the way. So in direct contrast to this, I liked the idea of being able to see/touch my investments along with having personal control over how it generated money. Real estate is very tangible- especially when you are cleaning and repairing between tenants!
Q4. It must have been a steep learning curve you went through on how to manage your rental properties. How did you gain the knowledge quickly? What steps did you have to step to ensure the rental properties are successful investments?
I was fortunate in that I already had friends with the right expertise…there they were, right under my nose all this time!! One is a mortgage broker, another is a realtor and another a landlord! They formed the core of my “team” to fast track my knowledge. Once I settled on the areas and type of house, it became formulaic.
All of my houses were aimed at the same demographic in areas that were a 20 to 45-minute drive from my house- single-family houses in newer neighborhoods and no more than a 60-minute drive from my province’s major city centre. As prices soared in the big cities, renters pushed further into connected sub-cities.
This type of rental attracted double income, younger families who may have had credit issues or not yet enough money to buy their own house but were basically financial stable families.
Q5. Can you tell me some of your financial and investment mistakes and what you have learned from them?
Hard question to answer, mainly because all of my mistakes resulted in course corrections towards better things. So were they really mistakes, or just eliminations of things that were less effective? I don’t think I’ve made mistakes per se. I think I have narrowed my choices based on eliminations of less desirable outcomes.
I haven’t always had great tenants! But I also haven’t had any disasters either. One had to be evicted after 5 months without paying rent. One left the house badly worn along with mounds of garbage and abandoned household effects. Some people are late paying the rent. But over 10+ years and dozens of tenants, most have been very good!
I learned to take my time finding the right tenants. Along with always performing paid credit checks and following up on employers and references. I’ve caught a few potential issues by simply doing due diligence. Being a landlord is not a casual affair. It’s a serious business – very challenging yet can be very financially rewarding. The majority of those original 8 houses have more than doubled in value over 10 years and that does not include the fact that they all cashed flowed and paid down the mortgages. For example, one I bought in 2010 for $220K has cash flowed $700/mo, now has a mortgage of $140K and is worth $470K. (Let’s see that performance in your mutual funds, Mr. Financial Advisor!) I also bought one that was in great condition for $245K and sold it a year later for $400K. That was just a matter of moving rapidly to put in an offer, slightly over asking, in an undervalued market. This was an unusual situation but I could not decline the offer to sell for what amounted to a near doubling in 1 year.
Q7. Do you invest in any stocks or index ETFs today? Why and why not?
A few years ago I sold a few houses to invest in several private equity funds but the majority of my capital is still in real estate. Over the next couple of years, I will be tipping the scales more towards PE investments mainly because the rentals require my constant availability and at some point in the next few years I would like to travel for months at a time.
I keep 6 months of household expenses in cash and an amount with Wealth Simple’s indexed EFTs. I also keep a bit of both silver and gold bullion. Remember when gold soared to the unthinkable price of $800 /oz a number of years ago? I’m not a real “prepper” but I do like the idea of having some hard coin on hand, especially as European banks have introduced the idea of negative interest rates and the like.
Q8. Is rental income your main source of passive income? Or do you rely on something else?
Yes, rents are my passive income, although I find it funny that real estate is considered “passive” income. I work harder at my rentals than any other investment by a long shot!
For the time being, I use DRIP for my PE investments so the dividends or interest roll back into more shares because I don’t need the income but when I figure out whether I want to retire, I would make sure the PE funds/rentals become my income without having to touch the capital.
Q9. Your daughter just completed a Master’s degree without any student loans. And she has $5k in TFSA and another $20k in savings. How did she do it? Did you fund her post-secondary education?
I helped her with her undergraduate degree because I had saved about $60K in an RESP. She worked for 2 years before going back to do her Master’s and she has continued to work while at school both as a teaching assistant and at another job outside of the university. She’ll be done school at 25 with about $30K to start her career.
Q10. How did you raise your daughter to be so financially responsible? Did you get her involved with household financial decisions from a young age? What kind of financial advice did you give her?
She was impressionable by example alone because I really didn’t have to “teach” her. She did, and still does, ask questions about certain financial topics but she has always been fiscally responsible. She was actually very hesitant to own a credit card because she didn’t like the idea of “owing money”.
Unlike my parents who never discussed money or gave advice, I have always been very upfront with her, even to the point of telling her that she will end up with a sizable inheritance but I expect her to make her own way financially for a long time before that happens. I tell her to view her inheritance as the “cherry on top of her own successful life” and to never depend upon others to provide for her. She is remarkably “no- nonsense” in all ways, including things monetary so she actually made my job very easy!
I didn’t directly involve her in financial decisions before university but I certainly involved her in maintaining our household- cleaning, laundry, cooking- the works. As she got into her teens, even things like repairing drywall, laying floor tile/laminate and painting at the rental houses. My feeling was that she was going to have to know these things sooner or later and sooner made more sense! Kids may not see the value of this knowledge at the time but can you ever imagine those skills NOT being put to good use at some point?
When my daughter started her first degree (age 18), I bought a student rental near her university and had her manage the other tenants in exchange for reduced rent. She had to take the rents, manage the utility payments, fix any minor repairs and communicate with the building superintendent for bigger issues. She had a set amount of money for food each month ($100 as I recall) and she just had to make the numbers work. She was always a competent cook and she honed those skills even more so when she had to foot her own grocery bills!
The only mantra I used repeatedly with her was “live within your means…always!”
Q11. Now in your mid-50’s, you are still working a few days a week at your business. Why are you still working despite you do not have to?
I work 3 days/week because it feels like the right balance between work and play. Fortunately, I have always really enjoyed the work I do, including the people I come in contact with and there’s a social aspect to it as well. When (if) I discover something else to occupy my time in an equally useful way, I will retire. To date, nothing has struck me.
I haven’t disclosed my financial condition in detail to anyone, other than my lawyer and my life insurance agent and mainly because I think it’s irrelevant under almost all social circumstances. It’s understood amongst my closest relationships that I’m in control of my finances but exactly how would a conversation go that I would need to get granular about my net worth?
Maybe those kinds of discussions are “taboo” because they place the emphasis on unimportant things between friends or family. I’m not entirely sure why anyone in my inner circle of friends and family would care what my net worth is. I assume they don’t because it has never come up.
Q13. What would you tell someone like me who is trying to achieve financial independence? Do you have any advice for financial independence retire early?
People like you don’t need advice. You have common sense in abundance! And that’s really all money management is – common sense and patience. People cannot put the cart before the horse when it comes to FIRE. Starting young with an appreciation for delaying gratification is the only way to speedy success.
I’m a strong believer in goal setting along with its alter-ego, “fear setting” (made popular by Tim Ferriss). Many of us establish where we want to be at various junctures in the foreseeable future but few figure out what to do if things go wrong and this is where the fear-setting exercise is very useful. In other words, hope for plan A but have plans B and C at the ready as well.
It’s amazing how easily you can coast through a crisis when you’ve already considered problems as a possibility.
Thank you D for the great insight, especially on rental properties, something I haven’t written all that much on this blog, since we don’t own any rental properties.
Dear readers, are you enjoying the Canadian FI Interview Series? Are you a Canadian that is financially independent or retired early from your career? Or close to reaching this key financial milestone? If so, I would love to have a chat with you. Give me a shout!
And in case you want to read the other interview series.
- FIRE Canada Interview #1 – Vancouver reader J
- FIRE Canada Interview #2 – How I became financially independent at age 32
- FIRE Canada Interview #3 – Why I decided to keep working despite reaching FI at 38
- FIRE Canada Interview #4 – Cash flow is the oxygen of financial independence
- FIRE Canada Interview #5 – Creating a long term plan
- FIRE Canada Interview #6 – Create a net worth statement
- FIRE Canada Interview #7 – Do Absolutely everything and never sacrifice or struggle at all