October 2017: 4 Years + 5 Months in Alberta
Sudden $2,460 dental bill. Sudden $1,000 vehicle bill. Selected for a CRA 2016 Tax Review. Further tightening mortgage rules by OSFI. The ending of the road construction season with lacklustre earnings. When it rains, it pours.
It was only not until I had my root canal and fillings done and walked up to the receptionist, then I learned my benefits plan covered none of that work, and concurrently I was hit with the $2,460 sudden bill. Someone also hit my rear bumper on the driver’s side, costing me the $1,000 deductible amount to use my auto insurance.
The mortgage stress-testing procedure of approving mortgages based on a higher interest rate than actual used to only apply to insured mortgages; now they also apply to non-insured mortgages with 20%+ downpayment. This only complicates things for the closing of my new property when completed, and to further grow the real estate portion of my portfolio. Given my young age (24) and consequently low initial capital due to the short time I’ve had to make money, I’m dependent on leverage to magnify returns to a somewhat reasonable amount on a cash basis; without leverage, most property in Alberta is happy to see only 6-7% cash-on-cash returns. My original strategy has been to acquire one new property each year, to a total of 5. Then after the mortgage terms are over, liquidate them, and re-balance the portfolio to reduce exposure to real estate, where then other investments like common equities would net me worthwhile cash returns. For instance, 10% on $400,000 is $40,000 – an amount of cash to realistically make a difference in my life, while the same percentage return on $4,000 in the TFSA is only $400. For now, the $40,000 is better used to earn suppose 20-30% ROI; $8,000 – 12,000 over a year – though obviously through a riskier avenue.
Yesterday marked the last day of the 2017 road construction season. We had too many crews this year along with a diminishing amount of work. The weather – especially in northern regions like Grande Cache and between Grassland and Fort McMurray, was brutal. We one some days saw 3 seasons within one day – about -10C in the morning with snowfall, towards 0C in late morning, then warming sun into the 10C range by afternoon, where then you’d be taking off clothing until you were down to a t-shirt and/or sweater, as the heat of the sunlight is more intense in the dry-aired north.
Construction earnings hit just about $42,000 gross; only about $8,400/month, as the season began in late-May, minus a one week vacation. To most people that is a decent amount of money, but for road construction truckers and operators, that is a poor amount; we expect to see at least $10,000/month. It’s also poor considering 2 years ago with only a few months experience and lower wages, I made more due to keeping busier.
With only about half a year to be consistent with my 1 new property per year objective to secure my Ferrari by 30, things look more grim. I already need to reduce my current debts by about $25,000 to close on my new property when completed in 1 – 1.5 years. To be on schedule, this would imply from today, I’d need to collect about $50,000+ cash in the next 18 months – an average liquid asset gain of $2,778+/month.
I managed to negotiate a higher rate for vacuum and combo truck operation for city work with one of my clients – $5/hour. This is what I will be doing outside my construction seasons for now as I go to school part-time (Year 3 Electrician). Income is then expected to be $8,907 – 10,257 from there – more with >11/hr days. The former is based on 48 hours/week, latter 55. Taking the more pessimistic scenario of $8,987, and given my $5,850/month living and current debt-serving budget, I should be able to save $3,137 cash/month. This corporation income is taken out as shareholder loans for the 1-year time limit until they’re considered income, so no tax to be paid until the following tax season – which is beyond the timeframe I need to hit the $2,778+/month savings threshold by. Savings afterwards then can be used to pay taxes. Based on this analysis I should be fine for the non-construction seasons I can enjoy this income. However, if construction seasons in the future continue to be slow, then I may have problems during the following 6-month season, as then I’d have to make $8,628/month net – about $11,504/month gross, given my average tax rate throughout the year.
There are other methods to make money aggressively aside from leveraged real estate, construction, and trucking/vac operating – namely small caps, day training, and other either very high risk investment, or speculative means. That is an entire separate topic on its own and will be given more attention with time, as required.
My electrician apprenticeship poses another problem. With only 6 months remaining until my apprenticeship status is revoked, time is running short. The 6 months are also precious for debt pay down and collecting the other downpayment for property #3. Most city electrician companies rarely ever hire 1st years, or pay them enough to get by. My plan has been to only do the academic portion every year, and when my other assets have appreciated enough, use the equity to live on during the apprenticeship duration where then I’d be suffering heavy negative cashflow regularly. The meanwhile solution would be to do enough temporary work – even if one day – just to keep the apprenticeship active, as as long as I work in the trade at some point within 12 months, I can keep my electrician status.
I devote much of my spare time either training in the gym, or sitting at coffee shops writing articles like these, performing research on the real estate and financial markets looking for hints to make more money, or going over my finances.
Nevertheless, at least for the next 6 months, I should have much of the $25,000 debt pay down knocked off the threat list. One step at a time.