Theory of a Ferrari by 30 from Alberta’s Oilfield

Currently I am 23 years old making $8,989/month on average. When $100/barrel oil was still not a pipe dream, some months I made $12,300. A Class 1 Operator and Trucker. An apprentice electrician. A fighter with about 4 years of post-secondary education (3.5 university, 0.5 trade school), and 4 years of oilfield and road construction experience. I left on my own accord in 2013, at age 19, after completing Year 3 at UBC of a Math and Economics degree. But all this is only the beginning. I grew from BMW to a new truck, then to a newer BMW convertible and a new first home. Now the next is home #2, home #3, a Porsche and a Ferrari.

Back in the day I thought it was all over in the economic wasteland of BC, where the hippie dream was to get an arts degree after a couple to few ten thousands of dollars of debt, work at Starbucks, and ride the bus int he rain. I gradually perished in a battle against the elite academics at UBC, the offspring from White Rich/Old Money families, and the privileged from rich foreign families- all who just wanted a menial job as something to do. There was one last opportunity remaining to save myself from complete financial and emotional destruction- the blue-collar oilfield and construction industries in Alberta. So one day I threw everything in my car, drove here, and said I wanted to just make some oil money and go back home.

I did not return to visit my family and friends until almost 3 years later, as I back then made a goal to have an education, Porsche, and home by 23- and refused the shame of showing up back home without them. Four years later, somehow I’m still here. I’m having a coffee while writing this article and looking over some recent $2,730/week paystubs. On the table I skim through a new condo development brochure, phone constantly ringing from the consistent text messages from my mortgage broker and real estate agent about my second condo purchase in the past 12 months. On the left page of my notebook is a list of the different Porsches I’ve built on their online configurator. Once in a while I open my trading account to see if I gained any money today.

Nevertheless I still have a score to settle with my competition back home, and the battle is far from over. I live on borrowed time, as I’m sometimes away from home for weeks, in sub -40C weather, working 12 – 35 hours straight a shift in places a near eternity from civilization. Some days I get yelled at in fear I will cost the oil company tens of thousands of dollars due to my negligence, as I consume nothing but protein bars and bottled water while hauling 14,000L of mud.

As a plan visited twice in 2016, my intentions to have a Ferrari by age 30 have largely remained the same, though everyday at the back of my head I am re-visiting my overall advancement strategy, and multiple times revised slightly. Now today I write a third major revision. Given a rapidly changing environment- sometimes in the matter of days- frequent revisions and analyses are of uttermost importance because of the implications of:

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  Cyclical and inconsistent nature of the oilfield service industry. In this case at this time of writing, a day's of wages can vary from $15.60 - $910- though $362 - $498.

• Unexpected struggle with education, lengthening the time and cost required for completion, resulting in more downtime; lost income.

• Work politics; sometimes takes only one bad egg to interrupt work and hence income. In this case, a job loss forcing a dramatic revision in short-term plans.

• Bad women; both a financial and emotional burden. Though the greatest loss usually comes from downtime.

• Regular fluctuations in the market, especially extreme volatility in riskier investments. With smaller cash available to invest, it is difficult to make signifiant gains without bearing high risk and embracing extreme volatility.

• Health; deteriorating physical and mental states increase probability of error at work and hence income interruption, reduced morale, financial impulse and hence poorer money management, slower education completion rates, and in general increased downtime.

The near-term significance of which is listed in descending order.

By now I have acquired just about enough downpayment for a second home. This winter oilfield season financially was somewhat a disappointment. YTD income has been an average of $8,989/month. To most readers and struggling people in Alberta this is a fairly decent amount, but for the work I do, without considering real wages yet, this is a bad deal (in a robust economy, similar if not easier work would pay around $11,000/month). The godsend was doing my taxes myself and discovering the trucker and vehicle write-offs I was entitled to, resulting in a return a little over $7,200.

Being bled hard by paying 30%+ in deductions on each paycheques, doing my taxes, and speaking to one of my siblings also inspired me to start my own business this year, with increased tax write-offs in the beginning being the prime objective. Eventually the business must be productive, but the key is to get the starting capital from the large write-offs in the beginning to expand my portfolio. The business in the beginning years when productive is to be a supplement to income, not a replacement. Even if it makes only little money, my little brother’s words echo in my head as I write:

... I've discovered my passion. My love. Something I deeply care about and believe in its success.

Even if the business itself does not make me a lot of money, I like doing business, my own taxes, and its experience. It is the journey I am partially after. I take great joy in being in the driver’s seat. Though you usually don’t make money working for someone else, so this is an opportunity to get my feet wet.

Before my last job loss I was looking to acquire electrician apprenticeship hours on the half months I had days off, which is no longer possible given job changes. Now that would require complete time off- financially too difficult in my current state without significantly slowing down progress and even rising complete financial destruction given high costs and a very poor job market for electricians. Dramatically reducing my income to acquire electrical experience also crushes my average income required for real estate investment purposes- a burden I am enduring right now due to my unexpected 2-month struggle with 2nd Year Electrician school. For example,

Suppose I take 2 months off to work as an electrician apprentice.

Average 1st year electrician income: $3,120/month

Current average income: $8,989/month

Differential of above: $5,869/month

Average time spent between jobs: 3 weeks (one week paid by EI- $525(0.7)); income loss of $5,540.

Total income loss/year: $17,278; $576/month credit room loss with 40% GDSR. $104,000 mortgage room loss.

Assuming a cash-flow neutral investment, 50% probability of 5% YoY in local real estate and 2.35% current 5-year variable interest rates and holding such a investment over 5 years (to calculate contribution to principal), this is an average of $5,943/year earning power reduction.

Direct financial implications aside, there is also a much greater risk of work inconsistency due to being a beginning year apprentice with limited experience in a recession-crushed industry. Also, it would take more like 5-6 months to acquire enough hours to progress through each apprenticeship year, not 2- unless the employer is willing to write extra hours in the Blue Book.

I’ve been fighting together with my mortgage broker to find investors willing to account for as much of my income as possible. So for now I will continue to focus on only the academic portion of my apprenticeship every year to keep income and hence investment increases consistent.

As mentioned in my two previous overall strategy revisions, my goal is using a combination of an extremely aggressive portfolio of real estate and stocks. The risk of worth bearing due to the following factors:

• Young and single. Few emotional commitments resulting in less distractions and downtime, and the ability to make rapid job/career/financial maneuvers across almost anywhere in Canada. If I lose a job today, my opportunities are many times more than the average person due to not being limited geographically. I also don't have a woman preventing me from working.

• No financial ties; complete control of my finances and investment decisions. Can take risk without falling victim to common investor psychological downfalls affecting a spouse, such as selling at every dip of the market or afraid to take risk. Or it could be simple as your woman forcing you to select only certain homes or not to buy a stock.

• Strong heart prioritizing my own future over women, and bluntness and thick skin to rid of anyone in my life wasting my time. I exhibit a near immunity to the common young people problem of chasing dumb girls wasting time and craving attention from young men with no direction in their lives. Career focused people do not daydream about the wrong women, and only consider strong, independent, time-valuing ones. A common swan song to many oilfield men's careers is a woman not accepting a busy man, especially one away from home often. A very simple example is: "job or me". Over the years I've lost several woman this way, but I do not miss them at all. Few will be able to pick his own future first over a woman. Future over women is one of the most powerful career advancement techniques, albeit a uncommon one in practice.

• Flexible asset selection, as someone with a spouse and/or kids and pets would have less home options.

• Young and powerful body to endure extended working periods and study, and a large variety of work.

• Young age allows a longer time horizon to hold onto losses until market conditions improve.

• Little competition; most people with the last premise spend their spare time with a bag of chips in front of the TV and chasing dumb girls. Also, most people are very risk-averse.

• An open mind to new experiences, increasing work experience and skills.

• Unrivaled discipline to not sell during market drops and give in to life's struggles; the ability to become more powerful after every battle. No matter how difficult or disgusting a job may be, I focus on the long term, not the immediate- hence have the discipline to take the opportunity to maintain and grow earnings.

• Low expenses and hence high cashflow; an overall financial picture sufficient to average down and absorb sudden losses. It can also withstand income inconsistency of the oilfield. e.g. If I lose 10% tomorrow, I don't need the money right away and be forced to covert a paper loss to a cash one. If I have no work for a few weeks, I don't have a kid and woman to feed. I also have the ability to increase earning power rapidly to feed future experience, education and investments. The power of compounding is amplified with $1,500+/month versus say, $500/month (an amount many, many regular people are happy to consistently put away).

• Better than average academic merit and working attitude to balance school with work, reducing downtime and opening myself to new career opportunities.

• Thick skin to not give a fuck what others think and to fight for the ultimate goal. People like myself are often viewed as sinners, especially in places like Vancouver- Hippie Central. To some, to want more out of your life is simply to sin.

My intention last year was to first buy 3 properties, with one year between each purchase. My first was May 2016, and I am writing offers this week (March 2017).

Financially I suffered too much in late 2016 to immediately comfortably stomach the negative cashflow that would result in renting my current home, if I were to move into a new home now. Current break-even is $5,000/month. With the additional negative cashflow of $600/month, this would become $5,600/month. Current YTD net income is averaging $6,473. Instead of having $1,473 gain/wiggle room, I would then only have $873/month gain/wiggle room. This can be easily destroyed with one sudden expense, not to mention the reduction in progress (-$7,200/year), and dramatic income reduction during school downtime and then the following dependency to rapidly increase earnings to cover the shortfall.

Coincidently after routine research, I discovered an attractive (both physically and financially) new condo development local to me, very close to my current home, a prime area, and the university. Even though it will take almost 2 years to complete, this allows me to get lower, pre-construction pricing, resulting in a better return. I will lose the opportunity to put equity into a property otherwise during those 2 years, but it will be less stressful (no landlord responsibilities and risks), especially not having to open up a negative cashflow situation with my current home for another 2 years. Also, my current home will still be my primary residence until then, so no capital gains to be paid as long as I live here. The details of the unit I am writing offers on:

$306,075 asking price

662 sq ft.; $462/sq ft. Top floor.

Completion scheduled for December 2017, though for this analysis, March 2018 is assumed, as usually construction is a bit behind schedule, and for simplicity (2 years wait time).

The new condo becomes the home, while the current becomes a rental property fetching $1,900/month. No tax will be paid because of loss write-offs: -$11231 interest, -$7,440 condo fees and utilities, -$2465 property tax; -$21,136 yearly total loss. Yearly rental income is $22,800, but the $1,664 difference is assumed to be spent on maintenance for simplicity.

Recently built very similar condo building in local area: $503/sq. ft average

Unit valued at $332,669 at this per sq ft. pricing; $26,594 saving by ordering pre-construction.

Initial investment required: $19,742 (a loss in below calculations). This is <20%, so mortgage insurance is required, and I must (initially anyways) move into the new home as my primary residence at closing to qualify.

Investment time frame: Next 5 years w/ 2.35% 5 year mortgage term. 2 Years to build condo, 3 Years to contribute to principal. Assume 0 appreciation, 0 maintenance.

Current home requires $1,750/month to upkeep. This is not considered an investment and just a sunk cost as home is a place to live, not an investment, but the perceived value of home doesn't change in this calculation. New condo requires $1,900, so the budget shortfall is $150/month. Negative cashflow on current home is considered a loss that is suddenly opened up as a result of this maneuver.

Pre-construction savings $26,594 + $31,348 principal contribution (net mortgage insurance) + $27514 principal contribution on current home - $5,400 budget shortfall - $21,600 negative cashflow on current home - $19,742 initial investment

= +$38,714 profit over next 5 years; 39.2% yearly ROI

Appreciation is difficult to predict, but historically in high demand properties appreciated around 5% YoY. If we assign a 50% probability of this occurrence, where “appreciation” begins on both homes right after the investment money is spent:

+44,179 current condo

+40,221 new condo

+38,714 profit from above

= $123,114; 24,623/year; 125% ROI

With these returns, getting the pre-construction makes sense. Now to remain consistent with the original objective of 1 property per year until 3, a third property is required sometime in Spring 2018. Shooting for a 10% return, compounded quarterly, and investing $1,500/month that I save (above $1473 is mentioned, but the extra $27 is not difficult to save), I should arrive at roughly $19,000. For simplicity sake we will select a cash flow neutral property, but YoY will be 4% instead, as cash flow neutral or positive properties typically are less appreciative due to less demand (lower value results in lower tax and mortgage payments). This allows for a $292,308 property that gains:

$48,904 towards the principal (net mortgage insurance)

$30,345 appreciation; $79,249 profit total (83.4% ROI), w/ 50% probability of 5% YoY,

or $49,651; $98,555 profit (103.7% ROI) w/ 4% YoY.

in the 4 years thereafter.

For simplicity, we will assume my saving rate is consistent at $1500/month. Above I mentioned $1473, but the 27$ is easy to save. After property #3, if I only buy stocks every 3 months with monthly saving, aiming for a 10% return compounded quarterly, I would grow into +$88,661 in those next 4 years. Stocks usually have much lower returns due to much less leverage available, though they are much more liquid. Liquidity can be useful in case a tenant does not pay for a period of time or there is a sudden large expense in one of the properties or in my personal life. In those 4 years having an average of $22,165/year cushion will help hedge some of that risk.

Altogether, we arrive at a net worth gain of +$291,024 – 405,644, before taxes, and a total portfolio size of <=$1,274,152. Though implications with this figure, even at the optimistic end, are:

• Even at the higher end, after accounting for inflation, this is $367,404 in today's dollars.
• The assumption of a steady economic recovery in Alberta so that YoY in our calculations are consistent.
• Income only increases with inflation, though if the economic recovery continues steadily, wages will recover to pre-recession rates and gradually rise, dramatically speeding this entire process.
• A very risky portfolio overexposed to real estate: $1,185,491 real estate (93%), $88,661 equities (7%), where perhaps even more exposure to real estate is required to significantly improve returns. Even investing on margin would not alter this composition ratio significantly, though it would aid in the relatively much lower ROI of the stocks portion.
• Faster progress is dependent on increasing my earning power and an economic recovery in Alberta to allow that opportunity, especially the opportunity to complete my apprenticeship to finally break the trucking and operator income ceiling of around $100,000 - 130,000. Fort McMurray or oil town incomes are higher, but as well as living costs, and living quality declines.

Five years later, this puts me at age 28. Overall I can conclude that the oilfield work, 3 property, and gradual stock addition strategy will achieve my objective. I am so far, on schedule.

Nevertheless the experience was the most valuable, not the toys and assets. I’ve grown into a different man. More of an asshole, but blunt and honest. Physically and mentally often unrivalled in discipline and strength. Heart powerful enough to choose my future over a questionable woman. True to my word and determined to fight to the end. My financial literacy and experience, job experience and skillset, and life experience, have all increased dramatically to an extent many of my competitors back home could not match in 10 years. Now if they do ever get close, my current objective of 3 properties, stocks, journeyman ticket, and a Ferrari by 30 is only the beginning. But for now, let’s keep it at that.