Posted by Dave on August 17, 2010
I had a very odd week last week – two people asked me to become involved in real estate deals. I don’t know if I had given the impression that I had a bunch of cash laying around, or I just look like someone who would like to own Real Estate but on the weekend, my step-brother asked if I was interested in getting involved in flipping a house with him – he had located a property that required some work, but thought it could be bought for approximately $150,000 and sold for $250,000+ as soon as the work was complete.
On Wednesday night, my dad called telling me about this great property next door to his house that was a steal and I should think of buying. This property was 50 acres, with a large pond, woodlot and about 8 acres of “workable” land and would cost me $135,000. My dad thought that within around 5 years this place may double in value as there are very few small plots of land like this in the area (Most are either only 1 acre lots, or significantly larger farms).
I turned down both “opportunities” politely, for the following reasons:
1.) I don’t have any money sitting around – all available income is going towards paying down my mortgage and saving for a new car that needs to be purchased at some point in the next 8 to 10 months (my wife would like to learn to drive but will not drive my 5-speed manual transmission).
2.) At this point in my financial plan I’m more interested in reducing my fixed monthly expenses than I am in making significant cash gains in Real Estate.
3.) I barely have time to look after my own house right now, let alone another property. My current house is a condominium which allows me to basically come and go and not have to worry about cutting grass, shovelling snow, or looking after the exterior. Taking on a new property would mean I would have to give up some of my weekend activities, which is something I’m not all that interested in doing.
My wife and I are not adverse to making money – we just thought we’d get more enjoyment in five years having no mortgage than we would making the investments in real estate right now.
What my money decision basically came down to was that I have a plan that I am comfortable with and getting away from this plan, although not catastrophic, could lead to a delay in my goal of financial independence. I am willing to forgo what could perhaps be significant gains in order to stay on my original (and somewhat boring) path to early retirement.
In the end, saying no might be the wrong decision, but I’m comfortable not taking the risk at this point in my “plan”. I may be missing out on great opportunities. Both deals have the potential of leading to significant profits, the house flip within a year or so, and the other property within about 3-5 years. I could be missing out on money that would lead to being several years closer to financial independence.
What do you think – by turning down these investment opportunities, am I missing out? Would you do it, given the opportunity?
Posted by Tim Stobbs on August 4, 2010
The pay stubs are finally in from my first month of reduced working hours (80% time) and I’m only down about $550/month on a take home basis since I conveniently just got a raise which offset some of the reduction. That amount is just about the same amount of extra income my wife will be taking in this fall with some new kids for her daycare.
Of course my wife has some expenses and in the mean time will have lost one older child she used to care for before and after school. Taking those into account we are down overall by about $200/month. On top of that I’m also losing out on some pension contributions since that is tied directly to my salary so that’s another $120 a month. So in grand total overall reductions for our family is $320/month. Which is a lot softer of a hit than I was expecting. My initial estimate for potential loss was closer to $750/month.
With regards to my retirement plan to be free from having to work at 45, well that is an interesting story. I did the calculation, but I won’t bore you with the exact numbers but the results go something like this. During my last calculation set it was starting to look like I would actually be able to retire at 43 rather than 45. Today that has shifted back to 45 so in reality my decision to work less now has cost me 2 years on my retirement date, but put me back to my original goal to be free at 45.
You might wonder how it is possible to take a 20% pay cut and still be mostly on track. It’s because I always do my calculations with several conservative estimates build it. In this case the ones that come to mind are:
- I assume my salary only keeps up to inflation. The reality is I tend to roll over all of my non-inflation raise which was 3% this last year. So this slowly creeps up the amount I’m saving to offset the pay reduction.
- I assume I only get a 5% real return on investments. The reality was I’ve exceeded that at times. The classic example is the TFSA accounts which turned out a stunning 48% average increase in a year (which was from dumb luck).
- I don’t include any extra income. For example the plan does not require me to make any money at this blog or have my wife take on any additional clients beyond what she will have this fall. We just need to keep the base savings the same and anything beyond that just accelerates our goals or can be spent on other things.
Overall I feel a little like a kid who got to have his cake and eat as well. Things turned out much better than I was expecting with this decision. So have you ever had that feeling where things turned out better than you hoped? If so, please share your story.
Posted by Tim Stobbs on June 23, 2010
If you have been reading my Twitter feed you already know this, but for everyone else: my boss said yes to my proposal to drop down to 80% time starting in July. The paperwork is signed and now making its way through the maze called HR. The plan is for me to have every Friday off, so I’ll have a permanent long weekend (if the six month trial works out fine). If things go well my first Friday off will be on July 2, just in time to make a four day weekend. 
I’m full of mixed emotions at the moment about the decision. On one hand I’m happy and the other I’m a bit shocked. I asked to reduce my hours, but in some respects I didn’t really think they would let me do it. After all it’s very unusual to have a guy in their early thirties ask to work part time. I’m not being sexist here, but it is true. There are a couple of woman I know who have done this at my company or perhaps a person close to retirement, but not a young guy with kids.
The other feeling I’m wresting with is being prepared to let go of my dream of retirement at 45. I haven’t done the math yet, but I’m sure this decision will cost me a fair bit of time on the other end. I’m happy to have more time now, but I’m a little unsure about how I’ll adjust to working longer. I’ve been working towards this dream for a long time and to have to potentially let go of it will be hard.
So how much will this cost me? On the surface you would just take my salary and times it by 20% to get a figure of around $15,000 to $16,000, but the really isn’t correct. Since I pay no longer pay income tax, CPP or EI on the that income, my reduction in after tax pay should be closer to $8500 a year. Which if you work it out means I’m buying my time back for almost half of what my salary pays me an hour. Overall I think I’m getting a steal of a deal on that front.
I’m waiting to get my actual numbers from HR to start modeling the fall out of this decision, but being the numbers geek that I am I did some preliminary modeling. The most obviously short term effect is it is likely impossible to meet my mortgage reduction goal for this year. I just can’t make that short fall up, but I will still try to get my mortgage as close to $78,000 as I can. In the longer term I’ve estimated it will take about an extra 6 months to pay off my mortgage. So rather than it being done by mid-2012 I’ve been pushed back that to late 2012 or very early 2013. Overall a modest impact.
Overall I think the choice will be worth it. I’m so looking forward to my summer now with my board work done until late August. So perhaps all of this goes to show, you never know what you can do until you ask. So how about you? Would you give up 20% of your pay for more time at some point in your career?
