Our house is busy! We have 3 kids between the two of us and the youngest is only 1. I have struck a wonderful balance for myself - I think. I get up before everyone in the house and get myself ready for the day. I hate getting up early but this is a small sacrifice if I am to weigh the options. If I get up at the same time as my kids I have to struggle to get them ready and myself ready at the same time. This inevitably leads to me yelling and us all being late. If I get up 1/2 an hour before the kids I can have my shower in peace and it sets a nice tone for the rest of my day. I cannot stand yelling at my kids, freaking out and being late. This is horrible for the cortisol and adrenaline levels and sets the stage for a chaotic day. I drop both of my kids off at Montessori School at 8:50 a.m. and then I have 3 free hours to get done what I need to get done. This could be work, groceries, dry cleaning, banking, etc. Then at 11:50 a.m. I pick up my son to get him home for lunch and nap. When I pick up my son I get to see my daughter playing in the yard with her friends. She is such a cool kid. She is always running around, laughing, and playing with kids of all different ages. I get my son home just in time to give him his lunch and get him down for his nap. Once he is asleep I do the laundry and ironing and prepare all of the ingredients for our nutritious home cooked meal that I will prepare later in the day. The preparation in the daytime is key, otherwise I will not have enough time once the kids are home and it will end up being another night of take out! At 3:30 p.m. my son wakes from his nap and we get dressed and go pick up my daughter at school at 4:15 p.m. When we arrive home the controlled chaos starts. I enlist my daughter to help watch my son while I cook dinner. He is into everything so he needs a constant set of eyes on him. Then my husband and step-son roll through the doors awaiting their warm meal. We all eat, I bathe the kids, do homework, get the baby to bed, prepare bedtime snacks, get the other 2 kids to bed, make lunches, empty the dishwasher and once again return to my laptop to check on the days work and see what has happened since I last looked at noon! I answer all of my e-mails from the day, send out all of the things I promised to people and then spend my last waking half hour with my husband.
I don't check e-mails between 4-8 p.m. I don't answer the phone and I rarely answer text messages. I don't look at my computer, blackberry or the TV. I feel like I am performing surgery between the hours of 4:00 and 8:00 p.m. and if I take my eyes of the patient (my kids and household) things could very quickly spiral out of control. It only takes one minute to burn my supper that I sacrificed my nap time to make :) It only takes a split second for my son to fall of the couch and crack his head open on the floor. It only takes 5 minutes of me not listening to my daughter's day to bruise her self-esteem. It only takes 5 minutes of me brushing off my husband to destroy our intimate connection for the next 24+ hours. And it only takes 2 minutes for the house to become a complete disaster zone if I don't stay on top of the cleaning of the dishes, emptying of the lunch boxes and school bags, and tidying of the toys. And if that happens I am completely stressed and useless to my family.
I am honoured to be a mother and I take the job seriously. I have been criticized for "checking out" of the world and not answering the phone during the late afternoon and evening hours but I won't change it. If you need me, you can call me in the morning or while my son is napping. I was a social worker for 6 years and the one thing I took away from that career was that the greatest good I can do on this earth is to raise independent, self-respecting, productive children. And to do that I must take care of myself, first and foremost, because if I don't, what good will I be to them? We will always project our insecurities, failures, and unfulfilled expectations onto the ones we love so, as a mother, I must create the greatest life I can for myself because, after all, children learn primarily by example.
Saturday, November 5, 2011
Sunday, January 2, 2011
Investing in Real Estate
My mother loses her mind every time I tell her I want to buy another property....and she would lose her mind even more if she knew I had not a dollar worth of RRSP's saved up for my retirement.
I am not a Certified Financial Planner (CFP) but I have been around the block enough to know that investing in real estate can be a secure way to retirement with higher returns than most RRSP investment plans I have ever seen.
I think of my grandparents. They bought a house on Dovercourt Ave. in Ottawa for $16,000. That's right $16,000! They lived there for 20 years or more and made very little upgrades to the house except for the usual maintenance like a new roof, furnace and windows over the 20 year period. When they sold it, it still had its original cabinetry, flooring, etc. They sold that house for over $350,000!
Now let's forget about this example and use some simple statistics.
Let’s say you have $50,000 to spend on an investment.
Option #1 - RRSP
One option is to buy a $50,000 RRSP. You hold this long-term investment for approximately 15-20 years, at which time you decide to retire. The “rule of 72” for investing purports that an investment will double its value in 7.2 years at 10% interest. If your RRSP earned 10% interest, it would double twice in approximately 14.4 years. Therefore, your original $50,000.00 would have increased to about $200,000.00 at the time of your retirement.
At retirement, you decide to use your RRSP as income, which is taxed at your retirement rate of taxation. What do you think your rate of taxation will be at retirement? For example, if you think your rate of taxation will be 30%, your $200,000 will be worth $140,000. If you think your rate of taxation will be 50%, your $200,000 will be worth $100,000.
Don't forget you have to pay tax on that money sometime! Hell, if you are an entrepreneur like me I would venture to say that by the time you hit so called "retirement" all of your ventures should be yielding you a nice profit by then and you might be in your highest tax bracket ever. Here's hoping for me :)
Now let's look at putting your initial $50,000 into real estate instead.
Option #2 – Real Estate Investment Property
Let’s say you find an investment property in the Ottawa area for $200,000. You use your $50,000 as a down payment on your property. You charge enough rent to pay for the mortgage payments, insurance, property taxes, renovations, and potential vacancies. The tenants pay all utilities. After approximately 15-20 years, you are ready to retire. The mortgage has now been paid in full (by your tenants over the years). At this point you have two options:
1.The first option is to continue to rent the property and keep the rental profit as monthly income.
2.The second option is to sell the property and use the profit as retirement income.
Let’s say you decide to sell the property for $200,000. The entire $200,000 is tax free, since there was no capital gain on the sale of the property (you bought and sold it for the same price). This example assumes that your property is still worth $200,000. Unless we are in another great depression it is highly unlikely that you would sell the house 20 years later for the same price you bought it for, right?!?!?! Statistics obtained from the Ottawa Real Estate Board show that since 1956, the average increase in value for a property over 15 years was 99.41%.
If you sell the property for higher than you bought it for, you will realize a capital gain and pay tax on ONLY the profit. For example, selling the property for $400,000 (this is a realistic amount considering the statistic mentioned earlier) will give you a capital gain of $200,000. Today’s income tax rules charge capital gains tax at your current tax rate on 50% of your capital gain. In this scenario, you will be charged tax on $100,000 (50% of $200,000 capital gain). Assuming a tax rate of 50%, you will pay $50,000 in income tax. This is not bad considering you have the remaining $350,000 to $370,000 in your pocket!
Now, let me remind you that there is no such thing in life as "easy money". Having investment properties does not come without their fair share of potential problems. Being a landlord is a "job" and you cannot just sit back, relax, and make money. One could argue that RRSP's allow you to just sit back, relax and make money.....but that would be too boring for me :)
I am not a Certified Financial Planner (CFP) but I have been around the block enough to know that investing in real estate can be a secure way to retirement with higher returns than most RRSP investment plans I have ever seen.
I think of my grandparents. They bought a house on Dovercourt Ave. in Ottawa for $16,000. That's right $16,000! They lived there for 20 years or more and made very little upgrades to the house except for the usual maintenance like a new roof, furnace and windows over the 20 year period. When they sold it, it still had its original cabinetry, flooring, etc. They sold that house for over $350,000!
Now let's forget about this example and use some simple statistics.
Let’s say you have $50,000 to spend on an investment.
Option #1 - RRSP
One option is to buy a $50,000 RRSP. You hold this long-term investment for approximately 15-20 years, at which time you decide to retire. The “rule of 72” for investing purports that an investment will double its value in 7.2 years at 10% interest. If your RRSP earned 10% interest, it would double twice in approximately 14.4 years. Therefore, your original $50,000.00 would have increased to about $200,000.00 at the time of your retirement.
At retirement, you decide to use your RRSP as income, which is taxed at your retirement rate of taxation. What do you think your rate of taxation will be at retirement? For example, if you think your rate of taxation will be 30%, your $200,000 will be worth $140,000. If you think your rate of taxation will be 50%, your $200,000 will be worth $100,000.
Don't forget you have to pay tax on that money sometime! Hell, if you are an entrepreneur like me I would venture to say that by the time you hit so called "retirement" all of your ventures should be yielding you a nice profit by then and you might be in your highest tax bracket ever. Here's hoping for me :)
Now let's look at putting your initial $50,000 into real estate instead.
Option #2 – Real Estate Investment Property
Let’s say you find an investment property in the Ottawa area for $200,000. You use your $50,000 as a down payment on your property. You charge enough rent to pay for the mortgage payments, insurance, property taxes, renovations, and potential vacancies. The tenants pay all utilities. After approximately 15-20 years, you are ready to retire. The mortgage has now been paid in full (by your tenants over the years). At this point you have two options:
1.The first option is to continue to rent the property and keep the rental profit as monthly income.
2.The second option is to sell the property and use the profit as retirement income.
Let’s say you decide to sell the property for $200,000. The entire $200,000 is tax free, since there was no capital gain on the sale of the property (you bought and sold it for the same price). This example assumes that your property is still worth $200,000. Unless we are in another great depression it is highly unlikely that you would sell the house 20 years later for the same price you bought it for, right?!?!?! Statistics obtained from the Ottawa Real Estate Board show that since 1956, the average increase in value for a property over 15 years was 99.41%.
If you sell the property for higher than you bought it for, you will realize a capital gain and pay tax on ONLY the profit. For example, selling the property for $400,000 (this is a realistic amount considering the statistic mentioned earlier) will give you a capital gain of $200,000. Today’s income tax rules charge capital gains tax at your current tax rate on 50% of your capital gain. In this scenario, you will be charged tax on $100,000 (50% of $200,000 capital gain). Assuming a tax rate of 50%, you will pay $50,000 in income tax. This is not bad considering you have the remaining $350,000 to $370,000 in your pocket!
Now, let me remind you that there is no such thing in life as "easy money". Having investment properties does not come without their fair share of potential problems. Being a landlord is a "job" and you cannot just sit back, relax, and make money. One could argue that RRSP's allow you to just sit back, relax and make money.....but that would be too boring for me :)
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