Net Worth Update April 2016 – Karl the Real Estate Agent (+6.9%)
Welcome to the Million Dollar Journey April 2016 Net Worth Update (a little late, sorry!) – Team MDJ edition. A select group of readers were selected to be part of Team MDJ which was conceived after my million dollar net worth milestone was achieved in June 2014. Karl the Real Estate Agent was selected as a team member and will post net worth updates on a regular basis. Here is more about Karl.
Profile:
- Name: Karl
- Age: 34
- Day Job: Employed as a Real Estate Agent Full Time.
- Family Income:
$130,000$150,000 (Personal full-time job); $15,600 (rental income before - expenses); and,
$50,000$100,000 (spouse full time job). - Goals: Mortgage paid off by 36, million dollar net worth by 40.
- Notes: Almost all of net worth is in the real estate market (principal residence and rentals).
It has been another great quarter for me and my wife professionally which has enabled us to advance towards our goals. Since my last update, we managed to put a substantial amount of money towards the house as well as finish some of the renovations our home desperately needed.
My mortgage was due for renewal and I was able to put the large lump sum down from my business account without penalty. We also put a home equity line of credit (HELOC) on it in case there are any good purchases out there in the coming years. The last of the renovations were done prior to my mortgage renewal to maximize the credit limit on the HELOC.
I know some people will be upset but I will be adjusting the value of my property now to $550,000 which is still conservative as my home would most likely sell for $600,000 in this inflated market we are in.
Notable Changes Since the Last Update:
- TFSA down big on low oil
- Continued to double up mortgage payments
- Renegotiated mortgage
- Paid Corp Taxes from Business account
- Still haven’t set up wife’s TFSA
Before the next update, I need to setup my wife’s TFSA and max mine out with the new increase. (STILL HAVEN’T DONE THIS. NEED TO GET GOING.)
My spouse and I currently live in our fourth personal residence since entering the real estate market in 2006. We used to move around town when I was able to find a decent deal to buy. That has all changed now with two kids (4&6), so now my real estate investing is done outside our principle residence. I currently own one rental semi-detached 3 bedroom in my personal name.
In terms of savings, I’m automatically making bi-weekly deposits into my TFSA to max out the year but I still have plenty of room left. However, my wife’s account hasn’t been fully funded over the years. I’m looking forward to learning more about investing in securities and transitioning away from rentals as they are extremely labor intensive investments that take a lot of time away from my family.
The biggest financial challenges that we face are a lack of budgeting and a lot of discretionary spending. Having the majority of our household income being commission based and somewhat seasonal has been a battle since day one.
Net worth numbers:
Assets: $ 799,674 (-10.02%)
- Cash: $1,900 (-56.42%)
- Registered/Retirement Investment Accounts (RRSP):$6,104 (-4.62%)
- TFSA: $11,670 (+6.09%)
- Business Account : (Closed)
- Real Estate Deposits : (Returned)
- Rental Property 1: $230,000 (purchased in 2009 for $167,000 price adjusted for average selling price annually) (+0.00%)
- Principal Residence: $550,000 (purchased in 2012 for $350,000 price adjusted for average selling price annually) (+10.00% )
Liabilities: $263,541 (-31.95%)
- Principal Residence Mortgage: $131,747 (-45.17%)
- Rental Property 1 Mortgage: $129,541(-2.27%)
- Rental Property Line Of Credit: $20,000 $0 (-100%)
- Principle Residence Line Of Credit: $0 (-100%)
- MasterCard: $3,000 (+66.66%)
Total Net Worth: ~$536,133 (+6.90%)
- Started Jan 2014 with Net Worth: $249,924
Some quick notes and explanations to common questions:
The Cash
Any cash I have in my chequing account is currently used to pay monthly bills and living expenses. All paycheques are deposited into our chequing account and is our primary household account that everything runs through so the cash amount fluctuates.
The large cash amount sitting in my business account is what I have from liquidating my rental and land and will be used to finance the next piece of land I am looking at. If I haven’t found anything by May 2016, I will put it on my principle residence and setup so I can access it as a LOC
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Sorry for the delay. Thanks so much for the comments. I agree with almost everyone about being in way to deep in real estate. I can’t deny it. One of the reasons I fought so hard to get on team MDG is so I could learn the market investing more and I have ignored that up to this point as my sole focus was to pay of my mortgage so I’m in position when the market does correct I don’ t have that drain on the bank account when my wage is reduced. Funny enough it was last week that my renewal was up and I paid the mortgage in full. What a feeling!! I know people at length have said to put the money elsewhere and not on my mortgage as it makes more sense numbers wise but this was a massive motivator for me and I wouldn’t change it for anything right now. Next step is to avoid the traps that come with it. (New cars, vacations, pools, etc.) Hopefully I can stay on track and reach that $1,000,000 mark before 40!
That being said I’m committed now to getting some of those tax breaks and maximizing my contributions. Between me and my wife I currently have a ton of TFSA room to hopefully max out this year and then on to the RRSP’s.
Thanks again everyone for your insight.
Some good sensible comments already made. I wouldn’t say your money is “locked up” in real estate as a line of credit or mortgage can easily pull money out of a property whenever it’s needed.
+1 RESP with 20% govn’t match as mentioned. FYI govn’t will match up to 200% of annual limit so you can double up payments per child if you start late. We have a self directed RESP setup at TD.
We ended up paying off our mortgage at age 36 (~4 years ago). In hindsight if we knew rates would stay so low for soooo long we probably would have planned it a bit different. However paying off a mortgage is 100% risk free, very easy, and does wonders for your state of mind.
We are now debt free and continue to work on increasing our other investments (which were relatively healthy despite accelerated mortgage payments). RRSP, TFSA, Market Exempt, RESP, employee stock purchase plan. Am planning a relatively safe Market Exempt investment into a RRSP this year (all other ME are in TFSA).
For those interested, ME investments are in Alberta Multi family dwellings, Las Vegas townhouses, and BC short term lending/loans.
i don’t see anything wrong with holding a significant portion of real estate given the current market and how liquid it is in some markets like the GTA. Can’t recall where Karl is from, but cashing out should not be an issue. Wish I had invested more right about now, but hindsight is 20/20 as they say.
The real bummer about having all your money locked up in real estate is you can’t get it out. I’m debating selling in this hot market and renting for a few years. Might be nice to try a few different locations and housing styles. Plus I’ll use the house proceeds to max out my TFSA and RRSP.
Random question for anyone reading this: Shouldn’t the rental property mortgage be paid off the least amount possible (or interest only)? The interest on the rental mortgage would be a tax deduction, no?
” Shouldn’t the rental property mortgage be paid off the least amount possible (or interest only)? The interest on the rental mortgage would be a tax deduction, no?”
Good point, this is my understanding as well. Unless you perhaps you have a small business running out of your primary residence in which case there are tax implications there too. Care to comment Karl?
Stop paying down your mortgage so quickly! To echo the other comments, you need more liquidity! In all likely hood your mortgage rate has never been so low, (2.3%-2.8%)?? You’re missing out on investment opportunities. Consider the tax deduction with RRSP contribution? RESP? Guaranteed 20% return with CESG. It’s very easy for you to find dividend paying stocks that will yield higher than your mortgage rate. Also, you need to diversify outside of real estate. Your net worth and primary income are dependant on a single industry.
Talk about putting (almost) all the eggs in one basket… Kinda sad, not to mention extremely dangerous. But then again, at 34 they can afford to lose a bunch and still have time to recover. I myself was not much smarter at 34. :-)
We are up for our new mortgage and am just wondering if we should go for fixed or variable. 2 year, 3 year of 5 year. What do you have?
Thanks!
I know you’re committed to the real estate investing thing, but I’d seriously consider diversifying. Specifically, if I was you, the lack of liquid wealth would scare me. $350,000 of your increased asset value is generated from real estate ‘mark-to-market’ adjustments – $200,000 is from your primary residence. You will not realize that value unless you sell and rent or sell and move to a cheaper area. Both sound unlikely given your comments on your desire to move now that you have two toddlers.
I’m not trying to be overly critical here. I think the fact that you have a plan already makes you better off than 90% of the population. My viewpoint is that you are almost certainly going to do well long term and your financial security is probably one of the most important things to you. Why would you even take a chance of losing that? The chance I’m referring to is your exposure to real estate. Your balance sheet is highly levered to it. Your primary source of cash flow (your job) is also dependent on it. If real estate goes south, you could be in for a world of hurt. That doesn’t mean you can’t go heavy into real estate. But you should consider structuring your financial affairs so that you can withstand any potential downturn. Never depend on the good will of others (creditors) to ensure your financial security. My humble opinion is that you are not there.
Thank you for the update.
PS – General comment for FT on these Net Worth Profiles: Now that there are so many ‘MDJ’ profiles, it would be helpful if they included a graph or balance sheet of their net worth over time. Would make it easier to remember and track their progress.
Good idea Steve, I will look into creating a graphical representation of their progress.
Great work on the home mortgage. That’s at a very comfortable level now. I would start to focus on building up your savings, as your RRSPs are pitiful.
I assume you have RESPs set up for the little ones? Balance should probably be in the 10-50K range by now. I don’t think it belongs in the net worth, but it is nice to keep track of.