Author: Mr. Cheap

Categories
Announcements

Switching to Weekdays Only

I’ve been posting daily for the last couple of months, and judging from my more experienced fellow PF bloggers, this is a tough pace to maintain. Viewing this as a “marathon rather than a sprint” I’ve decided to pull back to weekdays only. Hopefully this will improve the quality of individual posts (or not) but should certainly help me keep posting longer without getting burned out (which I’m not feeling or worried about yet, but maybe its better to try to switch to a more reasonable pace while I’m still feeling good about it). Besides which, since my traffic drop significantly on the weekends, this should save my Monday readers from having to plow through 3 days of my drivel ;-).

I get the feeling that other bloggers really do “write every post on the day”, while I’ll often write a few days posts at a time when I’m feeling creative, then queue them up for posting one per day. Is this a blogging no-no? What is people’s motivation for writing daily?

I’m going to lump in holidays with weekends, so after today’s post, see you next Tuesday!

Categories
Personal Finance

Retiring Overseas

I’ve toyed with the idea of retiring outside of Canada as a way to get more “bang for my retirement buck” or to retire sooner then I’d be able to here in Canada. I’ve met and read about people who really seem to be able to be able to do well by setting up camp in places where a modest Canadian passive income goes a long ways.

A friend of mine has an uncle who retired to Thailand. He’s living the good life with a 35 year old girlfriend (he’s in his late 60’s). According to him he’s able to live like a king on his Canadian pension. Most people would worry about health care in developing countries, but apparently the care is exceptional in Thailand, and its always possible to get evacuation protection where they’ll bring you back to Canada in case of serious emergency complications.

My brother some time ago talked about going to Buenos Aires for 6 months to study Spanish and learn how to surf. They call it the “Paris of South America” and apparently it has gorgeous architecture and cafes with very low prices. I’m tempted to steal his dream vacation and go set up camp there for a while, how sweet would that be?

Apparently some American plan to move to Nova Scotia, buy ocean-front property, and live the good life on the cheap. Being able to sell a condo in Toronto and use the proceeds to buy ocean-front property sounds like a pretty good deal to me!

Some people talk about retiring to Mexico, and I think that could be a retirement (as long as you weren’t in an area where they like to kill Canadians 😉 ).

My “requirements” for where I live are fairly basic. I’d need air conditioning if it gets hot at all (I won’t even live in Toronto without AC during the summer). I’d need high speed internet. And I’d like to be able to eat sushi occasionally.

In Tim Ferriss’ “The 4-hour Workweek” he recommends Buenos Aires, Madrid, and Berlin as places that you can have a really nice lifestyle for a comparatively low price.

Anyone have other ideas for places where you get a great lifestyle for a low price?

Categories
Book Review

The Investment Zoo by Stephen Jarislowsky

It always bugs me having junk around in my life. In my youth I was quite a “book horder”, and have forced myself to keep the number of books I own to a minimum (my new trick is unless I *LOVE* a book, I try to give it away to someone who’ll enjoy it). I find it hard to get rid of books that were given to me as a gift, but I definitely accumulate them if I let myself.

I just got a Toronto library card and am kicking myself for not having got one sooner. It’s a perfect compromise of being able to get books I want to read, for a low price (Mr. Cheap likes free!) and I can give it back to the library and get it out of my life after I’ve read it. I’m pretty sure there’s even a way to get the library to bring in books you want to read (I haven’t figured out this process for the Toronto library yet, but I’m sure it’s there).

I’ve been meaning to read Investment Zoo since a few of my fellow PF bloggers made reference to it, and I finally bit the bullet, got a library card, and tore through this very readable book.

Overall the book was interesting, although I found it unfortunately a little light on specifics. A big chunk is devoted to Jarislowsky’s life, which while interesting, seemed to go beyond his stated purpose of “why the reader should listen to him”. I think a page or two would have been enough for that, and he could have written up his recollections of doing well in school and whatnot in a separate biography.

Another chunk which was interesting, but of limited value to me, was advocating getting to know senior management in the companies you invest in. Unfortunately, I think the chance of Rothman’s giving me a personal tour and answering my questions when I was debating putting $5K into their stock is pretty slim. I think if I was to do this every time I was thinking about purchasing stock it would become VERY hard for me to have any diversification at all. I think he could have put this into a another separate book targeting money managers.

I think he had some excellent thoughts on financial planners and mutual funds. I liked what he had to say about dividend paying, blue-chip stocks (it certainly reassured me about my strategy). I was also happy that he gave a nod to tobacco and explained why litigation worries were unfounded (his thinking is that any legal expense will be passed along to the consumer – since tobacco is an inelastic good).

Jarislowsky’s thinking about living below your means and intelligently giving money away were both interesting. I loved his idea of purchasing university chairs and getting matching funds from the university and the government as the best “bang for your buck” with charitable giving. One of the things that has kept me away from charitable giving is that I really feel the only “value for money” is that I’d feel good about myself for giving (and the non-profit would promptly squander whatever I’d given them on administrative costs). I’ve been VERY unimpressed with everyone I’ve ever met who works in the non-profit sector, they’re definitely not the type of people I want to give money too (bloody socialists). Education, however, is something I passionately believe in. A friend is hoping to go to Africa and set up a school in a few years time, and that seems like something I could get behind (and would be more affordable then a $1M university chair which is a little out of my budget right now).

I’m reading (and enjoying) “The Intelligent Investor” right now. Investment Zoo was a FAR easier and faster read. If you’re looking for light PF reading, I’d recommend it.

If you would like to order this book or any other books, then click on a banner below.

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Categories
Personal Finance

Retire at Sea

Quite a while ago I came across what seemed to be a clever/strange idea. With the price of nursing homes constantly going up, a more cost-effective retirement would be to become a long-term “guest” of a cruise line.

Barbara Mikkelson gives an excellent overview of the pros and cons of this lifestyle, but to summarize:

Instead of being ignored in a corner and only having other deaf old people to socialize with, you’d get to travel through the world, have attentive staff helping you, enjoy a wider variety of special activities, eat better food and have access to all the necessities (doctor on board, etc).

The trade off is you couldn’t have a pet, visits from family and friends would be harder to arrange, and the social group around you would always be in flux (as customers and employees were added and left the ship you were on). Some people would view this as a negative, but some would view it as a positive.

Either way, its chilling to think about getting to a point in life where it’ll cost $200 a day to live ($73K / year would eat into most people’s savings in hurry).

Categories
Investing

Is The Stock Market Efficient?

Everything I’ve read about the stock markets being efficient makes sense to me. Tons of people spend lots of time, money and energy trying to make money buying and selling stocks. This would naturally lead towards the belief that arbitrage (the chance to make money through a price discrepancy) is impossible, or would only be present for very small amounts.

Efficient market hypothesis

Some people take the perspective that you can rely on this to always buy and sell at a fair price. If a stock drops 25% the day after you bought it, there’s nothing you can do, as its new price is what it’s worth. Tomorrow it could go up or down. Same if the stock went up 25%, there’s no reason to “lock in your gains” as the stock doesn’t know that you own it and it’s pretty well impossible for you to know what will happen next (before the price reflects any news or possibilities).

Financial Jungle wrote a very insightful post called “Must All Trades Be Zero-Sum” where he argues that because investors have different circumstances, how could the market efficiently price all stocks for all of us?

As a simple example, Canadian dividends are given a very generous tax consideration for Canadian citizens. As I write this, the market feels that Bank of Montreal (stock ticker symbol BMO) is worth $21.03 / share. How can it be worth the same price to me, with a juicy tax credit credit, and to an American who is going to get taxed differently on it?

For that matter, how can it be worth the same price to someone in the lowest tax bracket in Canada vs. someone in the highest tax bracket (who would obviously place more value on the credit)?

Beyond this, institutions should have their own set of considerations for what to buy.

Different investment goals should affect the price, but obviously don’t. I’m a buy-and-hold, long-term, dividend-income investor. I’m going to value a stock for different reasons than a day trader would.

I’m certain there is a way to figure out what you value, then determine where the market undervalues this.

Great food for thought Financial Jungle, thanks for your post!

Categories
Personal Finance

Financial Advice for the Young

While digging through Larry MacDonald’s archives, I came across a post where he talks a bit about young investors. He eloquently articulates what I am trying to do right now to accomplish an early retirement.

His advice is to live WELL below your means (he suggests 40-75% of income) instead of the typical 5-15% for a few years when starting out. You won’t miss the lifestyle (since you’ll keep living the way you were before), and by delaying starting a high-consumption lifestyle, you’ll build a nest-egg that will give you many options down the road.

I’ve basically been living this way since I graduated from university. Instead of rapidly building up a nest-egg, I’ve used the low-cost lifestyle to have periods of travel, school and not working (and not working on my own steam, not by using welfare or social assistance or anything like that – I’ve always stood on my own two feet).

I’m hopeful that I might be able to spend a few years, build up the nest egg, then do whatever I want with the rest of my life.

Its always nice to come across someone who seems thoughtful and intelligent who thinks the same way you do :-).

Categories
Frugal

A New Week In The Life

After a lively discussion broke out in my “About” section where Money Gardener and Four Pillars were shocked at how cheap Mr. Cheap really is, I figured it might be time to update my cost of living calculations.

My monthly fixed costs are the same:
Rent – $440 (half of $880 rent paid by gf on 1 bedroom apt)
Cable – $40
VOIP – $22.45
locker – $12.50
phone+internet – $40.25
transit pass – $99.25
Cleaning – $45
Total: $699.45

I’ve been carrying around a notebook with me and writing down every time I buy something. I enter this into an Excel spreadsheet at night and track my average daily spending (and multiply this out to estimate my variable spending on a monthly basis). I’ve severely tightened up my food spending (I bring my lunches to work now, have started shopping at No Frills, and am taking my girlfriend out for dinner a lot less). I’m spending around $14 / day on food (~$420 / month). Additional spending accounted for about $6 / day ($180 / month).

Added together, my monthly cost of living seems to be around $1300.

These are obviously estimates, not a hard and fast budget. I purchased my ticket to NY before I changed my eating habits, so this level of spending basically assumes no travel (I expect my “daily spending” will shoot up after the NY trip). With a little work I think I *may* be able to get my food spending down a bit (I’m hoping to hit the $60 / week that the “average” single male supposedly spends).

What does welfare pay a single man in Ontario? My girlfriend and I guessed around $800 (we were both wondering how my level of spending would compare to people on social assistance 🙂 )

Categories
Real Estate

Getting Started With Investment Real Estate – Part 8

To start at the beginning – please see part 1 of this series.

As detailed in the previous posts of this series, I bought a condo in late 2006, fixed it up (new floors, new electrical sockets and a heavy paint job) and found tenants. All the gurus and real estate TV shows use funny math to show how “you can’t lose at real estate”, so here I’d like to lay out, as close to the penny as possible, what my investment has looked like over the last 6 months.

In retrospect I wish I’d kept a journal of how much time I spent, as that’s obviously a consideration. I’d give a rough estimate that I’ve put 40-80 hours of work into finding the condo, supervising the contractors, showing it to tenants and doing repairs. This is a VERY rough guess. The hours weren’t in discrete blocks (1.5 hours here, 3 hours there), so don’t consider it work “equivalent to a work week or two”.

I purchased the condo for $126,000. I made a down-payment of $34,160.57 which includes a 25% down-payment, and closing costs, which were $2,308.19 (legal fees mostly). $34,160.57 is more then 25% down plus the legal fees, which I’m not 100% where the extra $352.38 went (maybe mortgage fees, I’m not 100% sure right now – I know I got a small check back from the lawyer, the SOB made me pre-pay his fees, but it was certainly less than $352.38). Renovations (including labour, materials, condo fees during rehab and mortgage interest) were $10,551.41. As percentages, closing costs were 1.66% of the total purchase, and rehab costs were 7.6%. Ignoring the cost of selling (5% agent commission plus legal fees), my break even sale price would have been $138,859.60. Given that comparable units have been ASKING for $155-165K over the last few months (the rule of thumb supposedly is that condos in Toronto sell for 96% of asking), I’m quite pleased with the cost of purchasing/fixing this unit.

In case you’re wondering how I got such a deal, the place looked REALLY bad when I first saw it. There wasn’t any floor (bare concrete), the walls were an electric blue colour, and had gashes in them. The seller took the perspective “why put more money into something I’m trying to sell”. While I understand that perspective, the condo had sat on the market for over 6 months (and he’d moved, so he was losing $500 / month in condo fees), and everyone who looked at it just viewed it as buying a problem they’d have to fix. He had to drop the price far more then repairs would have cost in order to sell it to me, and he shelled out quite a bit of money over the time period when it wasn’t selling. I’m not a “flipper” at all (I’ll probably post more about this in the future, but I basically think its a suckers game where people convince themselves they’re making more then they actually are), but if you can accurately estimate the cost of repairs (not as easy as it sounds unfortunately), there are certainly deals to be had on run-down properties.

I saw another condo recently that was in even WORSE shape, and I put in a low offer, hoping to pick up another “fixer-upper”. The seller kept insisting on wanting market value for the unit (even though it would have cost $15K to get it into “market value” condition), so I obviously walked away from that deal. So the other factor to keep in mind is that not all run down properties are a good deal. You’re a sucker if you pay market price for a property that needs extensive work. You’re a sucker if you pay market rate – cost of repairs for a property that needs work (you’re accepting the risk of repairs being more expensive then expected and doing the supervision of the repair work without compensation).

I tried to rent it at higher amounts, but in the end rented it for $1300 / month. My condo fees, insurance, mortgage INTEREST and property taxes come out to $1,042.87 / month, so I have a positive cash flow of $257.13.

When I calculated JUST the down-payment and reno costs, I came up with a cost of $43,811.68 over the first 6 months. Using the $257.13 monthly profit (which already accounts for the mortgage interest, condo fees and other ongoing expenses), this gives me a ROI of 3.51%, which would work out as an annualized ROI of 7.03%. This assumes I was making the $257.13 since purchase, which I obviously wasn’t, and also assumes there will never be any unexpected costs in the future (which is equally absurd).

This may not seem so great, but firstly this was a learning project for me (so part of the costs/benefit is my “tuition”). Secondly, this ROI is JUST based on the monthly cash flow, if I bought at a bargain price (which I believe that I did), I should also get a satisfactory return on the sale price. Thirdly, if real estate appreciates, this will increase the difference between my purchase price and the sale price. Fourthly, there will be positive tax implications (I can depreciate the property in order to defer taxation). Fifthly, inflation should increase rent, which will increase the monthly cash flow (and decrease the cost of my mortgage). And finally, as my mortgage gets paid down, less of each payment goes to interest (which also increases the monthly cash flow).

In case you read the previous paragraph and are planning to run out and buy all the real estate you can find, the risks in this investment include: future vacancies, difficult tenants (damaging the unit or making demands which will cost lots of time/money), legal liability for any problems resulting from the property, a real estate market crash, and high interest rates when my mortgage comes up for renewal (in 4.5 years).

With my current cost of living estimate, I believe that I could cover my living expenses with 4 more similar properties. If it was possible to get a better deal, or to get a similar deal with less cash invested, I might be able to do it with less. Therefore I am potentially $175,246.72 (4 x $43,811.68) away from retirement.

This concludes the “Getting started with investment real estate series” – feel free to check out the real estate archives for more article on real estate.