Personal Finance

Mr. Cheap’s October Networth

There seemed to be renewed interest in my networth, so I’ll put that back into “the mix”, but preface it every month as being unimportant.

It was a good month to be a Cheap in September (from a financial perspective). I managed to get my last check out of the recruiter (which was quite a trial and may make for a future post). I also got my first check from my new job, so as much as I was worried the “lag time” of pay would hit me, I managed to avoid it.

I managed to save $4062.54. There was also a $739.64 increase in the value of my E*Trade account (this is totally irrelevant, I’m holding these stocks for the long term for dividends, not looking for short term capital gains). My networth increase seems to be pegged at about $4800 (which, to stress for a third time, is totally irrelevant for anything), for a current networth of $91,654.11).

My savings rate is going to start decreasing (because of tax withholding as an employee), but this will also decrease my tax obligation in April, so its all good (as Casey Serin would say).

In September I pursued a variety of long-term, delayed pay-off investments, so unfortunately didn’t make any progress on increasing the proportion of my cost of living being covered by passive income (which currently is at $300.08 or around 26%). My passive income increased slightly because I paid down my margin account due to a false margin call.

I managed to get my cost of living down to $1,151.75 (this decrease is what lead to the “increase” of my passive income paying 2% of my living expenses, which I don’t think is actually going to be sustainable), which will go up after I move into an apartment at the end of October (one of my roommates has annoyed me to the point that I’m moving out). I’m paying $500 / month for a room in a 3 bedroom house and want to find a bachelor for ~$700 / month on the subway line as close to downtown as possible (I work near Union station if anyone wants to suggest a place to live 🙂 ).

One “delayed payoff” investment is my dividends, which are heavily margin-ed now (about 60%). The dividend payments pay off the interest debt (its “cash flow positive” by roughly $33 / month). As long as the dividend payments increase faster then the interest rate raises this should work out well. If it doesn’t, it won’t be a tragedy (I have the income to cover the debt interest). This changed the dividends from being something I was getting a monthly income from, to something that pretty well moves along on its own steam (which I’m optimistic will lead to a higher income later).

The other “delayed payoff” is being a silent partner in a mixed use building purchase (the purchase of which is set to go through in early October). This was $12.5 K so far (which pretty well wipes out my free cash, there’ll be another ~$5 K payment for legal fees). I’m not looking for monthly income from this, as our plan is to save up more in the building’s account, use this to renovate, and convert the building from a rooming house type structure (which it is now) to a bunch of individual apartments (which hopefully will be more lucrative and less work going forward). We’re hoping to immediately change the downstairs bar from being kind of a dive to a higher end place (our ideal clientele would be local business workers going for lunch or an “after work” drink). My “active partner” will be paid 10% of the gross rent for doing all the management (and we’re putting money into the venture on a 50/50 basis).

This is definitely a new sort of venture for me (and hence a bit scary), but my partner is a guy I’ve known for years (he’s been my real estate “mentor” if you’ll forgive the “get rich quick” lingo). I was in his wedding party and have hopes that it’ll work out well (although if it goes belly up, I’ve already categorized this as a “higher risk” investment). He has a wide variety of residential management experience, so I’m also hopeful that he’ll have the background to transition into managing a different sort of residential (rooming house) and commercial (a bar and a retail outlet).

So there’s the “state of the Cheap Union”. My plans going forward (after paying the upcoming legal bill) are to start focusing on my RRSP contributions (looking for about $14K for 2007) and saving to pay off my April tax bill (which I’ll ballpark ASAP to make sure I have enough to cover it). I’m torn between doing a mix of US market / EAFE index funds for my RRSP or getting a couple good US dividend payers (BAC & WM look good right now, and I’d be tempted by something long term like JNJ or KO). I keep advocating index funds to friends and family, so part of me feels like I should actually buy some myself :-).

I’ve mothballed the idea of buying more real estate in 2007. It *might* be possible to get something with a very low down payment (especially now that I have a regular job and am not a contractor any more), but I think the stress of pushing my finances that far wouldn’t be worth the benefits.

21 replies on “Mr. Cheap’s October Networth”

Wow…lots going on for sure. Sounds like things are going well.

If you’re asking for opinions (and even if you’re not ;)), I would also suggest indexing in your RRSPs, especially if the alternative is buying dividend producing US companies. I’m of the opinion that you should have some of your investments in small cap stocks as well. I hold Vanguard Small Cap Index fund in my 401k and I’m quite fond of it (very low MER which is not the case for small cap funds and who wants to stock pick small caps?!).

You mention that your business venture is high risk but beyond that, if you are only invested in blue chips, you might need more aggressive / growth type stocks in your portfolio and less RE (which is why I would agree that you should probably hold off on another purchase).

The cash outlay on your business venture isn’t huge so it’s not too risky. I hope it works out well for you!

Just for the record VTI (Vanguard ETF) has all the US stocks in it, big or small so if you want to get a market weighted position in the US equity market then VTI is your man. Of course if you want to overweight small caps or any other sector then you might need more specific ETFs.

Mr. Cheap – do you anticipate a lot more future investment in your new real estate deal? If you are fixing it up that sounds like it might take some serious capital.


I own both VTI and Vanguards small cap index (don’t know the ticker offhand). I feel the small caps get lost in the VTI so I miss out on growth and feel I’m actually better diversified by owning the small cap index as well.

This seems to be Bernstein’s recommendation as well.

Telly, you are right that VTI doesn’t have a lot of exposure to small caps (by weight) so nothing wrong with topping it up a bit.

Mr. Cheap would have to buy an ETF though as Canucks normally can’t buy US mutual funds (unless they have a 401k I suppose).

I’m not sure if I agree with Bernstein (gasp!) on this one. I know that in the past, small US stocks have outperformed the large cap stocks and that in theory they should outperform because of higher risk – the problem is that because it’s such a well documented fact, I’m thinking that current prices more or less reflect the expectation that small caps will outperform large caps.

Let’s discuss this again in 30 years and see who was right 🙂


That’s exactly the point…it’s all about the long term. Otherwise, it sounds a little like market timing! :O

telly: Financially it was a good month, day-to-day general living: not so much. I agree that small caps are definitely worth looking at!
mike: My partner and I have discussed that, and our hope is to have all renovations and whatnot paid for “by the building”. So we’ll save up cashflow, then do the renos when there’s more then enough to pay for them (neither he nor I want to be putting any more cash into the building beyond the initial investment unless an emergency hits)
mdj: thanks 🙂
TMW: I think that could be arranged :-). I’ll write it up and post it next week hopefully.

Cheap, great savings for the month.

I disagree that your fluctuations in value of your E*Trade account is irrelevant. You decided to invest the money in chunks of companies. These companies fluctuate in value making you richer or poorer.

Would you disregard the value of a $300,000 home that you planned to sell, that was not your primary residence? If you didn’t sell the home for one year and the value went down to $250,000 would you consider that irrelevant toward your net worth?

MG: I would actually (to both questions 😉 ). For my investment condo, I calculate the value, and use it for my “networth”, but that’s all pretty irrelevant (the value and the networth). The core benefit of my condo is that it provides me $250 / month income. Its the stream of profit coming from it that I care about far more then what its appraised at month-to-month or year-to-year (just like the dividend stream is what I’m buying the companies for).

I don’t really have any intention to sell the condo or the stocks any time in the foreseeable future, so because of that their current value doesn’t have a lot of relevance for my financial planning (which ultimately is what my monthly updates are about).

The only time I’d really care about the price of either the condo or the stocks would be if people became willing to pay FAR more for them then the stream of income (say my condo value doubled but the rent I could charge stayed the same). At that point I’d be severely tempted to sell the asset and move the money elsewhere. For both my purchases, I don’t really expect this to happen (the condo is cheap and old, so it isn’t really as affected by market fluctuations as the trendy new condos are and the stocks I own aren’t really the types to suddenly catch fire – unless the nifty-fifty euphoria hits again).

If that value of either dropped my only reaction would be to hope that the income stays at its current level (and that I have the opportunity to buy more).

I have to agree with MG.

Mr. C – it seems that everyone is more interested in your cash flow statement rather than your balance sheet (including yourself). Maybe a good monthly update post should have your expenses, savings and passive income? Net worth could be part of that post or maybe separate?

Just a suggestion!


The core benefit of my condo is that it provides me $250 / month income. Its the stream of profit coming from it that I care about far more then what its appraised at month-to-month or year-to-year

Yes, but only to a point. If your condo were to halve in value, for example, I bet the amount you could charge in rent would come down as well. Renters are savvy enough to know whether they’re staying in a $100,000 place or a $300,000 place, in my experience. So as much as you only really “care” about the monthly income, (not the asset’s price) the former is indirectly dependent on the latter.

Hi Giv, I don’t agree with you since I think rents are determined by supply and demand – the value of the rental unit is irrelevant. As an example look out to Vancouver – the real estate prices have gone through the roof and rents have stayed pretty reasonable.


Hi Giv, I don?t agree with you since I think rents are determined by supply and demand – the value of the rental unit is irrelevant. As an example look out to Vancouver – the real estate prices have gone through the roof and rents have stayed pretty reasonable.

You’ll get no argument from me that what’s happening in housing in Van City isn’t loopy and unsustainable. To me, that’s an anomaly

Your point re: supply and demand is a good one, but i don’t see how we’re disagreeing. I could say the same thing in my favour. I guess what I’m getting at is that the demand for rental housing is conditional on how accessibility of home ownership. Because fundamentally, All but very few people would own some sort of housing if they had their druthers. Most renters are renters because they simply can’t afford to own at that particular time.

This might be a chicken-and-egg scenario, but what i’m saying is, if a condo bought for $300,000 one year was having troubole being sold for more than $200,000 the next, then my reaction, as an owner, would probably be “well I guess I can’t sell into this crash as I’m not getting value for my money. I’ll hold on and rent it out a little longer.”

I just think I’d soon find the amount I could charge in rent would come down too, multiplying my loss.

So if landlords got screwed by a crash (as in the case above) most tenants would view that same event as a buying opportunity — they have a picture in their mind of where they want to live, and at one time it costs $300,000. Out of their reach. If that lifestyle all of a sudden becomes a more attainable $200,000, many of them will say “now we’re talking. now I can get what I want at a price they I can handle.”

If a tenant becomes an owner, it reduces the pool of tenants. Which reduces demand for rental apartments. Which reduces the price for rents.

I get the point of saying “I’m in it for the cash flow” but I don’t see how you can ignore the purchase price. If it dips low enough, there’s just less people out there willing to “flow” you some cash.

At the end of the day, there’s a certain point at which “how much does housing cost” matters to someone who only cares about rental income, because if the former gets low enough, there are simply less people willing to give him the latter, or at least less of the latter.

that’s all I’m saying.

MG: Sorry for the delayed response. You’re 100% correct, income is what I’m after.

GIV: Its funny actually, but that hasn’t been my experience. Downtown condos that rent for $1300 / month easily go for double what I paid for mine. Rent and property value don’t seem to be perfectly correlated. My buddy who answers all my real estate questions often makes reference to certain properties being “good to live in, but no good for renting out” (ie better for owner-occupants than as investments). I think *ALL* sorts of other issues come into play, so it may not be quite as clean of a relationship between the two as you may be thinking… (I agree with you in theory, but suspect it would seldom show up in practice).

but i don?t see how we?re disagreeing.

GIV – I guess we’ll just have to agree to agree?? 🙂

Seriously though, I think a scenario where house prices drop by half would probably mean that either the economy is tanking and/or interest rates are skyrocketing. Either case would lead me to think that renters would be likely to keep renting so the rents might not correlate too well with the house value.


Downtown condos that rent for $1300 / month easily go for double what I paid for mine.

Hell, I’m living in one. We pay $1500 a month and the unit next door (identical) went for $275,500 a few weeks ago.

I guess I’m coming around to you guys’ thinking. My example of a condo going from 300K to 200K is extreme. A crash as extreme as shaving 30% off condo values would necessitate some sort of crazy economic event that would change the rules. I mean, that crash would be the result of some other event, as opposed to the cause of a new event (renters being able to buy)

The one thing indisputable in all this is good on you MR. C for getting more than 10% of your condo’s total cost in rent every year.

I used to work up at Don Mills and York Mills (Financial Post is up there) and I guess I would have paid that to live there then. I just have a hard time justifying that from here, as I gaze out upon the CN Tower and Rogers Centre for the same price.

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