My Investment Journey

This post could be called;

“Mistakes I’ve made that I have turned into lesson learned so that I don’t make the same mistakes again.”  

That would be an excessively long title though. As you probably know my investment focus is on real estate, but you might be asking why and that might be why you clicked on this link in the first place.  It may be long, but so was my journey, so here we go.

After high school, I went to BCIT for electronics engineering technology.  It was two and a half years (supposed to be only 2) of painful gruelling brain busting.  I was under the impression that at the end of this schooling I would be making a big bag of money every year.  I finally finished and got a job that was salary and after a little while I clued in that it was only barely twice minimum wage and it seemed to me that they owned me (2001).  I eventually thought “This isn’t great. I want to be rich.  I want to invest and be like the rich people”. The bug was implanted.

I called my bank.  They set me up with a pre-authorized investment right over the phone.  I was going to be rich!

Wrong…well at least not that way.

I thought again for a while (Maybe I should think before, not after).  I did a little bit of math and figured out that my $100/month over two years would pay me about $26 after taxes. That was NOT going to get me rich.  But nonetheless I had effectively saved a little bit of money. I guess doing something is better than doing nothing.

At this job, I was working with some people that had all the answers and was lunchtime counselled by them.  I ended up buying stocks because the graphs looked good. Buy a ten cent stock and sell it when it goes up to eleven cents (within a week of course) and you’ve made 10% on your money.  Awesome, that sounds easy. I also read that you should use borrowed money to do this, so you don’t even have to have the cash to start.

It was all falling into place…or apart at the seams.  

I did have a couple of wins, and a few more losses. The net was a definitely a loss.

This may have seemed like a total loss, but it wasn’t.  I may not have immediately realized it but I learned some lessons from playing in the stock market like that.  One of my first lessons was that at that time it cost $40 to make a buy and $40 to make a sale of a stock. That means that it cost me $80 to get in and get out.  So to sum it up, I needed to make 8% in a $1000 trade (Not a terrible return for a year these days) just to break even. Pretty tough and a losing proposition. You could limit this downside by buying far larger amounts, but fortunately I had a few losses and realized that was too risky without using the second lesson.  I also learned that I needed to do a lot more research. How do I do THAT though?

One of my armchair counsellors also told me that “I should buy dirt, they don’t make it anymore”.  He was buying a house in the heart of Coquitlam for about $330K. How ridiculous. Totally over priced.  Real estate prices couldn’t possibly go above that threshold. I was totally right, wasn’t I? He might have shared some nugget of wisdom in amongst all his other pontifications.

I was told that I should give “Rich Dad Poor Dad” a read.  Over the years I have found that this was a lot of peoples’ gateway drug into the investment world.  It made a very compelling case for real estate investment and for going into business yourself.  Simply buy a cashflowing property (has a little bit of a net gain at the end of every month) and then you can do it over and over and be ridiculously rich.  

Was the author Robert Kiyosaki wrong? No.

Did he leave out a little three letter word with gigantic implications? Yes.

That word was “How”. Damn, stimmed again.  

I tried though. I was getting creative in about 2004 and even put an offer on a couple of places. My offers were not accepted as I was making offers from the utopian world of books. I had a deal that was accepted by one owner of the property, but not the other.  So close.

The place I was working at didn’t work out. I actually went a few times without a paycheck because there was no money, yet the owners were taking a ridiculous amount out of the company building a house.  Some months we were doing over $400k in sales with about a 70% profit margin and only about 12 employees. I was also worth far more than I was making and they could’ve afforded it. Enough complaining; Moving on.

I was still investment minded and I had bought into a company creating a piece of sawmill equipment that was selling shares. They were going to go public and all the investors were going to get rich very quick. Exactly the pipe dream I was looking for so I went back to buy some more. When I was there I ended up with a job and left the other company. I ended up working for the sawmill equipment company, but this time I was a share holder. Some of my pay was going to be in shares as well.

I was going to be super rich…and soon. Nope. I should have looked a little deeper.

It turned out that the main owner/CEO, or whatever he actually was only had his best interests in mind. The 20% “Finders Fee” that he would receive/take any time someone would invest proved to be too enticing for him to give up by going public and fulfilling the plan to go public and make anyone else some money.  In the end it turned out that I had spent a pile of money I didn’t have. I was given about $40K (on paper) worth of shares. The shares would have been considered income so I would have to pay taxes on them. I couldn’t pay that tax bill, nor could I sell non-public shares to cover the bill. Everyone at the company was in the same boat. We all gave them back with the promise that they would get them to us another way.

Long story short, the money dried up. I went 6 weeks without getting paid. The shares ended up being worthless and I had to walk away from it all. Other good people at the company had it far worse off.

I learned that when it starts to smell, it may be because it is rotten.

While all that was going on, life happened and got expensive, so my investing slowed to below a crawl. I had married my girlfriend, bought a townhouse and got my now wife pregnant. We sold the townhouse for a gain of about $70K in two years.

Here is a quick number crunching. Bought for $185K. Sold for $255K with a down payment and closing costs of about $10k). The monthly cost was about $200 more that it would have been to rent, but that was more than covered in the mortgage paydown every month. The net result was our $10K investment made a net gain of about $60K ($70k-$10k in selling costs) in two years. $30k/year on $10K = around 300%/year on our money.

My property made more than I did in that time period! Maybe there is something to real estate investing. Everybody has heard stories like this I am sure. This was one of my first lessons in real estate. Success isn’t always a great teacher.

I got a new job with an income that I was 100% certain that the paycheck wouldn’t bounce. I was happy with just my income for now. I had learned a lot about investing and it cost me.  

My friends bought trucks and TVs…I learned some lessons.

They were Dodge trucks so they are all dead by now, but my learnings remain.  

We moved into a house, renovated the heck out of it and planned on living happily ever after. We had our certainty in life it seemed. It seemed certain that this was as far as we were going to get unless we made some improvements. We had the standard struggles as everyone else, but were living reasonably ok. Not great, but not bad. We still had some money issues like everyone else. I couldn’t reasonably go to my best mans wedding as his best man because it was in Mexico and we didn’t have the money at the time.  Bummer. Kind of destroyed our relationship as it was.

My new job exposed me to other jobs, that were easier, less stressful, less brain intensive and paid WAY more yearly. My wife and I made the decision that I would go for one. That was my apprentiship that we went through. My wife supported me all the way. She also gave up her career to go about this. It also allowed her to be home with the kids when they were in their formative years. These were with some pretty big sacrifices, but they have paid off.

During the apprentiship, we had to move around the province and could not stay in our house. We decided that we would simply rent out our house during the process so that we could keep our appreciating asset.  It would only cost us about $500 dollars plus the rent to keep it.

We were in Terrace, then Castlegar watching our house fall in saleable value (2009-2011), paying $500/month to do this. Also, because it was now a rental, it was now subject to capitol gains when we were to sell. We were also asking a lot of a friend to help with any issues that came up when we were away.  I was petrified about having a bad renter and the place getting destroyed. I didn’t know how to mitigate these issues.

$500/month was not a sustainable model. Robert Kiyosaki did warn me. I had learned a lot by this time as far as investment.

  1. The stock market is a bit of a crap shoot, unless you are able to do a ton of research, which I didn’t know how to.
  2. I am not going to get that far ahead by working for someone else.  Comfortable, but that is it.
  3. You must do some diligence to look behind the curtain to see what is going on.
  4. Trying to do these things on your own, is a loosing proposition or a least a severely limiting proposition.  Building a team to help you is way better.
  5. Real estate has some seriously great leveraged merits when you win.
  6. I did not know how to build a team; I do not know how to do due diligence on anything; I do not know how to go about investing in real estate without creating some significant risks.

Whew.  I am glad you have made it this far. This is where things start to go right. I have heard that failure is the best teacher, but I have heard a better quote. I am paraphrasing and I am not sure who I am paraphrasing, but the essence is correct.

“I never fail……I get a result.  It is either the one I want or the one I don’t.  I then make corrections to achieve the result I want.”

After the apprentiship we were living in Chilliwack, and I got a job that allows me to stay in Chilliwack.  As a guy who always wanted to get more or “Be rich like the rich people”, naturally that was where the conversation with the armchair experts often went. Lots of armchair experts had advice for me. The best way to find out that someone is just talking talk is to ask them how walking their walk is going.

I was talking about real estate investing with a co-worker (younger than me). I had the upper hand in the conversation, because I could talk the talk with any of these experts just fine because I had been through a couple of real estate transactions and now had a little bit of experience. I asked him to talk about his walk and then he started talking to me about his two investment properties and a third that he was working to turn into an investment. I had egg on my face. I was the talker this time. I was also in amazement that I had met someone who was actually doing it and was younger than me to boot. I swallowed my pride and asked questions and this was the beginning of things going right.

I knew at this point that for real estate investing, I needed to know how to do the diligence and how to build a team of the right people to go about this with significantly lessening the risk and the downsides.  After all, the leveraged gains also meant leveraged losses, so I had better make some of the right decisions. He recommended I read “Real Estate Investing in Canada 2.0” to me.

It was a mediocre read as far as books go, but this was probably because the writer was a bonified walker of his talk rather than a writer (I do not want to minimize the writing though as it is still pretty good).  He had hundreds of properties and it explained how to fill my two needs I didn’t know how to fill for real estate investing. It spoke of how to build a team and made it easy to do. It explained how to do some real diligence on a property. I was and still am hooked.

The writer started a network of like minded investors and explained how to join. The guy who put me on to the book in the first place was a member and following its methods. I was on to something. I started to talk to my wife about it. She was skeptical. If you want to know why; re-read everything before this.  Fortunately she met a friend that worked there at the time. We met with that friend and she and her husband had several properties including multiplex properties as well. More proof that it works. My wife was intrigued. It might work and it is not just another one of my cockamany schemes again. We decided to both go to one of their training weekends. It was intense, but sitting in a room with literally hundreds of normal people who are doing the same thing to us was definitive proof that it can be done and by regular people. My wife joined.

I have since joined and met lots of people who are following the methods of this book and bought tons of their own properties. There is tons of training and meetings through this network where you can build your team through recommendations, and meet mentors and peers in the same business. If there is a possible mistake that can be made in real estate investing, it has been made by lots of these people and even more of the people have methods to avoid these pitfalls. The methods of avoiding these pitfalls are quite readily available and people are quite willing to tell their stories as am I (like right now writing this).

I have now got a great education in this realm. I am still continually learning. I have learned from my mistakes.  I have learned how to maximize the upside and minimize the downside. I am walking my talk.

I have purchased a property as a rental. It is leveraged at 5:1. I used equity in my current house to purchase it at no extra monthly cost to me for the equity.  The property is paying out about $250/month (Scalable, repeatable and replicable). I have the downsides (Bad renters, Vacancy, Property maintenance, Real estate market corrections, and others) taken in to account and minimized. I am starting out paying down a mortgage by over $900/month. I have bought in an area with market appreciation. I have lots of research to back this up.

If the market goes up 6% in a year I make 30% (FYI the 40 year, year-over-year average including the fallout in the 80s is 6.7% in my location) on my leveraged money. I am not going to sell so if it doesn’t go up or even if it goes down a little I am covered. The property is cashflowing in a strong rental market so I can hold on as long as I want to. So far, the property value has increased more than expected, but I am in it for a longer term, so I am not too concerned or excited either way.

I am actively searching for the next. I want to make some money for others while doing this. This may sound pompous, but take a look at the gains you are making with your advisor.  After looking at those gains, ask yourself what recourse do you have if things don’t go well. I am happy to say, that if my propertie(s) are not working well, I am the one that solves the issue. I have the knowledge and the help to get it done.

This how I got here.  If you are still asking “Why real estate?”  I’ve summed it up in a few short bullets on the “Why Real Estate“.