In Four Short Years I Made $275,000!
by Paola Ellis for
July, 2006
It’s hard to believe that in four short years, I’ve made more money than I made working my entire adult life.
It’s on paper money, (equity on properties), but what the heck; it’s money nonetheless!
It all started when I was following what we all follow these days: a quest to acquire. Without even realizing it, we start thinking “what’s the next purchase going
to be, what do I want to buy next? What can I spend my money on next?” Or, more to the point - “what can I spend my credit on next? How can I max out
everything with stuff I just have to have?”
Different from the war generations, where they learned to save, save, save, our generation seems to have learned to buy, buy, and then buy. And, we’ve learned
not to buy with just cash, but to spend with credit. Credit counselling services are popping up everywhere; young and old are working two jobs, yet none of them
ever seems to have enough money to save. Even the banks are bending to this new reality with the recently announced zero down options for mortgages. Why
would they offer that? Why wouldn’t they just continue to reward those who have saved at least something for the ultimate home ownership. It’s obvious:
because our generation just doesn’t have the savings mentality anymore.
I digress. How did I make more money in four short years than I did working my entire life? It was real estate. Real estate, real estate, and then more real estate.
How did I do it? Of course, most people jump to the conclusion that I had a lot of money to begin with, but that just wasn’t true at the time. Now I’ve learned
that I could have started just anywhere in real estate.
It all started with my quest for a piece of paradise in cottage country; I wasn’t actually thinking about investing, but as it turns out I did invest. In my quest to
acquire more on credit, I scoured the Muskoka area for a cottage, but of course, even four years ago, I couldn’t afford the ones I liked, and I didn’t want to buy
the musty smelling ones I could afford. Remember, afford these days means ‘how much credit can I borrow?’, not ‘how much do I have saved up?’ This was just
before the Muskoka sparkle grew even bigger than it had been previously. After what felt like an exhaustive search, weekend upon weekend, looking at cottage
after cottage, I apologized to my agent and retreated to real estate loser land - with nothing acquired.
After a few days, I got up enough strength to look again - but I had dropped my expectations. Suddenly, as always happens, an opportunity came up - a
relatively new and unmusty cottage on a small lake was listed for $160000; I had been pre-approved by a smaller bank that was trying to break into the
Canadian market, which is why they accepted my self-employment, problematic FICO credit score, and recreational purchase. I was elated. But, alas, the elation
was short-lived. My offer for $152000 had been surpassed by another offer for $156000 (mostly borrowed) and I lost the cottage.
I retreated into real estate self-pity again, painfully coming to the realization that a cottage dream was not meant to be for my family.
After a few days, I started looking again. My then-shy agent told me to look at it differently. He suggested I buy a lot I could afford - based on the space
available on my credit cards, some small savings, a small business line of credit and borrowing the rest from a small life insurance policy.
Mostly because I thought I had failed (most bad real estate investment decisions are directly related to emotion), I agreed and resigned myself to buying a lot on
a small lake in the Lake of Bays area of Muskoka. I appeased myself into thinking that at least I had property in the area I wanted.
I tented on the lot for the first two summers, but got the itch to build a cottage after hearing about private lenders and construction lenders who offered
construction loans. Remember the ‘how can I borrow for what I want now?’ Everyone said I was crazy, including the lawyer I got for legal advice with the
construction loan. In fact, I had to sign something saying that I understood they were counselling me against accepting the loan. They all had reasonable
complaints: the rate was too high, there were exorbitant fees, etc. But, in the end I took the loan out and started building a cottage.
My original investment on the land was 40k, but there was no mortgage on the property, as it was all on my credit cards and taken from my depleted resources.
My construction loan was for $150k, which was the estimate at the time for building the house, without such final issues like landscaping, etc. I ended up
building a beautiful home up north, one which is much nicer than my home in the city. It’s got everything - I could eventually retire there, with all the
conveniences of home. My investment of $190k ended up being at least 220k all told.
By the time the house was fully constructed, Muskoka had shot through the roof. Cottages were selling at a premium and waterfront taxes were ‘reassessed’ at
crazy rates. My very own private lake house was appraised at $375k just after completion, a whopping $155k more than what I paid in hard and soft costs.
(Does that sound like I learned a lot?) A few years later, it now appraises at $495k! That’s $275k more than what I paid out in just four short years!
I know the Muskoka high life in real estate investment won’t last forever. And of course, if things change, the prices will drop, but who cares? I still only paid
220k for it, (although I’ve since added to it), and I’ve mortgaged it to buy other rental income property which brings me in additional cash flow. I’ve also
speculated on other properties which have net me quite a bit of additional money. I know they say that speculation is risky, but calculated risks are okay for me.
I do my research, check everything out, and still work out the numbers. I ask the advice of the people I know in the groups I’ve now joined, and if, and only if,
after I do my numbers, will it work feasibly (all risks considered), I go ahead.
All I know is that I could never have saved up 275k in expendable income since I started working. All my adult years of toiling away at work allowed me to
amass a few thousand measly dollars in savings - and those monthly contributions were stressful. I can hear all the accountants with their complaints about
capital gains. But, as of yet, capital gains has not caught up with me - I have yet to dispose of the property - capital gains is only due when the property
actually sells. Instead, I’ve pulled the equity out of the property and used it to buy other more lucrative (non-‘acquiring’ type assets). These new assets are
positive cash-flow income-generating rental properties, run by a professional management company. Eventually, my renters will have paid down my mortgage.
I’ll still have my cottage, the time will still have passed, but I’ll be another asset richer - and I’ll still have my original $275k.