August 2009 Net Worth Update (+1.70%)
Welcome to the Million Dollar Journey August 2009 Net Worth Update.
There’s not a lot to report this time as not a lot has happened in the month of August. The markets continue to edge upward but we are closing in on the volatile September and October months. Do you expect a significant market correction coming soon? Or do you think that their may be a smaller correction but continue on with the upward trend?
With regards to savings, we did well this month sticking to the game plan. One of our financial goals is to save a percentage of our income regardless of how much our income increases. The cash is either used for RRSP/TFSA contributions, mortgage pay down, or a general cash account.
Speaking of mortgage pay down, we have done well this year chipping away at the balance and we should meet our goal of eliminating our mortgage in early 2011.
Assets: $457,350 (+1.07%)
- Cash: $4,500 (+0.00%)
- Savings: $13,000.00 (+30.00%)
- Registered/Retirement Investment Account: $69,000 (+2.99%)
- Pension: $22,650 (+2.99%)
- Non-Registered Investment Account: $17,000.00 (+0.00%)
- Smith Manoeuvre Investment Account: $48,700 (+0.41%)
- Principal Residence: $275,000 (+0.00%) (purchase price)
- Vehicles: $7,500 (2 vehicles) (-6.25%)
Liabilities: $88,600.00 (-1.45%)
- Tax Liability: $3,000 (-0.00%)
- Principal Residence Mortgage (readvanceable): $32,500 (-4.13%)
- HELOC balance: $53,100 (+0.19%)
Total Net Worth: ~$368,750.00 (+1.70%)
- Started 2008 with Net Worth: $309,950.00
- Year to Date Gain/Loss: +18.97%
Some quick notes and explanations to net worth questions I get often:
The Cash
The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker can prove useful.
Savings
Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair. We also need cash to cover any future tax liabilities.
Real Estate
Our real estate holdings consist of a primary residence plus a rental property. The value of the principal residence remains valued at the purchase price despite significant appreciation in the real estate market that we’re in. I will most likely be adjusting the value of the home come the new year.
Weekend Reading – August 28, 2009
Canadian Money Forum has a sticky post on excel based financial calculators (written by Cannon_Fodder)
Canadian Capitalist discusses Rogers recent fee hike.
Generation X Finance has some Moving tips.
Intelligent Speculator explains why Why Apple (AAPL) will be almost impossible to stop
Money Smart Life has tips on preventing college student identity theft.
Four Pillars talks about scams during tough economic times.
Brip Blap has a series on lying in the workplace.
Canadian Dream explains the average return fallacy.
Frugal Dad has some advice in his article Happiness For Others Comes From Contentment With Yourself.
Financial Blogger lists 5 Tricks to Get The Power of an Effective Schedule.
The Sun’s Financial Diary exclaims “We Sold Our House!”
Thicken My Wallet overviews The limitation of relying on advisor designations.
Lazy Man and Money explains Budgeting with the Envelope System.
Where Does All My Money Go has Great Expectations.
The Digerati Life has an article about a work at home mom and how she saves money.
Michael James on Money asks How Much House Can You Really Afford?
My Dollar Plan lists 5 Tips to Avoid Overdraft Fees.
Flipping Houses for Profit
I’ve mentioned before in a book review that I was, at one point, very interested in flipping houses for profit. What do I mean by flipping houses? It means to purchase houses that need cosmetic (or more) work selling for well under market value, upgrade them, and sell them for profit (hopefully) in a relatively short period of time. Sounds pretty easy in theory, but flippers can get way over their head if they don’t know what they are doing.
From reading a few books on flipping, watching various flipping TV shows and speaking with local investors, it seems that one critical step is running the numbers as accurately as possible before purchasing the property to ensure that the project is financially viable. The profit on a flipping endeavor is made when you buy which perhaps makes it the most important step. That is, the lower the purchase price of the house itself, the higher your potential profit margin.
The Process
- Evaluate the House – Once you find a prospective home that needs a bit of work, find out the market value of the home when it is in top notch, fixed up, condition. A real estate agent, or internet search should help here.
- Repairs - Get a contractor to give you an estimate of the repair/materials cost and the approximate time line. Give yourself a fudge factor in this calculation as projects have a tendency to go over budget.
- Calculate other Expenses – Obtain the cost of selling (real estate agent commissions, legal fees) and calculate your holding fees (purchasing legal fees, financing costs, utilities). Figuring out the agent/legal fees should be easy enough, but financing can be a different story. As a real estate flipper, you want to buy and sell as fast as possible. Some lenders have a problem with lending money for such a short period of time, which is why the flipper may have to resort to private financing. Private financing/mortgages generally have higher interest rates, but may be worth it to complete the project.
- Add in desired profit – Like any business a profit margin needs to be included. From reading books and speaking with local flippers, the profit should always be built into the offer/purchase price.
Purchase Price = Market Value – Repair Costs – Selling Costs – Holding Fees – Profit
An Example:
Here’s the example from my review of “The House Flipping Answer Book”
The author explains that the key to flipping properties for profit is that you need to include your profits into your expenses when deciding on your maximum purchase price. For example:
Market Value when fixed: $200k
- repair materials/labor cost: -$20k
- holding costs: -$5k
- agent selling fee: -$10k
- closing costs: -$1k
- profit: -$20k
- fudge factor: -$5k
Maximum purchase price: $139k
Seems like a large spread between $200k and $139k, but note that houses that are worth $200k in mint condition are typically listed for much less when they need extensive repairs.
There you have it, my big picture thoughts on the process of flipping a house for profit. Of course, my only experience in real estate investing is with rental real estate (and REITs), but the above is what I’ve come up with based on reading various books and speaking with local real estate flippers.
Personally, I don’t have the guts to do a flip (right now) as it requires a fair bit of risk and a lot of time (that I don’t really have).
Have you ever taken on a house flipping project? Any tips?
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