How $50,000 grew to $2 Million in 27 years- The art of financial independence

BY JAY BRIJPAUL

Experience in real estate does matter. I recall an Incident in 1992 that paved the path to financial freedom.  A novice investor, John, bought a home in Etobicoke for $200,000. He invested $50,000. He had two factory jobs and a dream. He dreamt of becoming a millionaire. I recall assisting him in finding a tenant and the first one was a racehorse jockey. At nights, the home was lively with ladies, liquor and love. We learnt our lessons the hard way, but it paid off in the end. Today, my friend is financially independent, owning some of the best commercial properties with tenants such as Tim Hortons and Food Basics. He kept his first investment, the little bungalow in Etobicoke, until now.

Recently, we were reminiscing about his first investment. It’s been twenty-seven years and he’s collected around half a million in rental income from the home. That’s impressive considering that he had invested only $50,000. Today, the home is worth $800,000 and that’s monumental. $50,000 in 27 years has transformed to over 1 million in wealth creation when we add up the rental income and the appreciation. The lesson here is that wealth creation is long term.

Over twenty-seven years, John took $100,000 at four different times and invested in four other properties. Today the rental income from the five properties is over $120,000 every year. That’s exciting because it’s passive income. John explained that he could have bought an RRSP twenty-seven years ago but that would not have made him financially independent. Money withdrawn from RRSP is taxable, but he can refinance a rental property anytime without paying tax. Adding up the rental income and the recent appreciation of the four properties and he is two million dollars wealthier! That’s eye popping but he is lucky.

Luck, according to my friend, means “Labor Under Correct Knowledge.” Knowledge is acquired over time but at times, we must leap and learn from our mistakes. John chided that “some people are sure footed in life. They want to make sure that everything is perfect before investing. Those who are sure-footed hardly leave the shore!”

I am fortunate to have many teachers like John. Looking back, I grew up bare-footed in a country farm where financial acumen was the needle in the hay stack. Another client, Philippe, said that a car is a depreciating asset and a rental property is a better option. Today, I will never buy a car with cash. I will finance it through the dealer and invest the cash instead. The wealthy have a different psyche. Many of us would live a happy life, paying off our mortgage but for others, it’s considered as money in a piggy bank. It’s locked up. We are sitting on a nest egg that may never hatch.  Josephine, another client, mentioned that “we like money and that’s why we work hard for it, but when money works hard for us, we love money.” She compared every dollar to a worker bee in her thriving hive.

Many people justify that rental properties have their share of headaches. Another investor client, Ameer, argued that “if you want more roofs, you must be prepared to shovel more snow.”  Many of my investor clients have long term tenants, some in the same property, for over ten years. Their rent is lower than market rent but they are awesome tenants. When screening for a tenant, look for a small working family. A working family would spend time at work, travelling and shopping. The home gets a chance to rest as well. Self- employed and stay-at-home tenants would cause more damage. I prefer tenants with blemished credit. Most novice realtors and landlords look for perfect credit and, in the process, disqualify awesome tenants. Tenants with bruised credit appreciate the opportunity and have broken wings syndrome-they cannot fly away.

Experience does matter and time cannot be rewound. It is never too late to start building wealth for the next generation. The trick is to motivate our children to start early. Give them a head start now. They don’t have to wait for probate. One of my clients owned many coconut walks in the Caribbean and put it this way: “The best time to plant a coconut tree was five years ago because today, you would have been picking coconuts. The next best time is today.”