Reader Case: Crossroads in Oil Country

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Wanderer

The Wanderer retired from his engineering job at a major Silicon Valley semiconductor company at the age of 33. He now travels the world, seeking out knowledge from other wealthy people, so that he can teach people how to become Financially Independent themselves.
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It’s Friday, so you know what means: Reader Case time!

Today’s reader case is from a long-time reader at a bit of a crossroads (hence the title). She’s been living and working in Alberta, has been reasonably responsible with her money but she’s coming to the point where she’s asking “Is this it?” Her and her family wants to make a run for Financial Independence and want us to analyze their situation and figure out whether it’s even possible.

So without further ado, let’s dive right in, shall we?

Dear Millennial Revolution,

My husband and I are 37 and 39 years old. I work in communications at an oil and gas company; my husband works in digital marketing for a national retail chain. We have been married for 12 years and have two kids, 7 and 9. We live in and have recently paid off a two-bedroom condo in Alberta where our kids share a room, and are wondering what our next steps should be. We are mortgage and debt-free in our thirties and feel we are at an important crossroads.

On the one hand, I would prefer never to have a large housing expense again and would like to reach FIRE (mostly FI) in my mid-to-late 40s with the option to leave the corporate world. To me, that means $1 million in investments, excluding our home. My husband is supportive and plans to keep working. However, we are contemplating moving. We both agree that our place, at 899 sq ft, feels smaller every year as our kids grow, and we’re both tired of dealing with a variety of inconsiderate, immature and entirely un-self-aware renters around us. Honestly, it’s more of the latter than the former. If not for (some of) the people who live around us, I think we could actually make it work to stay where we are. Alas, few families choose to raise kids in condos in our part of the world. The building was mostly owners when we first moved in, but now it’s mostly renters.

What does the math say about our options moving forward and how they might impact this FI(RE) dream – do we stay put, rent out the condo and go rent a house, or attempt to sell the condo (in a soft market) and buy a house? I love the freedom that being mortgage and rent-free provides, but I don’t want my husband and kids to suffer just because I want to leave behind the corporate rat race and either retire early or choose different (maybe part-time?) work. I am very grateful for my job, and am considered a high performer, but I don’t know that I fit into the ladder-climbing and consumer spending lifestyle that a golden handcuffs workplace typically encourages. It can also be very stressful. I want a quieter life.

Here are my numbers:
Gross/Net Famiy Income:

Mrs. Crossroads (37): $104,000 gross (base salary only. There is also an annual bonus).

NET every two weeks: $2,161 (but keep in mind this is because I save 19% in our company savings plan or it would be higher)

Mr. Crossroads (39): $73,000 gross base salary

NET every two weeks: $1,904

Your monthly family spending:

Category Monthly Spending
Groceries and household items $800
Childcare (ends in 2021) $800
Home insurance $36
Property taxes $123
Condo fees $347
Gym $34
Car insurance (two cars) $159
Car maintenance and registration (My FIL is a mechanic and he and Mr. C do repair work and tire changes together) $115
Eating out + craft beer $100
Gas $400
Bus pass (Mrs. Crossroads only) $103
Cell phones (both) $230
Life insurance (both) $98
Disability insurance (Mr. Crossroads only) $229
Allowance (kids – $20 each) $40
Allowance (both of us – $100 each) $280
Internet $86
Electricity $60
Charity/giving $125
Kids season clothing and school supplies $120
Kids summer camps $166
TOTAL $4,451

Debts:

AS OF JUNE 26, 2018, WE ARE COMPLETELY DEBT-FREE, INCLUDING MORTGAGE!

Any fixed assets you have (house, car, etc.):

  • A two-bedroom condo in Alberta bought for $267,000 during the 2006 boom, now worth optimistically $189,000 (and it keeps falling. Real estate doesn’t always go up – take heed Vancouverites and Torontonians).
  • We own outright a 2007 Chevy Cobalt and 2009 Nissan Sentra, neither of which we consider assets, so we don’t include them in our net worth calculation.

And investments or savings you have (cash, bonds, stocks, etc.)

Category Amount
Mrs. C RRSP (personal) $193,000
Mr. C RRSP (personal) $191,000
Mr.  C RRSP (work) $9,000
Mrs. C DC pension plan (work) $31,579
Mrs. C TFSA $1,500
Mr. C TFSA $1,500
Mrs. C Company Savings Plan $12,848
Kids’ RESPs $55,000
Miscellaneous savings accounts (for vacations, car maintenance, etc.) $1,500
TOTAL $496,927

Thanks for any guidance you can provide!
– At a crossroads in Oil country

OK to summarize, here is where they stand.

Summary Amount
Income $117,320
Expenses $4,451 monthly, $53,412 annually
Debt $0
Fixed Assets House: Paid $267,000, now worth $189,000
Investable Assets $496,927

Note that Mrs. Crossroads lists her bi-weekly take home pay, but mentions that she contributes 19% into her company’s savings plan. We counted these contributions as part of her income since, similar to RRSPs/401(k)’s, they can later be used to pay for retirement expenses if we withdraw it tax-free.

OK so at first glance, how has Mr. and Mrs. Crossroads done? The incomes are great, so good job there. Their expenses aren’t too unreasonable given that they have two kids, but there’s some low-hanging fruit we can get rid of, which we’ll get to in a bit. They’ve also played the housing game and lost, and are now unfortunately sitting on a condo worth less than what they’ve paid. As with most people in their situation, this is causing them some angst and “What do I do with this condo?” is at the forefront of their mind. We’ll get to that in a bit as well. And finally, a respectable $497k in investable assets. So we have lots to work with here.

A note to the curious eagle-eyed reader. Why so little in their TFSA, you might be thinking? In their email, they said that because one of them is a US citizen, there’s no point in putting any money in their TFSA. They are correct. Because the US taxes on a worldwide basis even if you don’t live in the US, and because the US doesn’t recognize the TFSA as a retirement account, the US actually demands taxes be paid on any earnings in a TFSA. The only way to get rid of this is to renounce your US citizenship, but that’s a whole other can of worms we’re not going to get into here.

Path to Financial Independence

So let’s deal with the first question: How do we get Mr. and Mrs. Crossroads to FI?

As always, the answer lies in MATHING SHIT UP!

At their current annual spend level of $53,412, they will need according to the 4% rule, $53,412 x 25 = $1.34M to retire. Now that’s a hefty sum, but not insurmountable given their savings rate. Also, considering they have 2 kids their cost of living is somewhat reasonable, BUT if we dig into that spending just a little, we can still find some easy ways to reduce their spending after retirement.

Just by seperating out their spending into “NOW spending” and “RETIREMENT spending”, we can find some savings.

What I mean about “NOW spending” vs. “RETIREMENT spending” is that some spending just doesn’t apply once they pull the FI rip-cord. For example: disability insurance? Don’t need it. Once you leave your job disability insurance no longer applies since your portfolio is paying for your living expenses, not your job, so no need to insure against being unable to work. Ditto for life insurance. Your kids are taken care of with or without you because you’re FI. Also, child care. By their own estimates, this cost goes away in 2021.

So by eliminating these costs that will naturally drop off in retirement, their retirement expenses go down to $4,451 – $800 (child care) – $98 (life insurance) – $229 (disability insurance) = $3,324 monthly, or $39,888 annually. All without cutting a single lifestyle-related cost out of their budget.

At this lower cost of living, their retirement portfolio needs to be $39,888 x 25 = $997,200. That’s a hefty $337k they no longer need to save. Win!

Now let’s look at their savings rate. At their current net income of $117,320 and expenses of $53,412 (remember, we have to use their NOW spending for this calculation rather than their RETIREMENT spending), they are saving $63,908, or 54% of their income! That’s pretty damned good, and reason to be pretty optimistic about how our projection is going to look.

Also, remember that child care costs end in 2021, so that’s another $800 per month of $9,600 per year that will get saved after the first 4 years of our projection. As always, we assume a modest 6% ROI on a balanced, low-cost, Index ETF-based investment portfolio that we write about in our Investment Workshop.

So what does our projection look like?

Year Balance Savings ROI Total
1 $496,927.00 $63,908.00 $29,815.62 $590,650.62
2 $590,650.62 $63,908.00 $35,439.04 $689,997.66
3 $689,997.66 $63,908.00 $41,399.86 $795,305.52
4 $795,305.52 $63,908.00 $47,718.33 $906,931.85
5 $906,931.85 $73,508.00 $54,415.91 $1,034,855.76

Wow! Mr. and Mrs. Crossroads are FI in just 5 years! All without making any spending cuts aside from getting rid of costs that don’t even apply once they retire! But do keep in mind that in this scenario, they have a short runway (5 years instead of 10+), so do watch out for market fluctuations. The plus side is that Mr.Crossroads is planning to keep working after FI, so that will buffer them.

What About the Condo?

But wait, some of you may be grumbling. These guys lost money in their house! How can they be still in good shape?

Simple. Even though they screwed up on the timing of their condo purchase, they kept their housing costs reasonable. Even at the peak buy price of $267k, that constituted a relatively conservative 2.3X of their net income. Plus they paid the mortgage off as soon as they could, and are now left with a relatively small month-to-month carrying cost of $36 (home insurance) + $123 (property taxes) + $347 (condo fees) + $60 (utilities) = $566. So even though they lost $78k or 30% on this condo, the relatively low buy price kept that mistake from swamping the rest of their finances.

If they had bought some monster McMansion costing $1.5 M, and then lost 30% or $450k, this reader case would be taking a decidely more darker tone.

So let’s now answer the second question: What to do about this condo? They could sell it and add the sell price of $189k – 5% real estate commission = $180k to their portfolio, and this would generate an extra $180k x 4% = $7,200 a year, or $600 a month in passive income, but is an extra $600 a month worth it?

They would also save the $566 a month cost of maintaining the condo. So now we’re ahead $1,166 a month. Of course, the Crossroads family now has to live somewhere, so in order for this move to make sense, they’d have to rent for $1,166 a month or less. Maybe on the ground they’d be able to find a suitable place for this price point, but according to Numbeo, the average cost of a 3BR apartment in a big Albertan city like Calgary, as an example, is around $2076, so I’m not liking this idea of selling at all.

What about renting it out? Again, I don’t think this helps. Let’s say they get the average rent of $2076 for their condo. But then they have to rent out an equivalent apartment for the same price, $2076. So how does this help?

It only really makes sense to rent out your principal residence and move into a rental if you can get the same (or similar) digs at a lower price and typically this only happens if you’re moving cities for work or whatever. But if you’re going to live in the same city as your old place, you’re subject to the same rental market conditions as the landlord AND the renter. And remember, rental income is taxed at marginal. So all this would do is just give the government money while saving you nothing. Not good.

So where does this leave us Mr. and Mrs. Crossroads? Staying put, that’s where.

Figure out a way to make peace with your neighbors, because right now you are WINNING and about 5 years away from retirement. Selling & renting puts you no further ahead, and renting your place out actually moves you backwards. And of course, selling and buying a bigger place will DEFINITELY move you backwards since you’ll be shovelling more of your net worth into an asset class that, to be honest, has not treated you terribly well so far.

So I will end this case study with the advice that everyone who writes in wishes they get: Sit Still and Do Nothing. You’re already winning, so for the love of God don’t rock the boat!

What do y’all think? Should Mr. and Mrs. Crossroads stay put or do you have a clever idea that will get them to FI even faster? Let’s hear it in the comments!



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70 thoughts on “Reader Case: Crossroads in Oil Country”

  1. Hey — math error

    Your FI calculation says they need $1.34M ($1,340,000) to retire. But your timeline calculations only show $1.034M ($1,034,855.76) in 5 years, which you indicate is their earliest FI timelines. They are $300k away from FI goal, based on the math in this article, after 5 years.

    If I’m reading wrong, I apologize, but it seems there’s a relatively severe decimal error here

    1. It’s because Wanderer used $997,200 as the 4% number for “retirement spending” rather than the $1.3 Million they need for “now spending”. They would achieve FI after 5 years because they would only need around $1 Million after making the spending cuts suggested (because they won’t need insurance or childcare after reaching FI).

      I know, it’s a bit confusing. 😛

  2. Another great case study. This family is doing great and well on their way to FI. I agree that they should stay where they are at. Deal with your neighbors with a smile and a handshake, and you will be surprised by the outcome. Some people are completely oblivious to their rudeness and calmly explaining their impact to you may make things much more bearable.

    1. Hi Joe,

      Mrs. Crossroads here. Your comment about being kind is really humbling. It’s so easy to forget in a moment of frustration and exasperation, and I could do much better than I have been! Thanks for the reminder.

  3. Very interesting to see the cost of RE in parts of Alberta. A little shocking to those in BC I’m sure. A good lesson to diversify and not to get drawn into FOMO. If this couple who makes a solid income bought a 500k house or condo at the peak they could be in rough shape. However, luck, timing and location are always part of the equation. If they bought almost anything in BC in 2006, they would be far ahead and very likely be advised to sell immediately. As said, they were fortunate to buy a sensible condo at the time.

    Good advice to try and stay put, and if not I’d be inclined to sell, invest and rent maybe a townhouse or something slightly bigger with more privacy for under 2k if possible. I’m sure it exists in the current market. At under 40 they still have time on their side to raise the kids and still enjoy the journey to FI.

  4. Chances are that those kids will eventually want their own rooms. The parents can always tell their kids to buck up and deal with it, which would be so much better than slaving away, stressing oneself to death in the corporate world and never actually being there for your kids. But realistically, working one extra year or using the husband’s continuing salary to save up for a larger place also makes a lot of sense. I definitely would not cash out the house at this point, maybe when they have enough extra earmarked to buy a 3br outright.

    And yup, houses do go down sometimes. I have friends old enough to know better who are ALWAYS touting that “houses always go up!” Actually, you guys should write an article researching just how many houses have gone down, what the average loss has been, maybe some extreme cases like this one where what was bought over 10 years ago still has not recovered 🙂

    1. I don’t know a lot about the history of the Alberta real estate market but I don’t think that market crashed 10 years ago and still hasn’t recovered, the prices dropped a few years ago when the oil industry was suffering and people were losing their jobs in the oil industry.

  5. Alberta is f*cked. Massive amounts of inventory, rising rates, young population with high debt load and little home equity…According to Teranet’s HPI prices in Edmonton peaked in the fall of 06 or 07. I personally know people waiting to list in 2020 when their mortgage is up for renewal and praying for a better market. We haven’t stopped building and a large home builder (Reidbuilt) went bust owing 243 million to creditors.

    I think they should sell and rent a slightly larger place for well under 2 grand.

      1. Getting ahead yes…but I think they could really enjoy the extra space. I may be biased as I shared a room with my brother till I was 16 and he was 18. On the plus side the kids are unlikely to linger around the nest until they are 30 if they have to share a room.

  6. In addition to making money in affiliate marketing, I sometimes sit and wonder how I can diversify my income potential offline. Your blog had me thinking because the key word in it was oil. One way I thought about doing so was real estate investing which I know is it guaranteed Roi. Then I thought about owning a gas station or a few gas stations. Thing is, I don’t want to hire employees because I have an issue with trusting people with money. But I also wonder if I can somehow make money in the oil business without being an investor or owning a gas station. Feel free to share any information if you’d like. Thanks 🙂

  7. Not a tax expert here, but wouldn’t they still be better off contributing to the TFSA than a taxable brokerage? The former would only be taxable in the US, while the later would be taxable in the US and Canada. My understanding is the US doesn’t tax long term gains when you’re in the lower tax brackets (10%, 15%), but Canada always taxes 50% of the long term gains.

    1. Hi Kacy,

      Mrs. Crossroads here. I am hoping against hope that the legislation enacted by the U.S. to tax expats/dual citizens (FATCA) will someday be repealed. I would love to use my TFSA to its fullest – it’s an incredible savings tool for Canadians. The accountant I hire annually to file my taxes with the IRS advised me I should avoid it for now. In the meantime, my husband and I will eventually turn our attention to funding his TFSA. Our retirement savings (RRSPs) have been our focus for now.

    1. I sort of agree. But it’s not quite as simple as “living a little”. It’s really a trade off. Which choice is less bad? A house that means one or both of them will be working longer at jobs they don’t like? Or a smaller place that means living with annoying neighbors. In this case, I think I’d agree with you, George. But we all have different tolerances for different things. Some people hate their jobs enough that they’re willing to put up with annoying neighbors. For others, it’s the opposite.

      1. Hello Mysticaltyger,

        Mrs. Crossroads here. Thank you for taking the time to comment on our situation. I want to clarify that in my situation I like my job. I am content most days, it’s a good fit for my skills and I work with an amazing team. What concerns my husband and I most is the experience we have had to-date with real estate and a) not wanting to get burned again, and b) not stretching ourselves too much for something bigger that would hinder our ability to save as much as we want so that we have the freedom to make choices with our time as we get older and our jobs get more stressful. The average price for a single family home in our city is about $450,000. Closer to city centre and it’s more expensive. A duplex or townhome would be somewhat less pricey, of course, but then we’re at the mercy of too-close neighbours and condo fees again. Our bills would also be higher for things like electricity and property taxes. So we want to take our time and be very sure before we make a decision.

  8. Good analysis. However I probably wouldn’t include RESP savings or short term vacation savings toward their FIRE goal. Likewise, the monthly budget doesn’t have room for further contribution to vacations,(or RESPs) which makes me think it’s a little tighter.

    1. Hi Erin,

      Mrs. Crossroads here. Thank you for bringing up two important points around education savings and vacation savings. In our case, the education savings are pulled from my company savings plan every year. So we’ve been able to make the max $5,000 contribution in a lump sum every January ($2,500 per child) and plan to continue doing this for as many years as possible as the kids approach college age. That’s why it doesn’t appear as a line item in the budget. As for vacations, they are partly funded by my bonus (I know I am very lucky) and also partly funded from the budget. So that’s a line item I forgot to include. Our vacations are almost all exclusively to visit family, so our costs are very low. On the rare occasion we don’t visit family, it’s usually just a long-weekend road trip, so again, low cost.

      1. Got it. That’s a great child education benefit – I have not heard of one like that before.

        Whew. Here I was worried about you guys not taking vacation. I know I NEED my get aways!

  9. OH CRAP – This is totally me: “But if you’re going to live in the same city as your old place, you’re subject to the same rental market conditions as the landlord AND the renter. And remember, rental income is taxed at marginal. So all this would do is just give the government money while saving you nothing. Not good.”

    What a great, succinct description of exactly how I’m effing up my finances. Thank you!!

  10. I’m only 5 months into retirement and we have 4 grown kids. So not a ton of experience but unplanned expenses are always coming up. I get a bit nervous with how close some of these calculations are especially with young kids. In the US, wedding costs have gotten crazy high, college costs for in state universities with all expenses are in the $25K/year range in 2018 with most taking more than 4 years, and replacing cars every 10 years can also add $20K bumps in the baseline budget calculations.

    I love the reader case studies and appreciate all of the work and perspective that goes into them. In this case study the husband continuing to work would cover almost all of their expenses for the most critical 5 years of retirement. So that is a great hedge for early return risks. The cars are already 10 years old so they are approaching the replacement date – in my experience.

    I’m one of those guys that would want to push this to 8 years for the Mrs. to retire (or go to part time) to give some buffer and to allow some of the spending increase for better housing, etc..

    Love, love, love the reader case studies. You guys Rock!

    1. College costs are a legitimate gripe. But weddings can be almost as cheap or as expensive as you want them to be.

  11. These guys are doing really well. Not a whole lot to say here. They’re on a great trajectory.

    I can totally understand about wanting to move out of a condo thought — neighbors that close can be really noisy, rude, and disruptive. One of the reasons why we bought a house.

    Peace and quiet has a cost. The only question is, are they willing to pay it?

    1. Hi Mr. Tako,

      I am an avid reader of your blog so your comment that we are doing well means a lot to me. Thank you! We would consider buying something a bit bigger (and more spread out from neighbours!) only if it didn’t hinder our ability to save for the kids’ education and our retirement. These are our financial priorities.

  12. Why live less than comfortably just to get to FI quicker? And once they do in 4 years, they will still be less than comfortable (prob even more as kids grow and so do hobbies, posessions, shoe sizes etc).
    In my mind it’s a no brainer – sell and move somewhere with 3 bedrooms.
    Most likely you’re stuck in the city until youngest out of highschool. Why not work full time for 4y, then drop down to half time until kids launched. Is that not a good compromise for better dwelling situation?
    Canadians are in doors so much of the year…

    1. Because once you get to FI your options open up big-time.
      I’m sure they’re weighing the decision to move out into a bigger space versus the amount of time that would add to their FI plan. The question is, how badly do they want to retire versus how badly do they want more space?

      1. Once you have kids, your life is basically not yours for the next 18 years or so. Becoming FI will open possibilities for work type they can but don’t have to do, but it won’t do much to open other choices like travel most of the year or moving elsewhere permanently (moving with teens is the cruelest time to do so).
        So why be miserable for entire schoolyear times many years, in the less than ideal home?
        And if they stop working but stay put, they also don’t have much in their budget for travel as family of 4.
        I totally agree FI opens possibilities, but with older kids, it’s quite restricted if you don’t want them uprooted. Homeschooling sounds quaint, and works for some people, but I’d argue its a small subset of parents willing to take that on as a full time career.

  13. I think this is very good advice on paper.

    But I also know what it’s like to have neighbors that are a total pain–and I’m single. I’m sure the pain is magnified with a spouse and kids. I had a homeless encampment right across the street from my apartment building for over a year (right behind City Hall, no less) before the City cleared them out. (Talk about not self aware!) To make a long story short, they weren’t fun neighbors to have–and they attracted other non-homeless problem people to the area as well. I’m not sure I could’ve lived in that situation for 5 more years. 1.5 years was enough. So it really depends on how bad these neighbors are.

  14. We too live in AB and on our way to FI in a few years. They can easily drop their phone plan to ~$40/month/phone if they own their phone using Public Mobile or Koodo.

    Also not sure where exactly in AB they are, but we decided to live in Cochrane vs Calgary where housing is much more affordable. We are in a 3 bedroom townhouse in a new build costing $1141/month (with a view of a nature preserve nonetheless) so they could move outside of the city if they are ok with a bit longer commute knowing that it would only be a few years until FI and the commute to the corporate grind would be over.

    1. Awesome! Yeah I thought their cell phone plan was a bit high but I figured it was because they had to use it for work or whatever.

      How far away are you from pulling the FI rip-cord?

      1. If it’s a work related phone, work should hopefully be paying the bill then!
        We are planning for end of 2022 to pull the FI cord! Our mortgage will be paid we have a 4 month old and throwing in expenses for hopefully a second one. I’ll be 35 and my partner will be 33. Woohoo! Maybe you guys could look over my numbers to make sure I’m not missing something?

  15. Thank you to Millennial Revolution for taking the time to write this post. We appreciate your advice, crazy math skills, and the thoughtful comments from your readers. We have a lot to think about!
    – Mr. & Mrs. Crossroads (and our kids!)

  16. Sale the condo with bad neighbors and high condo fees, especially if you can find a 180K house. You might have to choose a now livable but in a futur-retirement-project-will-be-fixer-upper house if you and your husband are up for it (he is good in mechanic, what about construction skills?)… Use your first months of retirement to fix it at a full time job rate, then sale it with major profit $$, no capital gain tax because of principal residence exemption (you lived in it 6 years after all!), then buy cheaper house outside of a big city, invest the difference and enjoy retirement with your teens!

    (Pssst… I will whisper this next part so FC & Wanderer won’t hear me… lol! If you enjoyed the condo life the first years with fun neighbor, maybe you could sell the condo, buy a rental property and live in one unit! It’s like your actual condo situation but you get to choose the tenants! Make sure it has a positive cash flow! First go to real estate investment meetings in your area! Listen to horror stories, how could you avoid them and, if needed, could you deal with them? Make investor friends, share experiences, have fun!)

    🙂

    1. “Especially if you can find a 180K house”: I doubt it’s possible in Calgary.

      Those condo fees are not high. Remember, they include a lot of things that you pay yourself when you live in a house + ongoing maintenance + funds for capital replacements.

    2. Ugh. It is TOUGH being a landlord. Every landlord I’ve ever talked to just gripes endlessly about how much of a PITA it is. The word “fun” never EVER comes up.

      1. lol you might want to meet more RE investor 😉

        It’s clearly not for everyone, but for those who it is, it’s addictive, it’s fun!

        It can be tough, it can be easy… I took the tougher road of managing my properties myself, for more control and more return on my investment. There’s an easier way by giving the management to a company (still have to manage the manager), or also being completely passive investor by partnering up with someone that will manage it.

        It is common to have steady 20-30%/year return on investment. A lot more if you can put some sweat equity!

        However, most of the ROI is only on paper, it’s less liquid then ETFs. The networth goes up, the cash on hand not so much. A savvy RE investor will spend as less cash flow as possible for his lifestyle and will reinvest as much as possible in the same building (to be able to raise rent = more cash flow and raise value) or to buy another property.

        P.S. I think a balanced portfolio is a good portfolio… I do own ETFs as well. And I’m ashamed to say mutual funds with 2.5% fees, too… I’m an ETF fan now, can’t wait to get rid of the mutual funds!

      2. I own five rentals, and I think it’s fun. It’s always fun to make BIG money from well-considered investments. Picking winning rental units is way easier than picking winning stocks. I’ve been a landlord for only 6 years, and have made over $1 M in appreciation and net rental income during that time. Rents in my area have also increased 50% in the past 6 years. Plus it gives me a little hobby to do in early retirement. I can do as much or as little as I want by either doing some stuff myself or using maids, contractors, and/or property managers. When I’m travelling, I lean on my network. When I’m home with free time, I’ll put in some time myself. I have property managers on two of the rentals while managing the others myself. Over 6 years and 10 sets of tenants through 5 properties, I’ve had zero late rent payments; the secret is in careful tenant screening and owning nice properties in good neighborhoods.

        My rentals provide a bit of diversification from my stock holdings. I’m interested in seeing how much protection they will give me during the next major downturn. Cashflow is good as they generate almost $200k in rent revenue which I can use as a cash source to buy more stocks in a downturn. The tax benefits the rentals provide me are also a huge bonus.

        1. Congrats Joe! That’s a great management set up you have there! Careful tenant screening is definitely very important! It’s better to have an empty unit then a bad tenant in it!

    3. “fixer-upper” warning!

      Our little fixer-upper project cost me 825 days of my life and $78,000 over the past 10 years. I do have regrets about all those days I wasn’t doing fun things. I would probably do it differently if I was to do it again.

      1. @Bob Lin : Ouch! Was that 78K$ planned and known during inspection or was it all surprises? Out of curiosity, what would you have done differently and what is the #1 advice you could give me or anyone else thinking about such a project? Thanks!

        1. @Fil: Only $30K of the $78K was planned, but the time for us to do the work wasn’t given any consideration at all. The home survey suggested that various aspects of the house were tired and would need replacement at some point, and that’s how things played out on some big items. Today I would rate the house as OK, perhaps a 7 to 8 out of 10 for a rural 40-year-old home – no granite countertops, but it’s solid, very livable, and in a fairly decent out-of-town location.

          After about a year of being in the house my wife and I went from room to room detailing everything that we wanted fixed or upgraded, from changing a broken light switch cover to replacing the windows. Only when this was entered into a spreadsheet did we realize it was going to cost much more. The biggest shocker for me was the amount of time we would have to spend working on it in our so-called “spare time”; we both worked full-time jobs, we had three school age kids, and we expected to do about 80% of the work ourselves to keep the costs down. My spreadsheet, and logic, told me that we should sell up and move somewhere else. My wife said she wasn’t moving again (I thought sixth time lucky). So, we stayed and fixed up the house. Along the way there were a number of major equipment and system breakdowns that added to the cost ($ and time).

          What I would do differently now, and advise, is either a) do the room by room list of things to be done, including cost and time estimates, BEFORE putting in an offer to buy, b) opt to pay a higher price for a house where someone else has done all the work, or c) choose to rent.

          “time” has been our biggest expense, and no amount of money can buy that back.

  17. I don’t consider myself to be excessively decadent by Canadian standards, but I’m hard-pressed to justify raising two kids in a 900 square foot condo with inconsiderate neighbours while sitting on a 7 figure net worth.

    To me, feeling comfortable in one’s home is a big factor in quality of life, and personally I’m willing to lengthen my time to retirement by a reasonable amount of years in order to get it. I’m not saying you need to blow your financial brains out on a 3,ooo sq ft house, but a condo with a third bedroom in a building where you don’t have to listen to your neighbours sounds like a no-brainer for a family with its finances in order.

    Don’t forget: if prices have fallen for the condo they own now, they’ve most probably fallen for move-up condos as well. Trading to a larger, slightly nicer one might not be so financially ruinous and might be well worth the increased quality of life for the family.

    1. Exactly my thoughts. We have a 2br condo in Edmonton. 3bd condos in the same building cost about 30-40k more than 2br units. I think it’s kinda the same situation in Calgary. If you want to get a bigger condo, now is definitely the time to do it. And this move won’t hit you too much financially (bigger condo fees each month + less than $50k price difference).

      1. Well if we’re going by that logic: What’s wrong with working to 65? Lots of people do that and turn out fine, too.

        The choice is about getting the most possible out of life (according a person’s own priorities). The subject of this reader case is in the enviable position of being able to decide whether it’s more important to her to have a bit more living space – which seems like it could improve her family’s quality of life considering her circumstances – or retiring much earlier than necessary.

        Personally, I’m into Week 3 of living in a house after 10 years of renting a one-bedroom apartment. It’s a significant hit to the finances, and no doubt increases my time to retirement by many years, but so far I don’t regret the trade-off. Having the space to spread out and not constantly be in the same room as my girlfriend, who works from home, is a nice luxury, and I’m enjoying no longer hearing my neighbours coming and going or partying when I want to sleep. These things will no doubt become even more valuable to me once we have kids. At this point in my life working while I’m still able-bodied seems a lot more appealing than spending the next fifty years living with my family in a shoe box.

  18. US citizens residing overseas must file two tax returns, for countries that tax different things and in different percentages, because the US is the ONLY country that taxes non-residents on worldwide income. It’s citizenship-based taxation, not the FATCA reporting, that is screwing you (although FATCA is also a pain!).
    This is discrimination based on national origin, and is a drag on your ability to save for retirement. Have you explored trying to save in US-based investments to get around this?
    It’s disquieting when renouncing US citizenship (a huge expense at about $2400) is the only way forward to saving easily for retirement.

  19. I’m continuously amazed by people cribbing about living in a 900 Sq feet home – Looking at this from my point of view (Indian), 900 Sq feet is fantastic space to have for a family of 4. The kids are below 9 so they can share a room at least for another 5 years or so and by then the family will be FI. Bad neighbours though, is a problem but something that can be managed.

      1. Sorry wanderer, I disagree. I am an Indo-Fijian and from a poor farming family originally. The whole family of grandparents, parents and grandchildren sleeping in one room all of 23 people. It was quite common practice and accepted in that situation though crowded and stifling hot. but we had no other choice. Later. once I moved to NZ I flatted with 6 people in a house about 900 sq feet and for me that was luxury. Not for my flatmates who were from a different background. Than I got my own place and I was in heaven. I had to shell out more on rent but I could comfortably afford it by than. recently I had t go back to Fiji and sleep in the same room but now with only 6 people for 3 weeks. It was hell, somebody farted, snored, rolled on, etc. I could not find a quiet place to work in among other things.
        My point is we get used to being comfortable and it also depends on what we originally were used to. Would you and Firecracker be able to go back to your 9 to 5 existence life for even a month in a cubicle again? The kids may end up having different interests and would need their own space. Mrs crossroads may need a hobby room when she retires.
        The goal here is to be FI ie be comfortable and have more choices in life.
        My advice, don’t sell the condo ( soft market) and who knows the kids may end up going to a university near by and will need a place to live in. Maybe buy another condo next door (soft market) and choose own and less noisy tenants. Travel and find where you eventually like to retire and either buy a property to let or land to build on slowly over the years. Than sell up condo in a higher market and get your money back.
        Or just sell up now and move up in a bigger house now. The choice is to reach FI comfortably in 6 years or not so comfortably in 4 years. Good luck.

    1. And people in India survive all kinds of stuff that Canadians can’t imagine. Kristy wrote an article about how adaptable humans are, and of course she was right – she would know. But my bet is that the few Indians who have $500k in the bank and are pulling in $175k per annum aren’t saying, “You know what, let’s live in a tiny space anyway.” In fact, the wealthy Indians I come across have servants that do everything for them, and won’t even bother walking from one place to another if having someone push them in a wheelchair instead is an option.

      If someone is happy raising their family in a small space so that they can retire by their forties, more power to them. Many of us, however, will opt to work longer and enjoy the luxury of space. Having that choice is the joy of living in a free, wealthy country.

  20. Another great reader case – I could read these all day. One question that has likely been addressed in the past relates to the SWR assumption of 4%. Do you think the 4% assumption is conservative enough? Would it be worth considering a best case/worst case type of approach where another scenario is considered using a lower SWR (say 3.5% or 3%) to allow for unexpected increases in expenses or lower than expected returns? I just wonder if there should be some kind of factor included in the math based on individual level of risk tolerance. Thanks for listening and truly appreciate the reader cases!

  21. I would love to see more examples of real estate going down in price. For people in East Coast Australia (Sydney Melbourne) they believe property can’t go down. I’m from Western Australia (mainly mining state) and we have had a big property downturn over recent years. I think of myself lucky to get out of two properties only loosing $85,000

  22. I think if Mrs Crossroads can hold out to retire until her children are off to university in about 10 years they could afford to buy the $450,000 home and give everyone some more space. Teenagers sharing a room with hormones can be a nightmare. They would be mortgaging a new house for the same as what they paid for their condo and hey have shown that they can pay things off very well. Plus with their children still in school and her husband still working, in 5 years time, what is she going to do with her time and be retired in 900 sq ft? She will be out of the rat race but her family will still be highly involved with school and work.

    Being 51 myself I intend on retiring in 7 years when my husband does and my last child will be out of university. We have saved some for university for them but nothing like the crossroads have. Their children are fortunate.

    I am not sure what we will do come retirementment but we will definitely be downsizing from 4500 sq ft. On 2.5 acres. We paid $300,000 with $150,000 downpayment and $270,000 in investments. My husband has a great pension plan. I stayed home with the kids for 15 years and then went back to work. My pension is really nothing. But we will sell and downsize buy a small place for the summers and something very small somewhere warm.

    Oh by the way it was my husband who wanted the huge house. I hate it!

    Good luck with your decision making.

  23. thanks so much for sharing this, inspiring story, good luck, great job raising kids in a small space and dealing with condo issues! We completely hear you and are embarking on a similar journey…

    thanks again and good luck!

  24. Inspiring story Mrs. Crossroads. Fantastic work building up those RESPs. I am amazed at how many people don’t take advantage of the 20% bonus (up to $500) the government will kick in. Tough decisions to make on the condo. Assuming your husband is on board with sticking put, you’re golden. If not, this could be a struggle. His decision to keep working should be factored into the plan. I’m facing a similar situation, where my wife wants to keep her current work schedule post-FI. If you’re no longer saving in five years, and still have his income coming in, you’ll well exceed your post-FI financial needs, and will have some extra money to play with (maybe a bigger apartment?). Not a bad place to be!

    1. Good perspective Dave and thanks for the kudos. Definitely “first world problems” here. Just a question of timing and trade-offs. We have good options and, in the end, any one of them would be fine. We are lucky. Maintaining a strong, loving and enduring marriage, and successfully launching two kids into the world are the ultimate goals. FI — whenever it occurs — would be the cherry on top. Best wishes to you and your family on your journey!

  25. A couple of thoughts and initial reactions…

    – That savings rate is stellar – good job!
    – There are a little too many unknowns (for me at least) in order to conclude, here are some of the things I would consider:

    1. When will Mr. and Mrs. Crossroads retire together? The fact that Mr. is willing to work a little longer I feel like really opens the door for various options. So let’s make some assumptions…

    2. Assuming Mr. Crossroads wants to work till he is 50, that will give you guys another 10+ years of active income to play with, which IMO opens up the opportunity to turning the current condo into a rental property that could generate some nice passive income once you turn 50.

    – Just running some quick numbers, you can do a cash-out refi of 50% of the current property, and payback the remainder over 12 years (mortgage payment roughly $850) and with rental income of $2K+ you can easily cover all other expenses such as insurance, property tax, HOAs, maintenance, vacancy etc. Then… when you’re both 50 you have a nice fully paid off asset, producing passive income when you’re both retired on top of anything you’re stock/bond portfolio is kicking out. It’s also a nice way to diversify across different asset classes… am I totally out to lunch on this one?

    I know you need somewhere to live so the question is to rent vs. buy a second property. If you want more space, you could take the 50% equity from the cash-out refi buy another house somewhere with more space, less centrally located, give the kids some more room to grow up and be teenagers in their own room to then ultimately pay off that mortgage as well by the time you’re 50? Trust me – we were three brothers growing up on less than 1,100 sqf with no privacy which was ok until the teenage years and girls became more interesting than video games. By the time you’re 50 the kids have moved out (or close to it) and you can re-evaluate the housing situation. Sell the house, down-size and cash-in, buy an RV, rent whatever and still keep the condo for passive income purposes?

    I have no knowledge or insight to the Canadian housing market, but I feel pretty confident saying that like most other places Ive experienced, Im sure in Alberta too you can move a little further away and get more space for the same price.

    Depending on the housing numbers, the above can give you guys some scenarios to consider. Good luck!

  26. Mr. and Mrs. Crossroads. Listen to me. Having or living in a house (vs a condo) does not mean you will not have rude and self absorbed neighbours. I live in a duplex home and dealt with the many dogs (up to 7 at a time) my neighbour had that incessantly barked daily for 1.5 years. It. Was. Debilitating. They finally moved away and life at home has been bliss ever since. I understand your frustration. What you need to focus on when weighing your decisions is if the actual space you are in is livable for your family. Neighbour’s will come and go wherever you plant your family. You are doing a fantastic job so far and that is why you now have choices. Good luck to you and your family.

  27. ^totally agree with this comment from Paulina. There is no guarantee that moving will solve your neighbor issue. If might even make it worse….

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