Reader Case: Fur Baby FIRE

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The longer I write this blog, the more I realize that there are multiple, sometimes completely unexpected pathways to FIRE. What started off as a purely frugality-based movement has splintered and broadened into so many different sub-types it’s hard to keep track. Now you have not only traditional Fat FIRE and Lean FIRE, you have Side-FIRE (FIRE plus a side hustle), Nomadic FIRE (FIRE via travel), and even Van…FIRE…hmmm…I’m going to have to work on that one a little bit. Well, today I have a new one for you: Fur Baby FIRE.

What is Fur Baby FIRE, you may ask? Does it involve having kids with very hairy guys? Does it involve dressing up as an Ewok? Is it a weird sex thing?

No, no, and maybe, ya weirdo.

No, Fur Baby FIRE is FIRE via…Pet Sitting!

I know, I know, I was skeptical too, but weirder things have crossed my inbox. So without further ado, let’s see how one reader managed to pet sit her way to Financial Independence!


If you feel this is an interesting case study from a Canadian International House and Pet sitter, please share.  Your thoughts would be greatly appreciated and save me some money with my therapist…LOL

I’m not sure if you will pay attention to this as I’m not in my 30’s but I have an interesting situation.

I’m a 53 year old single woman.  I’m seriously thinking of pulling the trigger on FIRE.

Up until 5 years ago I lived in my primary residence for 20 years.   My work contract ended & I decided to sell all my possessions and my car and take a year off and house and pet sit.  

Currently I’ve been renting my primary residence for the last 5 years.

The house and pet sitting turned into a 5 year awesome adventure & now, I can officially call myself an international house a pet sitter, having house sat in Thailand, Malaysia, Indonesia, Ecuador, Panama, Mexico and of course my home country of Canada.

I have fantastic tenants (I’m so grateful) in my primary residence. The rent is $1456/month.

My 2nd home, I’ve owned for 7 years, and my parents have rented it all that time.  They are fantastic, my Dad does things that improves the property (new deck, powder room upgrade, the house is always kept immaculately clean.)  The down side is 7 years ago my parents and myself all agreed that they would pay me $900 per month rent to cover my mortgage payment and they would take care of everything else.  Last year they put a new $8000 roof on the house, they pay all utilities, maintenance and upkeep.  My responsibility is to pay the yearly property taxes ($3600 per year and house insurance $700 yearly)  Their $900 rent no longer covers the mortgage and I have to kick in $50 per month.  They are aware of this but there was no offer from them to cover it as they feel they improve the property out of their own pocket.  I have to agree with this.

I have $425,000 between my RRSP & my TFSA.

Here is my dilemma.  I’m seriously thinking of selling my primary residence.  I purchased it 25 years ago for $80K.  Now my real estate agent thinks it would fetch $350K!  Covid is making housing prices skyrocket.  I’ve done some research and I think she may be right.  

I keep flipping back and forth between keeping the house and enjoying the renters passive income coming in OR selling the house and putting the $325K (the other $25K would be eaten up by lawyers fees and real estate commission 4% of $350 = $14K)

I’ve organized my finances so that the tenants $1456 monthly rent covers property taxes on both homes, insurance on both homes and gives me $800 per month to live on.

But if I add the $325K to my nest egg of $425K I would have $750K

It pains me greatly to think that I would have to continue to pay property taxes of $3600 per year on my 2nd rental that my parents live in out of this nest egg, but such is life.

Being an international house and pet-sitter, my only expenses are traveling to the location, food and entertainment.  Over the last 5 years I’ve been able to shockingly live on $800 per month. Sometimes it’s a little more but most of the time it’s quite a bit less. I know this sounds crazy & your readers probably won’t believe it but it’s true as I’m not a partier, clothes horse, drug user or bar hopper.  

My primary residence does cause me to lose a bit of sleep because it’s an old house.  Last year I spent $3K repairing the deck, another $2K cutting down trees that threatened to fall on the house and I just put a $10K roof on the damn thing a few weeks ago.  It feels like every time I get ahead just a little bit, a big expense hits me with the primary residence.

Also, I’ve NOT had to dip into my nest egg at all over these last 5 years.

I’m also wondering if I do sell my primary residence should I use $140K to pay off the mortgage on the home my parents live in and use their rent as a small income stream while I pull out $24K per year from the $750K nest egg.  This is an over-estimation but I want to be safe in case I decide to not house and pet sit anymore and need to pay rent somewhere.

I would continue to come back to Canada every 6 months as I have many clients here and I want to keep my Canadian Health Insurance.

I should also mention that I started a new job with a small non-profit in November that pays terribly at $45K per year but does have a marginally ok benefit package but it’s not fantastic. Due to Covid, it made sense to work and sock money away to pay for the roof but as of this November, I’m headed to warmer climates to continue house and pet sitting and/or staying with a friend.  My intention is to quit my job if they will not allow me to work from home (or anywhere for that matter) as I’ve been doing since I started with them in November.

In your opinion, do I sell my house and start drawing from my nest egg at the age 53 which makes me nervous or, do I continue to live on $800 per month, keep my tenants and enjoy this revenue stream?

I don’t believe I can count on my home increasing in value and I keep praying the septic system doesn’t crap out (no pun intended).   

I’ve been going around in circles about this for the last 3 years but with home values going through the roof, could I be missing the opportunity to cash in?

My parents are healthy and happy and could possibly be renting my other home for the next 20 years at which point I will be 73!

I don’t know what to do.

Assets

Primary residence: $350K

2nd Residence: Paid $255K 7 years ago. Probably worth $550K now. $140K mortgage on this property.

2013 Dodge Caravan: $7K

FYI

Also, I’ve never made over $60K per year.  I went bankrupt because of a failed marriage when I was 25 and lost everything… my house and my car and had to start completely from scratch.   I have no kids.

I bought your book when it first came out 2 years ago and because of the crazy markets, I’ve been selling off my stock to take advantage of the gains (120%) and now want to invest in ZCN, VEA, VFV ZAG & BND.  I’m thinking of a 70/30 split but finding this very painful to cope with and thinking maybe I should do 80/20 Equity/Bonds.

Your thoughts on this would be very helpful.

Warmest regards,

FurBabyFIRE 


First of all, I wanted to highlight this…

I went bankrupt because of a failed marriage when I was 25 and lost everything

Yowza. She went from bankrupt to this as a single earner?!? That deserves a crazy-awesome high-five right there. Having something like this happen to you at such a young age and then having to rebuild everything from scratch must have been traumatizing, so good for you on getting through that. Not everyone would have been able to.

OK so on to the Fur Baby stuff. House and pet sitting is a whole subsection of budget travelling that I’ve been aware of for many years but never tried myself. Basically, house sitting is where you move into someone’s place for free so that you can take care of the house while the owners are away, and pet-sitting is when you’re also taking care of the owner’s pet at the same time.

What’s the catch, you might ask? Well, if you’re trying to use it as a way to get free/cheap accommodations while travelling, finding the right house sitting gig at the right time can be tricky. Remember, you’re taking care of the place while the owner themselves is travelling on holiday, so you often find a lot of house sits in weird locations and times, like in Canada in the dead of winter. So for that reason, we were never able to use it effectively during our travels, but if you’re able to string together enough pet-sitting gigs to fill an entire year, you could potentially use it to drop your living expenses down to almost nothing.

That’s what our reader has done, and why she’s able to live on a minuscule $800 a month. That’s impressive by any standard, and a big reason why she was able to really ratchet up her savings even in the middle of a pandemic.

However, her cleverness on the pet-sitting front is somewhat offset by the living arrangements with her parents. She owns a house that her parents live in, she still has to cover the taxes and insurance, and the amount they’re paying isn’t enough to cover the mortgage, so overall this is a cash-flow-negative investment property.

These situations seem like a good idea when you’re getting into it, but it almost always ends up badly. At best, you end up subsidizing your parents’ living expenses charging below market rent out of a sense of family devotion, and at worst your parents end up destroying the property and you can’t do anything about it because they’re your parents. An investment can turn into a trap very quickly if you can’t get out of it easily, and these situations almost end up in a trap because nobody wants to evict their own parents.

That being said, FurBabyFIRE seems to be OK with subsidizing her parents rent on an ongoing basis, so let’s just leave this house as is and see if it blows up her retirement too badly.

The Pet Sitting Life

What FurBabyFIRE has managed to do with pet sitting is really impressive. She gets to travel the world, live in other people’s houses, and drop her living expenses to almost nothing all at the same time. If she were to keep doing it in retirement forever, she’s basically FIRE now and then some.

But what if the pet gigs dry up and she has to go back to renting? That’s what we have to design her retirement around, the worst case scenario. If the pet sitting thing works out, great, but if it doesn’t the numbers still need to make sense.

So without further ado, let’s…MATH SHIT UP!

Currently, our reader’s non-housing spending is around $800. If she goes back to renting, we have to add that back to her living expenses. So let’s assume that she pays in rent what she’s currently charging her tenant to live in her house, which is $1456. Obviously, her actual rent may be higher or lower than this, but by showing how the math works our reader can rerun the numbers using whatever actual rent she ends up at.

So her new living expenses would be $800 + $1456 = $2,256 per month.

But her current tenant is (after expenses) providing her $800 a month to help pay for this. So her net living expenses is $2256 – $800 = $1456.

That means she needs an investment portfolio of $1456 x 12 x 25 = $436,800. Her current balance in her RRSP and TFSA is $435,000. So right now, her portfolio is just able to fund her retirement as is.

Fantastic!

Keep The House or Sell It?

What about if we get rid of the house? Does that make her situation better or worse?

Well, if she sells the house, her retirement portfolio, after fees, will go up to $750k. But her income from her tenants will disappear. How does this affect her numbers?

We are still assuming her living expenses is $2,256 a month, but now there’s no tenants to help her pay for part of it. Additionally, she’s also on the hook for $3600 + $700 = $4,300 in insurance and property taxes on her other property (before, these costs were paid for by her tenant’s rental income).

So now, her annual expenses are $2,256 x 12 + $4,300 = $31,372, which would require a $31,372 x 25 = $784,300 portfolio to retire.

Hmmm, she needs $784,300 but she would “only” have $750,000. Getting rid of the house seemed to have made things worse! Could this be? Should she actually keep her rental property?

Pay off the Mortgage?

To answer this, we need to examine the last question she asked: If she sells her house, should she use it to pay off the mortgage on her other property?

If she were to do that, the $900 her parents give her that don’t even cover the mortgage payment would now be able to go directly into her pocket and help with her living expenses. Yes, her portfolio would decrease to $750k – $140k = $610k. But would the lower living expenses by enough to compensate for this?

Her monthly living expenses would be $2,256, but now we can use $900 from the parents to offset this, so her monthly would now be $2,256 – $900 = $1,356. She still has to pay the property taxes and insurance, so her annual expenses would now be $1,356 x 12 + $4,300 = $20,572, which requires a portfolio of $20,572 x 25 = $514,300.

That would be comfortably supported by her new portfolio size of $610k.

Conclusion

So there you have it. Now, admittedly I took a wild stab at what her rent would be if she stopped pet-sitting, so if FurBabyFIRE has a better number, then she should feel free to plug her estimated rent into the three scenarios herself.

That being said, as the numbers stand, of the three options, she can either leave everything as is, or sell her rental house and use the proceeds to pay off the mortgage on the house her parents live in and both would work out just fine for her. Personally, I’d do the latter because it makes your retirement much safer, and it’s one less house you have to worry about.

But if you do this, make sure that you don’t tell your parents you paid off the mortgage, because then they just might stop paying you rent because “you don’t need it anymore.” Buncha freeloading Boomers.

So there you have it. What would you do if you were in FurBabyFIRE’s position? Would you keep the houses or get rid of them? Let’s hear it in the comments below!


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25 thoughts on “Reader Case: Fur Baby FIRE”

  1. You forgot one very important detail. FurBaby’s primary residence is a rental. So she will have to pay capital gains tax. Since most of the capital gains occurred while the house was rented, she would have to pay tax on, what I estimate to be, the $155,000 capital gain. If she wants to avoid paying the capital gains tax, she will have to kick out her tenants, take possession of the house and live there, for I believe, a two year period, then sell.

  2. If the poster really enjoys pet sitting and traveling, then she is in great shape no matter which option she chooses. I would suggest selling the rental home to simplify her life. The rental income isn’t high enough to justify the equity she has tied up in it and selling improves her cash flow position right now.

    The home her parents are living in is even worse (from a cash flow perspective). But, she may not want to damage the relationship with her parents (especially since she can afford the cost). Does she stay in that home when she comes home to visit? Maybe there is a benefit there. Selling this home would also make sense financially but might not be worth the cost relationally.

  3. Wow! This was interesting. I’d like to hear what the Wanderer has to say about Veronica’s comment regarding the capital gains tax!

  4. What are the rules on Canadian capital gains tax on a rental property? Is it 25 % as in the US? If there is depreciation recapture on rental properties, as there is in the US, the tax can be substantial. Does she have capital loss harvesting from taxable accounts that she can use to offset the capital gains? POF recently used capital loss harvesting against the sale of his rental property.

  5. TGIF 🙂
    I’m puzzled on this calculation:
    $1456 x 12 x 25 = $436,800 (I know 12 is months of the year but where is 25 derived from?)

    1. FIRE typically assumes you need 25 times your annual living expenses invested. It’s the 4% withdrawal rule.

    2. This is just the 4% rule expressed in a different way. 4% of something is the same as saying 1/25th of something. It allows you to work out what your FI number is if you know what your yearly spend is. If you spend $40,000 per year, you’ll need $40,000 x 25 = $1,000,000 in your portfolio if your withdrawal rate is 4%.

      Or in this reader case, yearly spend is $1,456 x 12 = $17,472 x 25 = $436,800.

      Take your yearly spend and multiple it by 25; that’s your FI number.

    3. The 25 comes from the Rule of Four and is used to work out the amount (pot size) required to fund the level of income required based on a 4% withdrawal rate.

  6. “My parents are healthy and happy and could possibly be renting my other home for the next 20 years at which point I will be 73!”

    I don’t want to be morbid but this part of the post struck me unrealistic. When she is 73 her parents will be somewhere between 93 and 113.

    Her parents are currently renting her second home and contributing to it’s maintenance and upkeep. She is 53 and her parents are at least 73 or more years old. She has been subsidising their retirement for years but the current situation as it stands is actually UNLIKELY to continue “as is” for the next 20 years.

    How much money will she need support her financially dependent parents should they become sick or to old to live on their own? This possibility may need to be factored into any plans or decisions she makes about FIRE.

  7. So Canadian Capital Gain tax…

    I’ll take the numbers as it was originally noted on the post. Original value of the home is $80k and FurBabyFIRE thinks she can sell it for $325k net ($350k less fees, comm etc) and so effectively you have a NET reported proceeds of $245k. In Canada, the Capital Gains Tax is considered one of the more favourable forms of income since you only get taxed on half of its reported value. In this case, $122.5k (which is half the proceeds of $245k).

    Knowing nothing else about FurBabyFIRE financial situation other than what is disclosed above, and if you plug this figure in any income tax calculator, FurBabyFIRE will now be required to pay approx $34k total (fed and ON taxes). There are ways to mitigate this as already mentioned on some of the comments but one effective way to “defer” this is by putting the proceeds of the sale in a tax advantaged account (ie an RRSP assuming there is available room) and use the contributions to offset or minimize the said tax liability.

    ImmigrantOnFIRE

    1. Thanks ImmigrantOnFire! Very helpful information to understand the case better from a tax point of view!

  8. I’m new here but why aren’t we discussing the future costs of long-term care for her parents? That’s a major outlay later in life. I’m from the US so I know that’s the worst possible health care scenario country, but even if Canada offers some publicly-funded options, don’t people find they contribute to this or go private to get their folks into better accommodation or improve access to specialists depending on their conditions when they go into care? If you have a relationship with your parents you need to be planning for this. I saw it be a drain on my mother’s finances when her mother went into long-term care and she was in a nice European social medicine country.

    1. Her parents had their whole life to save for events such as you described. Why would the burden fall on the daughter? She had already subsidized their housing for almost a decade and probably for another two.

  9. Hi everyone, Furbaby FIRE here.

    I’m enjoying the conversation this has sparked. Veronica’s comments about Capital Gains are very interesting. I’ll address a few points in more detail.

    My Canadian accountant has declared a deemed disposition on my primary residence of $350K. If I sell over this amount, I would pay capital gains on the 50% over this amount but ONLY on the 5 or 6 years that I rented. Because I’m in a VERY low tax bracket (and even more so if I quit my job) the capital gains are very small.

    If I did sell, I would then declare my 2nd home (the one my parents live in) as my primary residence. My parents would simply be tenants that live with me. I do stay there when I’m home but for short visits which keeps more peace between all of us…LOL. Then, this home would be my principle residence and when I sell it, I would only need to pay Capital Gains on the 7 or 8 years that I rented it as my accountant would change it from a rental to my primary residence. At the moment, I need to decide if it’s better to sell my primary residence in the next few years to keep the capital gains low on my 2nd home when I decide to sell it in the future. I do think my parents are going to live forever…LOL.

    Now let me address caring for my parents as they age. After reading the blog post here about how “we” are not responsible for the financial failings of our parents, I’ve come to realize that “hell yea” I am subsidizing their retirement (I had not thought of it like this before) and this arrangement we have is the end of my assistance. I honesty don’t feel compelled to put my retirement plans in jeopardy to assist any more then I’m doing right now. Sorry, I know this sounds harsh but it’s true.

    Now… for the house and pet sitting. I have a profile on TrustedHouse Sitters. It costs about $100 per year. Less then one night in the Banff Spring Hotel and I get to travel the world. THS works the same as your typical dating sites. I have a profile and the home owner has a profile. When the home owner wants to travel, they make their profile live with the dates, responsibilities and other important information as to whether there is high speed wifi, the use of their car, location etc. If you are interested you apply. If the homeowner likes your profile, you get in touch. I insist on a “live” call with them so we can get a “feel” for each other… I ask them to tour me about their home and they can get to know me better. If this goes well, the homeowner will choose you and invite you to do the house sit. The best thing to do is start local and work your way up to international house sits. I’ve had some very awesome house sits, (Ko Samui, Thailand) and some “yucky” ones. (Very dirty, disgusting kitchen in Bali). As I do more house and pet sitting, I’m starting to trust my gut and KNOW… when I see a RED FLAG, to believe it, and make my decision with my eyes wide open. The problem I’m having now is my regular clients want me to return which is awesome, but I also want to see new places so this can be challenging to not book yourself too far into the future.

    Wanderer is correct in saying that “house sits in weird locations and times, like in Canada in the dead of winter” do not work for them. This is very true so you really need to do your research, know where you want to go regardless of the weird times and weather. I got caught in Chiang Mai, Thailand during March when the farmers burn off their fields. It was declared that this city had the highest air pollution in the whole world on that particular day. Of course the homeowners wanted to get away on vacation, they didn’t want to be there to breath the air but it was OK for me to breathe it! Do your due diligence.

    I take what I do very seriously and I still find it incredible that homeowners trust me with their most valuable possessions and dearly loved pets. House and pet sitting comes with a ton of responsibility and many times and can’t do what I want because of these responsibilities but to me… it’s totally worth it!

    1. You need a new accountant, there is no way you can claim 100% primary residence exemption when your renting to your parents. Unless of course your not reporting the rent for tax purposes.

      1. I disagree, her accountant is correct. As long as she “ordinarily inhabits” the home, which it sounds like she does, she can claim the second house as her principal residence. Take a look at the government’s fine print if you are curious:

        https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-1-individuals/folio-3-family-unit-issues/income-tax-folio-s1-f3-c2-principal-residence.html#toc5

    2. Fascinating story thanks for sharing it. Can you tell us a few more details about how the house sitting worked with flights? Roughly how many times per year did you fly and how were the flights covered, was that within your $800 a month? Did you cover a lot with travel points?

  10. Single earner that never made more than 60k over 30 years of working and received mortgages for two houses with starting mortgage of 400k, is exactly what is wrong with the housing market.

  11. Any thoughts about maintaining the Canadian Health Insurance. This is what also concern me as an immigrant aside from keeping my citizenship and pension. It’s a long way down the road to a conventional retirement but it’s good to know because I want to reach FI earlier.

  12. Why not sell both houses and pay your parents the present value of the improvements they made plus labor? They can rent from someone else and you’ll have no long distance landlord worries in the future. You don’t have a particularly large nest egg but since your lifestyle is crazy minimalist it should be plenty. I assume at 65ish you’ll start drawing some government pension money which will let you greatly reduce your withdrawal rates from the portfolio.

  13. I am assuming that the one property was deemed as a “residential” and the other is an “income” property but you are effectively collecting rent income on both of these units that is being reported to CRA?!? If this is the case and there are no concessions on your part to structurally alter the residential property to generate the said rent, then CRA should allow you the exemption assuming again that you are reporting rent income on both properties.

    Do NOTE the term “deemed disposition” does NOT have to equate and/or result to you selling the actual property! This is a misconception. CRA only needs to prove that the unit itself changed its “usage” to trigger Capital Gains Tax (ie unit was initially classified as a residential for personal used but then ultimately started to earn rent and so by that definition, it transitioned as an income generating property). I am not at all certain how much of the residential is being used for “personal” reasons and how much is utilized for income generation but I would anticipate that you are solely using the property to help you pay down your mortgage (ie having rent out a “portion” of your unit) to pay for the cost associated with owning the said property. If so, then you should still be eligible for the exemption. I do not see an issue with this.

    Where this gets a little dicey is if the entire property is solely occupied by the renter with you NOT utilizing any part of it (ie, they rented the entire house). Then, by rule, CRA can technically argue that the property officially changed “status” even though you claim it as a “residential” property in which case you can now be subjected to Capital Gains Tax on the proceeds of the eventual sale of the property. For the exemption to apply and kick in, technically the residential home must be occupied in some fashion by the owner.

    ImmigrantOnFIRE

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