Life Situation: Husband and wife, baby on the way. Both 31. Living in Canada. Initially read Rich Dad Poor Dad, got interested in personal finance, found MMM a few weeks ago, and pleased that we seem to be broadly in-line with FIRE, although possibly less frugal than we could be.
Gross Salary/Wages: Salary 1 = CAD$235k, salary 2 = CAD$200k. Total CAD$435k
Other Ordinary Income: Interest on cash in bank and peer loans: $2-3k
Rental Income, Actual Expenses, and Depreciation: CAD36k in rental income per year comprising 4.5% yield of CAD$680K property (old investment with significant capital appreciation) and 7.6% yield on $70k property (newer investment).
Adjusted Gross Income: CAD466k per year
Taxes: c.$140K Federal and Provincial Income Tax.
Current expenses:
Rent: CAD$2,400
Bank fees: CAD$13
Vehicle Insurance: CAD$245
Internet: CAD$55
Electricity: CAD$50
Cleaner: CAD$150
Restaurants: CAD$600
Healthcare: CAD$60
Personal care: CAD$50
Groceries: CAD$400
Hobbies: CAD$400
Travel: CAD$700
Gas and Fuel: CAD$183
Gym membership: CAD$86
Clothing: CAD$165
Electronics: $40
Entertainment: $50
Car Maintenance: $25
Home Improvement: $25
Miscellaneous (Cash): CAD$230
Total Monthly Expenses: CAD$5,527
Rental Expenses:
$240 estate agent fees per month
$200 maintenance allocation per month
Assets:
Current assets: CAD277K (Cash:CAD235K, TFSA:CAD$42K)
Non-current assets: CAD996k (Rental property: CAD$750K, Vehicle CAD$13k, Stocks CAD$78.5k, accrued work bonuses CAD16.5k, P2P loan principle CAD$23K, retirement accounts CAD$115.5k).
Liabilities:
Current liabilities: CAD5K (working balance on credit card, paid off in full each month)
Non-current liabilities: None
NET CURRENT ASSETS: CAD$272K
NET NON-CURRENT ASSETS: CAD$996K
NET WEALTH: $1,268K
Specific Question(s):
Current plan is to both work full time until baby arrives during which time we intend to (1) build an additional CAD$120k bringing NET Wealth at intended time of FIRE to CAD$1,388K and (2) convert the current assets, stocks, accrued work bonuses, P2P load principle into passive property income (hence the high cash %). We think that if we can build the passive income from CAD$2,560 per month to >CAD$5,100 per month, we’ll have enough to live on including allowance for renting a property in a location we choose that is roughly equivalent to the spend on our existing rental (c.CAD$2,400 per month). Post fire, we may work part time initially and then seek to FIRE completely and start a property development business through releasing equity from existing property investments and leveraging. The intention would be to work towards CAD$10,000 per month in passive income. We may later go back into paid employment, expand the property business, set up a different type of business, or spend time travelling depending on what we feel like doing. Specific questions are:
• Does this plan sound realistic? We’re concerned we may be missing something that leaves us with egg on our face. My wife is concerned she’ll be eating beans on toast.
• Are we optimized for success? I find the low yield on the main property concerning and I’m toying with the idea of selling it to reinvest into higher yielding investments. There would be a cost to doing this (capital gains tax + purchase taxes and buying fees). I also question whether it’d be worth making better use of retirement investment vehicles such as RRSPs but I hate the idea of putting my future in someone else’s hands (self-directed RRSP could be an option). Also, we may opt to move overseas at some stage in which case there’s a 30% withholding tax for RRSP withdrawals (or leave it in-situ and at the mercy of exchange rates).
• Is a strategy that focuses almost entirely on property too risky? We’ve been landlords a while and have a reasonable feel for, and have researched extensively, property investment strategies. We’re much less savvy when it comes to income from dividend paying stocks.