Author Topic: Life Change! Need Advice/Help  (Read 2883 times)

Swish

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Life Change! Need Advice/Help
« on: July 04, 2017, 12:06:15 PM »
After reading this site for a year I have finally taken the plunge and quit my job to accept a lower paying one that is within walking distance of home with double the paid holidays. Already got rid of the car YAY! I will not miss the daily two hour commute (154km total drive). Another big change is a few months ago we recently dropped the second income as my partner graciously offered to stay home and raise the munchkins as daycare was about half their take home pay.

Despite this, life feels like it is spinning out of control. I am pretty nervous about the new job and how we will manage the bills as the new role is effectively $1,200/mo after taxes less than what I was making before. We went through a bad spell with tenants that lost me out on 3 months of rent at two properties so we have been triple mortgaging it. The one property so far has cost me $23k in damages that I had to take a family loan for to cover with the promise to pay back $8k by November. Other than this we have no short term debt and no savings. 

Current Monthly Cashflow:
-$2400 - Rent
-$4766 - After Tax/Ded Pay
 $1200 - New job pay cut
-$1833 - Business income
$895   - CTC Benifit
$8694 - Total Income

$4619 - Mortgages
$450   - Property Taxes
$145   - House Ins.
$400   - Utilities
$300   - Groceries
$50     - Gas
$72     - Van Ins.
$1080 - Bus. exp.
$308   - Bus. Ins.
$140   - Cell Phones
$56     - Internet
$7620 - Total Exp

$1074 - Net

I have approximately $55k of RRSP contribution room (We are Canadian). Should I take out a loan to max out my contribution room this year as well as payback the family loan?

My understanding from my accountant is that this would drop me three tax brackets and result in a $19384 tax savings this year. Over 5 years at 3.5% on $78k and a $1419 pmt I would only pay $7137 in interest. With the additional time off I should be more than able to increase our income with the side business to offset the  $4140 yearly shortage if I pick up the payment. Worst case scenario I could use the $19k savings to assist with payments or pay the loan down to $59k and a much more manageable payment of $1073.

Any advice would be appreciated

chasesfish

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Re: Life Change! Need Advice/Help
« Reply #1 on: July 04, 2017, 12:50:37 PM »
I can't speak to Canadian taxes, but I'd say your first priority is to build up a cash safety net, even if it means don't contribute as much to the retirement plans (blasphemy on these boards, I know).  You need a good cash safety net as a landlord, no more high interest/family loans to cover vacancy/turnover/unexpected repairs.

pyyj

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Re: Life Change! Need Advice/Help
« Reply #2 on: July 04, 2017, 05:06:04 PM »
Don't know where you live, but I'll assume for the sake of simplicity that real estate rentals provides a good return on capital (if you are in Vancouver, Victoria, Toronto, that's probably not true, and perhaps the simplest thing is to divest and put the funds in an investment vehicle that requires less effort on your part). Looks like you just have a temporary cash flow crunch, so just hang in there! Being +$1000/month means you'll get out sooner than later.

RRSP is just a tax deferral, so there's only a win when the tax rate you defer is higher than the tax rate you'll eventually incur when you withdraw the funds. The bigger the rate difference, the bigger the real win. I only ever make an effort to use RRSP's to get below the top bracket. Since un-used contribution room accrues, there's no need to push to use it all up this year. Definitely don't add debt to max out the RRSP's, unless you really think your RRSP returns are going to be higher than your (after tax) interest payments.

Swish

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Re: Life Change! Need Advice/Help
« Reply #3 on: August 22, 2017, 11:30:07 AM »
How much of a cash safety net is reasonable for rentals? I do not like the idea of money sitting around not achieving anything. What type of vehicle should this savings be held in?

2Cent

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Re: Life Change! Need Advice/Help
« Reply #4 on: August 23, 2017, 11:28:36 PM »
I would say you need at least a couple thousand in an account that is immediately available for urgent repairs. The common wisdom is to keep at least 3 months savings in something that you can access within a month. For me I expect the chance I will need emergency money is so small I just count on a credit line for backup. The cost of not investing is more than borrowing for a few months as I divest. The problem is of course that there could be a perfect storm where credit is blocked and investments are down, just when I lose my job. But this is such a small chance that I don't plan for it as I am very employable and could find something lower paid quite fast.

FINate

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Re: Life Change! Need Advice/Help
« Reply #5 on: August 23, 2017, 11:46:29 PM »
What is the cash flow on the rental properties (after all expense, vacancies, etc.)? is the recent spate of expenses/vacancies a truly a fluke or does this need to be factored into your accounting?