Author Topic: Starting from Essentially Zero (but not in the hole!)  (Read 3677 times)

apstone

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Starting from Essentially Zero (but not in the hole!)
« on: August 27, 2012, 03:27:48 PM »
Hey all, my uncle, who is FI and has always owned his own businesses, turned me on to MMM's blog back in October, and I have been following ever since.  This forum is great, good to bounce ideas off like-minded people.  I look forward to offering advice on the DIY forum, as I am a carpenter by trade.

Anyways, my wife and I are both young people (I'm 26, she's 23) but have always worked, etc.  We are already pretty frugal, which is a little hard here in Canada with a high COL.  I am American, and unemployed now while waiting for my residency papers to come through.  I worked under the table for a while, and am going to be starting a new project for our landlord, which will carry me through to legalization, where I have a secure job waiting.  My wife is an art teacher at a children's art studio, also a stable job.

The problem is, these jobs are relatively low paying.  She is at $15/hour, and I will be at ~$20/hour.  Works out to about $4500/month.  Our rent is $850, and we are renting a large garage on the property for an additional $425, which we will use as a workshop for me and as an art studio for her.  She will be running some classes to help offset the cost for the space.

Other expenses are in check:  Even with me not earning any money now, we only have to dip into the savings for purchases liek dog food (70$/6 weeks).  When I am working, we will be able to live on my salary alone, thus saving 2k/month, or about 45%.  We have NO debt, although we both own cars.  She needs hers to get to work in a different city, and I need my truck for work.  Her's is a 99 corolla that gets 30mpg, and mine is a 98 4Runner that I get 21 mpg out of.  Not ideal, but necessary.  No CC debt, no student loans, nothing.

In terms of savings, we have 8000 in cash and I have 15k in childhood investments set up by my parents.  Not much, but not bad for us going through moves, immigration, and setting up our first real home.

In the future, she wants to open her own studio for children's art.  I would like to work for myself, renovating a few houses per year, or perhaps building 1 or 2 from scratch to sell.

Now, after that long-winded background, here is my question:  She is basically ready to start her studio whenever the opportunity presents itself.  I will work for contractors for 4-5 more years before I am ready to really tackle my own endeavors.  We live in the Greater Toronto Area (close to Hamilton), home to some of the most ridiculous housing prices ever.   Houses here average 350k, with the very cheapest in gritty parts of Hamilton being 200k, and standard SFH breaching up over 650k.  We really like a town that is about 30 miles from where we are (Guelph, Ontario) where comparable houses can be had for ~250k.  We see ourselves buying there, only question is timing.

So, if you guys could go back to your early Mustachian days, would you:
1) stay the course and keep renting and try to save as much as possible, with her keeping the stable job she has or
2) would you take a little risk and buy a cheaper, fixer-upper in an upcoming town.  She would open her studio from the house, and I would find a job with a contractor up there, which I am confident would not be that difficult.  Only way it is feasible is through help form my parents, who, presented with a logical, well-researched, informed, and realistic plan, will be willing to help.

I am encouraged by our current spending habits, as we have been able to keep our entire budget to ~2500/month, including lots of gas to BOTH drive to Burlington (15 miles) to work every day, and that any mortgage payment wouldn't be much more than our current 850 rent, and certainly less than our total rent of 1275 for the extra space.  She would be getting her studio started faster, and it would be very efficient to run it out of our home.  I am aware of the zoning regulations, so finding the right property would obviously be essential.  I am also encouraged by my ability to get jobs, which I have done in both the US and Canada, and that my income is going to steadily rise until I go out on my own.

Only downside is the heavy reliance on parental funding.  Some part of me feels like we should wait it out and get 25-35k saved over 2 years and see what happens.  Downside to that is, I feel like this town we are thinking about is on the verge of blowing up in real estate, as young people look to relatively close towns that are affordable to buy in, and the same opportunity that is here now will not be there in 2 years.

I tried to word this post as clearly and concisely as I can, but it is very hard to sum up your financial/professional/personal life in a few short paragraphs.  Much respect for the writing skills of MMM and all of you on this forum.  Let me know if you need any clarification

On with the suggestions!

Another Reader

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #1 on: August 27, 2012, 04:37:18 PM »
Great start - and it's not from zero.  You have $23,000 in investments and cash, and you are not spending much of it.

I think you are moving too fast, though.  There is no way in your shoes I would consider buying a house until I had established legal residency and had been successfully employed for at least a year or two.  Yes, you might miss an opportunity, but the risk of something going wrong with your resident status or your wife's employment is too high for me to take on.  Get legal, get employed, and see if your spending and savings projections pan out as planned.  Save as much as you can on a regular basis and make sure you are comfortable with that level of savings.  Then start thinking about buying that first house.  If you need a little help from the parents then, you will be in a better position to take it and put it to productive use.

totoro

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #2 on: August 27, 2012, 08:05:59 PM »
I'm in Canada too, although Victoria which is much more expensive than Hamilton. 

I have a lot of family in Hamilton and always thought their home prices were really affordable!  If I lived there I would consider buying a rental house near McMaster for student rentals.  $650 000 seems extremely high for Hamilton for a standard SFH.  The stats show it is actually $315 000 for an average house.  Even in Victoria the average house does not hit $650 000 - it is mid $500 000s.  Hamilton is most definitely lower than this.

Hamilton was recently rated as the best city in Ontario to invest in: http://www.thespec.com/news/business/article/785060--hamilton-reigns-as-top-place-to-invest


Norman Johnson

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #3 on: August 28, 2012, 08:18:17 AM »
Is there any reason why you are staying in Hamilton? If I were to go back to being newlywed with no real reason to live in any particular place, I would have probably moved out west and made tons of cash while renting. If you two are planning to have children, and are on good terms with your family, you'll probably want to live close once the babies come and won't want to strike out somewhere new to make wads of cash.

Somewhere is always up and coming, and i wouldnt jump into owning a house just because you are worried about missing out. Thats a bad reason, imho and there should be other reasons. Also, with the new mortgage rules, I think the market is going to plateau or possible cool a little due to people not being able to get mortgages as easily.

Also, when you talk about your mortgage payment being the same as rent are you also factoring in taxes and upkeep? Even if you do the work yourself, you still have to buy the materials. Don't forget utilities too. Heating can be a lot of money in an old house with crap insulation. And finally, at some point the interest rates will be going up again. Find one of those handy bank calculators and see what you can afford if the interest rates are 10%. It's eye opening and may make you want to drop the amount of money you are willing to spend. And finally, by saving 20% down, you will save yourself a large amount of money by not having to pay CMHC insurance.

I bought my house at 23 years old, by myself. I only borrowed half what I was entitled to, and I bought a small old house in a working class neighbourhood. Renting would have made more sense at that time, but I was tired of listening to my neighbours fight and then make up, just about as loudly.

BTW, starting at zero is pretty awesome, when you look at how much some of your friend must owe!
« Last Edit: August 28, 2012, 08:19:56 AM by lilacorchid »

apstone

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #4 on: August 28, 2012, 09:52:30 AM »
Get legal, get employed, and see if your spending and savings projections pan out as planned.  Save as much as you can on a regular basis and make sure you are comfortable with that level of savings.  Then start thinking about buying that first house.  If you need a little help from the parents then, you will be in a better position to take it and put it to productive use.

Very good insight, and the same voice of reason that s in my head.  The plan is always to get legal before doing anything.  Residency will be obtained by November, so I'll be good then.  Of course, the longer we wait and get more established, the better an investment it will be for my folks.

I'm in Canada too, although Victoria which is much more expensive than Hamilton. 

I have a lot of family in Hamilton and always thought their home prices were really affordable!  If I lived there I would consider buying a rental house near McMaster for student rentals.  $650 000 seems extremely high for Hamilton for a standard SFH.  The stats show it is actually $315 000 for an average house.  Even in Victoria the average house does not hit $650 000 - it is mid $500 000s.  Hamilton is most definitely lower than this.

Hamilton itself can be very affordable.  I was talking more about other close areas, such as Burlington/Oakville, which are both ridiculous.  We don't want to stay in Hamilton because it is too big of a city for us.  Very urban, not a lot of space, traffic, etc.  We prefer a place that is a little smaller (100k population range) because there are compact downtowns, get a little more space for your buck in terms of housing, and things are a little more personal.  We live 3 miles fro McMaster now, and if we bought in Hamilton, we would live around here.

Is there any reason why you are staying in Hamilton? If I were to go back to being newlywed with no real reason to live in any particular place, I would have probably moved out west and made tons of cash while renting. If you two are planning to have children, and are on good terms with your family, you'll probably want to live close once the babies come and won't want to strike out somewhere new to make wads of cash.

Going out west is always alluring, but there we would really not know anybody.  Her family is all in southern Ontario, and mine is in California.  True, BC is closer to California than it is here, but still basically involves getting on a plane, so what's the difference?

I agree that it is best to settle down a bit, have the dual jobs that we can track spending easily, and see realistic gains in savings.  I've just had a hard time in the past getting into something when I am already looking forward to the next step.  I know it's smart to bide your time and wait, but sometimes it just seems like you're treading water when you could be moving forward.

My wife is going to be starting her studio in the next few months at our current location, and it will be fun to get that up and running.  It will be good to see exactly how much income she can get from it while working a full time job.  If we are planning on moving in the next year, I wonder about the efficiency of pouring time/resources into establishing a studio here, then moving and having to reestablish the same business somewhere else.

Any of you guys have experience with running business from home?  Seems to me that even if a business was moderately successful, it would be able to pay for the mortgage on the house at the very least, leaving my income and the loeftover profits from her business for savings/living expenses.  I am probably looking at it too simplistically, but again I come back to the feeling of treading water, however useful and smart it is, to be a little stagnant.

Realistically, I think we are best to work through the winter here, saving as much as possible, and once spring comes around, we will have another 10k saved, she will have been running her own studio for 6 months, and we will have a better understanding of our income/spending/savings ratios.

Some of the best moves in my life have been done shortly after an idea was in my head, and although it has always seemed knee-jerk at the time, it has always worked out.

JR

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #5 on: August 29, 2012, 09:40:20 AM »
Darn Americans stealing hard working Canadian's jobs! (sarcasm)

Mattamatics

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #6 on: August 29, 2012, 02:39:28 PM »
Apstone:

If you're seriously concerned about being priced out of the real-estate market (particularly in the GTA or SW Ontario Region) you should take a look at http://www.greaterfool.ca  Turner is predicting a significant correction (he’s been predicting it for a long time – so he’ll eventually have to be right) in the CDN housing market, and recent sales data looks to be beginning to back up that train of thought (also reasonable consider the quick ramp up in prices many parts of the country had – The GTA & Vancouver for example)

Also both OFSI & the government’s increasing efforts to temper the real estate market in Canada appear to be working (reducing mortgages from 40 to 25 years, 5% min down payment, greater restrictions on CMHC funding and HELOC’s) which should put downward pressure on prices.

Also if you’re not specifically tied to a specific location in Ontario (but want to remain in Ontario) consider looking throughout SW Ontario in all the communities along the 401/402 highways. (For example London On, has significantly reduced prices compared to GTA, and the same is true with smaller communities such as Sarnia, Woodstock, Chatham etc )

Also there was this thread on CMF relating to trying to find inexpensive communities near Toronto http://canadianmoneyforum.com/showthread.php/11971-Where-best-to-buy-a-house-for-140k-close-to-Toronto

Regardless I agree with the previous posters that there is no reason to rush into purchasing a house. (Though if/when you do I’d strongly recommend considering a place with an income suite, or renting out a room or two in the house – particularly if your close to a post-secondary institution)

Bullseye

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Re: Starting from Essentially Zero (but not in the hole!)
« Reply #7 on: September 11, 2012, 11:13:23 AM »
Guelph is nice, but still pretty pricey.  Why not look at St.Catherine's?  Or London?  Both cheaper, and also nice places to live.  If you're lower income and expect to stay that way, no reason to live in a high COL area. 

I'm in Burlington, which is a great place to live, but we bought when prices were less than 50% cheaper.  We're also ten years older.  If we were starting out, I'd look elsewhere.  In fact, I'd still like to move somewhere I mentioned, as we'd be instantly FI (or close enough), but alas, we have young kids and roots here now.  Move now while you still can!  :)