If you missed it, here is the link to Part 3: My Million Dollar Journey

Friends with benefits

I see the smirk on your face and know what you’re thinking. It’s not that type of benefits, it’s the benefit of combined assets and risk diversification. I can’t think of a better quote to start off this section than the one from my favourite investor, Mr. Warren Buffett: “Rule #1: Don’t lose money. Rule #2: Never forget Rule #1.” Over the course of our investment lifetime, we will lose money at some point in time. Even one of the greatest investors like Mr. Warren Buffett still loses money from time to time. So never losing money in our investment lifetime is impossible. However, it is possible to maximize your chances of owning money making investments and to minimize your chances of owning money-losing investments through risk management and diversification. This can be achieved by partnering with other investors who have a similar investment philosophy, complementing skill sets and knowledge with yours to create synergy and share risks (this is what large organizations do when they start joint-ventures). To spread my investment risk in Real Estate, I partnered up with my childhood friend again to purchase our second rental property (during the summer of 2015) with a better monthly cash flow than the first property. We sold the our first investment property and took the capital gain as we had negative cash flow for that property. For the second property, I could definitely see that our risk diversification effort was benefiting both of us. When we partnered, we increased our ability to borrow from the bank (as we had more combined income), we had more human resources to manage the rental property, we divided and conquered the work according to our skills as I was better at marketing and accounting, he was better at renovating. We were able to provide better service to our tenants as we have two people to respond to inquiries service calls. Overall, it was a great decision to go into business with my buddy.

Getting a free lunch

Some people say that “there is no such thing as a free lunch.” Well, I disagree. “There is such a thing as a free lunch. You just have to be lucky and skillful enough to find the restaurant that offers it.” This was the case when I was offered an opportunity to purchase a 25% share of a condo unit located in downtown Toronto at the original pre-construction price from 2007. I got only one day to decide before it was offered to another person. At first, I thought it was too good to be true and was skeptical about the investment opportunity (and I should be when something is too good to be true, it probably is.) However, I am a licensed Realtor and have access to Real Estate data to conduct my research and analysis. To my surprise, the offer claim was legit. I got to purchase an asset that’s 25% below the current market price and I will be partnering with two other investors that own the other 75% of the condo unit. This investment was well within my risk appetite and accepted the offer to a free lunch and purchased it. To lower the future tax bill, my wife owned 95% and I own 5% of our portion of the investment as her income was lower than mine. In addition, since I was also part of the ownership team, my income was added to qualify for the mortgage. With the diversification of my investments into real estate, I was able to lessen the impact of the stock market crashed in 2015 (it crashed for the third time in seven years, losing about 10%.) on my overall net worth. It continued to grow to $838,848.26 at the end of 2015.

Know when to hold and when to fold

After owning a condo unit in downtown for a while, we discovered a few issues that made me a bit uncomfortable. The first issue was our unit was on an opened floor that was still under construction. We had a really bad leaking incident when there was a heavy thunderstorm one day. Rainwater was pouring into the open floor above and was leaking from that floor into our ceiling. The second issue was the loss of our lake view. When we bought our condo unit, another condo tower right next to our building was under construction and we thought it wasn’t going to be as high as our floor and blocking our lake view. In a few months, the next building was built just high enough to cover the lake view from our unit (I was pissed). On top of that, my two partners informed me that they were interested in selling the condo and redirect their money to higher earning opportunities. Having heard my partners’ intentions, I was thinking about buying them out. After conducting an analysis of the additional investment required and the factors that affected the value of this unit, I decided to sell the unit to my partners rather than owning it myself. So we sold the condo unit, I cashed in my profit and took the proceed to invest in my business and the stock market.

The Perfect storm

At the beginning of 2016, there were four factors that worked in my favour: the stock market continued to tank, housing price continued to soar to record levels, interest rates kept getting lowered and my mortgage was up for renewal. With these advantageous conditions, I decided to once again refinance my mortgage and borrowed up to 80% of the market value of my house. The new mortgage rate that I locked in for four years was 2.59% per year (with interest rates this low, I will never want to pay off my mortgage). I started to pay back my line of credit with higher rates, pay back the personal loan to my father-in-law and slowly investing the rest of my money into some of the beaten-down stocks. At one point in time, my childhood friend and I almost purchased another investment property. However, we felt that the price for the properties that we wanted to own did not provide us with enough projected return on our investment and we decided to wait for better opportunities.

A surprise ending

Just until a few weeks ago, Donald Trump was elected president of the United States (did you see that coming? I sure didn’t). Financial markets began soaring to new heights, especially stocks related to U.S. financials as industry professional perceived that the president-elect will overturn (or relax) some of the regulations that restricted financial organizations which were put in place after the financial crisis in 2008. I can’t claim that I understand all the ins and outs of those rules, but when some of my stocks ascended more than 50% from its low point of the year in a few months, it’s time to take some of my profits when there is that much wild optimism in the market. As a result of this unexpected turn of event, I achieved the goal of making my first shiny metaphor gold bar. My net worth as of a few days ago, stood at $1,113,839.86.

What’s next?

Even with this unexpected achievement, I still cannot confidently say that I have achieved financial freedom. In fact, I am nowhere near it. However, there is a sequel to this story: Freedom 48 – The Journey to financial freedom. So tune into the next chapter. I will try to retire in 10 years – when I will be 48.