Bring the Cash Flow

$11,000 sounds like a lot of money.  When you consider this will be the fee I need to pay, it sounds like an astronomical amount of money.  However, I have decided I need to break my mortgage, and this is the story.

Everyone knows interest rates are at historic lows.  For someone like myself, who has friends on variable rate mortgages, it is hard to resist the thought of being on one myself.  I hear stories about paying down  $10,000 a year in principal, where I am lucky to pay $3-4000.  It seems like I am the only one on a fixed rate mortgage these days.  Back in 2007, I chose fixed rate because my own financial position was rocky to say the least.  I had a good job, but was worried about being able to afford my mortgage if interest rates went up.  So, I locked in at 5.74 percent on my principal residence.  Hindsight tells me I should have gone variable or held out for a lower rate, but we won’t get into that here.

Two and a half years have passed and rates seem to have stabilized for the near term.  The world economy is still rocky, so it is likely that interest rates could remain low for a few years to come.  If you are interested in breaking your mortgage to lock into more security, or go variable to pay it down faster – Royal Bank has a handy calculator to compare different scenarios.

The calculator, however, is missing one very important point.  As you go through, it takes your current mortgage situation, your proposed new rate, and does some magic in the background.  It tells you about how much or little money you will save after coughing up the prepayment fee.  It also tells you how much money you would save in interest charges if you simply put the prepayment fee down as a lump sum.  All this sounds great, and seems to make perfect sense.  And I believe it does make sound business sense.  I also believe that RBC has left a very important piece of information out of the equation.

Right now I am paying roughly $1200 to service my mortgage debt.  Wait a minute.  I can afford my current payments.  The payment being too high is not the problem.  The problem is that I don’t want to put 80% of my payment towards interest any more!  If I were to reduce my rate from 5.74% to 1.9%, my 25-year amortization payments work out to $850 per month.  If I decide to continue paying the same monthly payment, $1200, I am building an additional $350/month in equity!

Now I think I might be on to something.

In the same time period (rough numbers rounded to the nearest year), I will pay $20,000 less interest, therefore building $20,000 in additional equity over my current mortgage.  Theoretically if interest rates stayed around 2%, I could save $200,000 in interest over the life of the mortgage.

Little old Bring the Cash Flow is growing. I’m happy. My little pet project has now seen over 5,000 page views from an unknown number of unique visitors (Blog Top Sites estiates almost 2,000 unique visitors).

This-week the site was featured on JD‘s roundup of Finance Blogs from Around the World.

Last week I was featured on Canadian Capitalist‘s roundup of Canadian Blogs.

Thanks to both of the authors for their endorsement and the associated increase in traffic and feed readership. I hope the new visitors are enjoying some of my previously published content. I will have some more interesting posts ready to go in the near future. Right now I’m just getting adjusted to a new home, so life is hectic.

For new readers, please check out the FeedBurner feed linked on the sidebar.

My good buddy Kenric over at Live Learn Invest tagged me the other day.  He provides a great description of what this tagging phenomenon is really all about, and likens it to a viral infection.

That being said, the idea is that each blogger must state 5 things the community might not know about them, and then pass the contagion along.

1.  I’m a cynic…  sometimes other people misunderstand cynics, but I find cynicism is a source of humour in my life.  It is really my way of poking fun at life.

2.  I have a 2-year-old Golden Retriever named Jackson.  He’s named after a winery in the Niagara Pinninsula…  I stand by the fact that he is the best dog in the world.

3.  I drive a 2003 maroon Saab 9-3 (Merlot Red… to be exact).  I love the car and hope it lasts at least 5-years without needing too much work.

4.  I bought my first house just before 2nd year of university, we rented out two bedrooms in the house, and both my wife and I graduated debt-free.

5.  I am obsessed with egg nogg.  I have a compulsion to buy it when I see it at the store, which is very frustrating for my wife who is a dietician!

Now, who to tag?  Hmm…  Canadian Capitalist, Million Dollar Journey, Getting Finances Done.

PS:  I’m taking a small break from blogging as I have some more important matters to sort out.

Looks like wordpress lost the original post… fun.  I’m also having problems assigning categories.  They just won’t stick and I can’t manage them.

It looks like Pinnacle LLC was a scam offering 25% return on your investment in 60-days.  They are being accused of operating a Ponzi Scheme.  The original post from Bigger Pockets interested me because like Pinnacle, I would like to start an investment company to seek money and provide reasonable returns to my investors in the range of 7-20% depending how successful the investments are.  My thinking is that by offering a very good ROI, I will have no trouble finding enough investors to forray heavily into real estate holdings.

There are companies such as Medallion Corporation that offer 15% returns on your money.  They take your capital, and invest in property developments in Calgary, AB (undoubtedly one of Canada’s top real estate markets).  I would be interested to hear about other companies that make such offers, as I know many exist.

 NG

Idea Senator had the following comment on my previous post:

Your expense seems kind of high. Can you tell me why and any ways of reducing it?

So, I thought I would break down the income and expenses for Ppty #2. 

Income:  $395/rm * 5 = $1975/mo

Expenses:

Mortgage Interest – $460
Condo Fees – $110
Ppty Taxes - $133
Electricity – $100
Cable & internet – $75

Total Expenses:  $1173

Net Income:  $1097/mo

Mortgage Principal – $295

Cash Flow = $802/mo

So, my yearly cash flow is about $9600, and my net income should be $13164.  Not bad for a $30,000 investment.  The mortgage payments are high because we only have 25% equity in the house, and it is slightly accelerated due to paying for 13 months in a 12-month period because the ’guru’ who set up the mortgage calculated at 4 weeks per month when determining our weekly payments.

Now… I can’t wait for these 18-years to be up so my interest and principal payments drop to zero and my net income climbs to $18,684/yr.

Any further thoughts on this IS?

NG

At the risk of sounding 85… you can underestimate the value of a good education…. there, I said it, ok?

Seriously, I wrote a comment on Pam Slim’s Escape from Cubicle Nation blog today that got me thinking.  Here’s an excerpt of my post.

I would definitely recommend staying in school. It is good to have different experiences in life, and school is one thing that is much easier to experience at a young age. Right now, you have few responsibilities, and few expenses, so you can afford to study full-time. In 5-10 years you may have children or other obligations that will make returning to school very difficult.

I myself just finished a Masters degree in engineering and am working for a multinational defense firm. Looking at the organizational announcements reaffirms why I spent seven years at University. The people being promoted to top positions in my company all have some type of graduate degree.

That’s not to say a graduate degree is necessary for success, but any type of degree certainly accelerates your success. I’m 26, and work alongside people twice my age who are doing similar jobs. I’d much rather be in my position.

Furthermore, having a degree (and I highly recommend professional degrees, as its easy to find jobs in engineering, law, medicine, nursing, teaching, etc.) gives you something to fall back on in case one of your ventures fails, or you just decide you need a change of pace.

What do you think about the value of a good education?

Yes, of course there’s a plan… without a plan you rott away in a cubicle for 35-years!

So here goes, my plan is to go big [Not huge, big. Remember, big is a relative term that may mean something different to you than to me]. The plan is to incorporate in the near future. The company will be a partnership between several close friends who I know that I can work with in the long-term, my wife and I.

From there, we will start offering class B shares to investors. Prices and logistics have yet to be ironed out, but I will keep you posted on the developments.

Once a suitable foundation is built, we intend to flip our first property. There are good and bad things about flipping, which can be discussed further in the comments. However, there is no doubt that if done correctly, flipping houses can reap great reward in a short amount of time. Thus, this will be a major basis of generating additional capital and keeping our investors happy.

I’d love to hear of any stories readers might have on running their own real-estate companies, or flipping houses.

In my next post, I’ll outline my current holdin

NetworthIQ is a Web2.0 community dedicated to tracking each-other’s net worth.  The site allows easy tracking of your month-to-month net worth.  You can also search by job-type, age group, etc. to see what other people in your demographic have done with their money.  The site is set up like a blog, with monthly updates comprising each entry, and a comments section for other users share ideas.

Best Feature:  Insert a graph of your net worth growth/[loss] on your blog site.

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