Sticking to My Plan

I had a very odd week last week – two people asked me to become involved in real estate deals. I don’t know if I had given the impression that I had a bunch of cash laying around, or I just look like someone who would like to own Real Estate but on the weekend, my step-brother asked if I was interested in getting involved in flipping a house with him – he had located a property that required some work, but thought it could be bought for approximately $150,000 and sold for $250,000+ as soon as the work was complete.

On Wednesday night, my dad called telling me about this great property next door to his house that was a steal and I should think of buying. This property was 50 acres, with a large pond, woodlot and about 8 acres of “workable” land and would cost me $135,000. My dad thought that within around 5 years this place may double in value as there are very few small plots of land like this in the area (Most are either only 1 acre lots, or significantly larger farms).

I turned down both “opportunities” politely, for the following reasons:

1.) I don’t have any money sitting around – all available income is going towards paying down my mortgage and saving for a new car that needs to be purchased at some point in the next 8 to 10 months (my wife would like to learn to drive but will not drive my 5-speed manual transmission).

2.) At this point in my financial plan I’m more interested in reducing my fixed monthly expenses than I am in making significant cash gains in Real Estate.

3.) I barely have time to look after my own house right now, let alone another property. My current house is a condominium which allows me to basically come and go and not have to worry about cutting grass, shovelling snow, or looking after the exterior. Taking on a new property would mean I would have to give up some of my weekend activities, which is something I’m not all that interested in doing.

My wife and I are not adverse to making money – we just thought we’d get more enjoyment in five years having no mortgage than we would making the investments in real estate right now.

What my money decision basically came down to was that I have a plan that I am comfortable with and getting away from this plan, although not catastrophic, could lead to a delay in my goal of financial independence. I am willing to forgo what could perhaps be significant gains in order to stay on my original (and somewhat boring) path to early retirement.

In the end, saying no might be the wrong decision, but I’m comfortable not taking the risk at this point in my “plan”. I may be missing out on great opportunities. Both deals have the potential of leading to significant profits, the house flip within a year or so, and the other property within about 3-5 years. I could be missing out on money that would lead to being several years closer to financial independence.

What do you think – by turning down these investment opportunities, am I missing out? Would you do it, given the opportunity?

8 thoughts on “Sticking to My Plan”

  1. You made the right decision, stick to your plan. At the moment Canadian real estate is at the top of a very slippery slope, prices are set to tumble anywhere from 15 to 30 percent over the next year or so depending on location as the US economy heads into the second trough of this recession and our economy sputters right along beside it.

    Wait 2 or 3 years and you’ll be able to pick up whatever investment property you want at significant discount.

  2. I too would have turned the offers down. We are a couple of years away from being mortgage free and as much as I love to buy real estate, I cannot imagine taking on more debt.

    The thought and freedom of not having a mortgage outweights the gains that come from taking on more debt, even in the short term.

    I know people who would have jumped at the opportunities but having multi six figure debt do not bother them as much as it bothers me.

  3. Real estate is not the place to be in terms of investing these days. We may not see a U.S. style meltdown, but our day of reckoning is near. You made a good choice…

  4. I agree that you likely made the right decision (only time will tell) I just want to point out some of the points overlooked. When you purchase an investment property you only need (and should) put 20% down. In the case with your step-brother you would go halves with him so your out of pocket is only $15K and if you are flipping it in one year the borrowing cost is 2.1%.
    Keep in mind when flipping properties that reno always run over budget, land transfer costs, legal fee’s and realtor fee’s – these begin to eat up profits. Probably not the best investment.
    The property your father mentioned is more speculative give he hopes the demand for land in that area will be much higher. If he thinks it is such a great deal than maybe go halves with him on it. Your out of pocket would be $13,500 for the downpayment and you could sit on it in a tax deductible 3.75% 5yr fixed. because there is no reno’s to speak of and you may be able to rent the ‘workable’ land to a local farmer it might not be a bad deal.
    A few commments about the comments here. It is unlikely that we will see a major meltdown in the Canadian housing prices (even in the major hot spots) due to three things.
    1. interest rates won’t rise rapidly for many years to come. There is little demand for borrowing from consumers as the largest demographic (Boomers) are past their peak borrowing years and onto the savings years. As well the economy will not tolerate higher rates for a while.
    2. unemployment in Canada is the biggest threat to housing values here and even with another US Recession we may see it rise to 10% but it is likely not to go much higher given our increase global trade and strong resource economy.
    3. immigration to Canada is still very strong and helps to support the real estate markets – especially in the big centers (Vancouver, Montreal, Toronto)
    I do think we will see a minor correction in real estate (2-4%)due to great taxes, and lack of consumer confidence, and I do think the higher end market will be more likely hit than the first time home buyers market. Due in part to Boomers downsizing.
    Dave I think you are right on the money sticking to YOUR plan – if this is what is going to make you happy than this is what you should do. Don’t be swayed but get there faster ‘gimmicks’. Do take the time to identify potential threats that may derail you and work to mitigate and insure against those threats.
    Best to you.
    Frank Wiginton

  5. To me, offers like this are just like chasing the next hot stock tip…if it’s not for you, just leave it alone and stick to your plan, as you said.

    As for the comments to partner with a friend or family member on the venture – well sure it will reduce your risk, but it will also reduce your profits and increase the potential for an argument and a fallout.

  6. If you’re doing well and making progress in your own plan, why take the risk of a possible bad investment that could be more than realized. Houses can be the most illiquid investments and “money pits.” In other words, what looks like a no brainer could leave you more side-tracked than you ever bargained for.

    I think you made the right decision and there are always other ways to make money on the side.

  7. @ BobM, Middleway, Jon Snow: Thank you for your comments!

    BobM – I’m glad I’m not planning to sell my house during the potential collapse.

    Middleway – I am looking forward to not owing anyone money in the near future.

    @ Frank – Thanks for your extensive and well thought out comments. I’m wondering what the Real Estate market will do in the areas these properties were in (Very rural Southwestern Ontario).

    @ Echo – I could see the potential for argument, especially in flipping a house as I really don’t have a lot of time to work on it these days.

    @ Mike – It just seemed a little too risky for me right now – I didn’t want to be stuck with a house/property that nobody wanted (including me).

  8. Dave – I, too, agree that sticking with your plan for now is the best action. Either of the properties are fine for someone who can take the risk… if the 50 acres were in western Oregon, I’d be VERY tempted (and likely screw up my own plan, LOL)!

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