I began writing this because we were recently invited to speak at the Thornhill Wealth Forum organized by our good friends Neil and Rachel Oliver. The topic of the panel was “Secrets of Successful Couples Investing in Real Estate.” We were among the panel with some other couples doing the same thing – investing together successfully.
My wife and I got married in 2009 – almost 7 years ago. We were young, my wife was 24 and I was 26 (look how young we look – this was on our honeymoon!).
I still remember our first date, and having the most intense conversations about Foreign exchange and inspirational biographies we had both read. I knew within minutes I had met my match!
Our investing journey started as soon as we were engaged (and boy am I glad – time has definitely been a huge factor in getting us to where we are today). Our idea of a road trip included driving hours and hours with maps and MLS listings in hand, checking out properties and discussing renovations.
So back to this concept of losing money every day! Have you ever heard of a concept called: The Time Value of Money? In a nutshell, it is the idea that money available at the present time is worth more than the same amount in the future due to its potential earning capacity. Whenever I have money sitting in my bank account, I start to get antsy as I feel the need to get it invested ASAP (to be honest this drives my wife a little crazy sometimes – especially when it seems like our bank account is consistently fluctuating!)
The concept of the Time Value of Money (TMV) is very simple: all things being equal, it is better to have money now than in the future. My version of it is slightly different; let me give you an example:
Let’s say I have $10,000 saved up and just sitting in the bank for the past 3 years earning a negligible amount of about 1% or less. I am not including inflation of about 2+% as your money is being eroded and devalued over time. I think of this as money catching dust.
NOTE: Don’t get too carried away with the math below, the concept is important not the math. I studied Engineering in school so I often get carried away with the technical.
So $10,000 in the bank after 3 years = $10,000 (in reality you would be losing a few hundred dollars due to inflation). At 2% inflation, it would be a loss of $612 so you would be left with around $9388.
Let us take that same $10,000 and invest it wisely which gives you a return of 10% per year. After 3 years, you would be left with $13,310. Why not $13,000 you ask at $1000 per year. The answer is your money is being compounded.
You are earning a return on the increased value every year. After 1 year, your total would be $11,000 (10% of $10,000) and in year 2 you would get a return based on $11,000 ($11,000 x 10%= $1100). So ultimately you are making money is earning faster and faster over time. The longer you have your money invested, the more compounding periods you have.
For this reason, whenever I have money in the bank, I am itching to invest it as I don’t want it to lose value. And everyday it sits there I know I am losing money!
I recently met an investor at REIN (Real Estate Investment Network) who soon became my client. The great thing about this guy was his keen interest to learn, but more importantly his ability to follow through and take action.
He started out by calling me, discussing various factors related to the market, and within no time he was pre-qualified for a mortgage and ready to go. We started our house hunt, and within a few weeks he had managed to purchase a beautiful semi on the Hamilton Mountain. Yes, he paid pretty close to market value. No – he didn’t get some crazy deal (crazy deals in this market???). But……….most importantly he took action.
I can tell you that since he purchased his property, the competition in the area has already heated further and I can bet that he would have paid more for that same property now – a few months later. But that isn’t the point. What I commend him for was his ability to attend seminars, learn, but most importantly putting it into practice.
There is a definite learning curve, and we are working through the process of renting his property. He has been learning as he goes on how to create good ads, screen tenants and put together a solid lease (of course that is where our relationship comes into play and continuous coaching and guidance is a given).
I have met people who have been talking to me about investing for years now, seen properties, researched areas and still failed to make a move. Back to the time value of money we talked about above – time is ticking. The market continues to rise, and hey, even if it doesn’t – our tenants continue to pay down our mortgages. Why would anyone want to wait? For that perfect deal – that perfect time? To be honest, there just isn’t one! But…….every day that goes by, you are losing money!
Until next time………………