Scared To Downsize? Pull a Conrad Black

So, you may have read that Conrad Black just sold his Bridal Path Mansion (which kind of looks like the McAllister’s house from Home Alone). But, you may not know that he is renting it from the person that bought it from him. He’s literally renting out his own house.

I’m not taking a stance on Conrad Black. But, I do love a new take on personal finances and I think there’s something here for people who want to downsize but keep their home and avoid a reverse mortgage or for investors who want good tenants. It could be a really good idea.

Toronto Metro news calls this “pulling a Conrad – A verb, meaning to sell one’s home and rent it back.” It’s a great article and you should read it. Click here

Here’s what I like:

From Conrad’s (or the home owner) POV

1. When nearing retirement, one must think about expenses and budgets. Owning a home is hard on a budget since sh*t happens; the roof may leak, foundations can crumble, bricks need repairing. Owning a home is hard on any budget, but especially that of a retiree or someone on a fixed income. Renting absolves you of that anxiety. You don’t pay property tax, home insurance, or repair and maintenance.  If Conrad’s furnace breaks, he can just calls up his new landlord: “hey there, can you come fix my furnace?” This is a major difference between a “Conrad Black” vs a reverse mortgage.

2. He’s capitalizing on a (likely) tax free investment. I’m assuming his Bridal Path home was his primary residence and that he qualifies for the primary residence tax exemption. I’m also assuming he was probably mortgage free. So, he sells his home for a cool 20 million (based on recent valuation of homes in the neighborhood – also check this out), banks it and capitalizes on the hot Toronto real estate market. Many retirees are sitting on homes that have majorly appreciated over the decades. The Toronto real estate market is on fire. Many retirees could use this tax-free money in their portfolios to boost their income and pad the pockets. Now, you may not be sitting on a 20 million home, but the idea of capitalizing on your gains deserves some consideration. Selling your primary residence gives you the entire amount of the equity in your home (less fees to sell of course) whereas a reverse mortgage only unlocks a portion of the equity in your home.

3. He gets to live in his house!! Most of the time, clients don’t want to downsize in retirement (even though it can make so much financial sense) because they are emotionally attached to their home. I get it. They’ve raised their kids there, ya know? They want to have their grand kids over. Keeping the family home is often an emotional decision, not a financial one. But, if you sell it, capitalize on the gain and then rent it yourself, you get to STAY IN YOUR HOME. The grand kids can still come over. This is a win-win situation. The downside is that you could get the boot from your landlord. But, if the landlord has purchased the home strictly for investment purposes, they likely don’t want to live there anyways and you should be good to grow old and gray there.

From Landlord’s POV

1. Best. Tenant. Ever. The biggest worry for an investor (looking for a rental income property) is finding a good tenant. Ummm, this person has loved and lived in your investment property for decades. They are used to it’s creaks and squeaks and probably love it all the more. You have the best tenant who is DEFINITELY going to love and care for your property. Best case Ontario.

The “Back-Of-The-Envelope” Math

I’m not sure what he’s paying in rent, but let’s estimate! If the average detached home in Toronto sells for 1M  and we assume that Conrad’s home sold for $20M, it makes sense that there may be a 20:1 ratio between Bridal Path Mansion:Detached Toronto Home. If the average 3 brd home rents out for $3000 (estimated from padmapper), then we can assume that rent for the Bridal Path Mansion could be $60,000 a month, or $720,000 a year. That seems steep, I know. However, an annual rate of return of 3.6% on $20,000,000 could cover it quite nicely without even touching the principle. Now, if we take inflation at appx 2% into account, an average annual rate of return of 5.6% could do it! I think it’s definitely possible for someone to reach 5.6% annual rate of return, even in a balanced portfolio. Yes, I realize that I’m not calculating the potential growth for the property over time. But, in our scenario the investment portfolio is large enough to sustain the carrying cost of your home (rent) in retirement.  How much do you think you could earn from the value of your home if it was invested? Could it support your rent? Very very cool to think about. No more repair and maintenance! You would obviously need to run some serious cash flow projections on this, but take a moment and think about it as an option.

I don’t know what Conrad’s motivation was, and it doesn’t matter. This isn’t about Conrad Black. This is about a cool idea. Is this an alternative to reverse mortgages? The idea that you can sell your home, fully capitalize on the gains, reduce your overhead and live in the house you love is clever. The idea is something that shouldn’t be overlooked.

 

 

Barter Babes Throw Back

Ok. It’s Throw Back Thursday.

 

5 years ago today was the very first day I started offering my financial planning advice in exchange for bartered good or service as part of the BARTER BABES PROJECT.

The goal was to give financial advice to 300 women in one year and charge no money at all for it. Back then, I thought this would be a year-long project. A pause from my Bay Street life. After this year, the community it created, the joy it gave me and the taste of entrepreneurship had me hooked… I knew I wasn’t going to be able to go back to the 9 – 5.

The Barter Babes community was my springboard. A community of amazing women who gave me the courage to say no to the norm and strike out on my own with a vision of making financial planning fun, affordable and accessible. 5 years later – here we are. An amazing Fee-only practice in Toronto and the recent launch of DIY ONLINE FINANCIAL COURSES!

5 years ago today, I had one barter meeting set up and was worried that the project was going to be a total disaster and no one was ever going to participate. Boy was I wrong!

If you believe in something enough, and you’re willing to put in the work, anything is possible.

So, Happy Throw Back Thursday to the BBP launch video – the first video I ever made and the start of a huge journey.

xo

Shannon

 

 

 

 

 

WE LAUNCHED!!! OMG!!

7 teammates. 6 months. 5 courses. 4 epic meltdowns. 3 moved launch dates. 2 incidents of deleted files. 1 Stomach Flu.

It’s official, Canada’s First Personal Finance School is here. WE DID IT!

Please come have a look and see.

www.newschooloffinance.com

This school is meant to help Canadians get good at the money stuff. Learning about money doesn’t have to suck. The courses we’ve got posted now are just the beginning. So much more to come!

They don’t teach this sh*t in school….. WE GOT YOU.

And now… time for some gratitude to everyone behind the scenes of this cyber baby.

I could not have done this without my Dreamy A-TEAM

So much gratitude for all of you wonderful people. Thank you, thank you THANK YOU for helping get this mastodon idea out of my head and into the world in such a beautiful way.

Marie Poulin – Our Digital Strategy/Branding/Web Dev Guru
Shannon Litt –  Our Videographer of the century
Tiffany Pratt – Our Designer/Art Director/Stylist Godesss
Rostyslav Rulov – Our Jr Digital Strategist/Social Media/SEO Hero
Nikki Jumper – Our Photographer extraordinaire
Colin Smith – My set builder/carpenter woodworking unicorn.
Colleen Auriemma – My ultimate teammate who helped keep me sane through all of this and basically ran my business so I could do ALL THE THINGS. Anyone who has worked with us knows Colleen and knows what I speak of when I say she is SIMPLY THE BEST

Team… I love you all so much. Thank you. Thank you. Thank you.

Unofficial teammates – I love you.

My Bare All Girls – Ashley McEachern & Jordana Halpert – Thank you for being the reason this whole thing started in the first place and coaching me through countless meltdowns and brainstorms. You girls are my entrepreneurial soul-mates.

My proof readers, trial & error, unofficial UX researcher team – Laura Shaw, Kathryn Meisner, Karissa Cwierdzinski – Thank you for letting me endlessly pick your brains and take up your personal time with my own stuff and never being anything but positive about it. SO SO grateful for friends like you.

My family and Matt. Guys….I can’t even. Thank you for being so supportive and  dealing with all the ups and downs that have come with this. I love you so so so much. I promise… I’ll return to some sort of normalcy. Thank you for believing in this as much as I do.

Phew!!! Ok.. enough gushy stuff. Let’s Do the damn thing!!

It’s time to CELEBRATE

Birth of a Cyber Baby – Freak out/Zen Out

Tomorrow I give birth to a giant cyber baby – Canada’s First Personal Finance School. It’s the biggest thing I’ve ever done. (pees pants a bit).

Who knows what tomorrow will bring? Right now, on the eve of the launch, I can still be optimistic. The programs aren’t online yet and I can still believe that anything is possible and that this school will help more people than I’ve been able to reach before.

Once launched, I have to face reality. It’s possible that I was right. It’s also terrifyingly possible that I was wrong. Any entrepreneurs/budding entrepreneurs out there probably know all about this launch-fear.

But, if you don’t believe that what you’re doing is going to make waves or change your life in a HUGE way, why would you stay in Friday nights while all your friends are together, weekend after weekend? (#fomo) Why would you set alarms for 6am on Sunday mornings while everyone else is asleep? How could you end up crying, alone, at the office until 11pm a week before launch-day and only realize that you’re NOT OK when the wonderful maintenance staff offers you a Werthers Original, and tells you “it’s time to go home”.

When you push this hard, you have to naively believe… you have to be so stupidly optimistic or else, you’ll just give up.

I’ve cried almost every day over the past 6 months. Sometimes, from joy. Most times, sheer frustration and exhaustion.

So, I just want to sit and revel in this moment.

Everything is done. It’s all out of my control. There is literally nothing for me to do but take a deep breath in and wait to see if the world believes in this school as much as I do.

This is a rare, magical moment in life. It’s like being in free-fall. It’s silent, but loud. It’s peaceful, but manic. It’s terrifying, but exhilarating.

I know I’ve packed the parachute the best I can. I’ve done all the work. I’ve made the leap and now there’s nothing left to do as I fall but trust, and wait for the parachute to open at the right time.

I think this is why I became an entrepreneur. I’m addicted to the free-fall. This, to me, is living. I feel truly alive because of the entire spectrum of emotions that comes with building, planning, obsessing, and believing in something you’ve created from nothing. I am fully self-expressed and so f*cking appreciative for that.

I’m usually pretty light-hearted in my writing/videos, but I wanted to give this moment the earnestness it deserves. This is a big one for me and I wanted to write this post from a place of gratitude and to be a letter to my future self.

Dear Future Self,

You are about to launch the biggest project you’ve ever taken on. Good on ya.

If things don’t pan out the way that you planned, that’s okay – you are not a giant failure.

No matter what happens, you have so much to be proud of. Be proud of what you’ve created, it’s amazing. Be proud that you are not afraid to work your ass off for something you believe in. You have put your WHOLE SELF into something that you will put out there for anyone in the world to judge. Being vulnerable like this is a really scary thing, you are brave. Lastly, celebrate the fact that you are facing your fear of failure like a boss. Please don’t stop being stupidly optimistic…. Ever. It’s your special skill in life. Remember, that no matter what happens, it’s the journey that defines you in the end and this journey has been truly epic.

One love,
Present Self

Thank you for being one of my fierce supporters. I couldn’t have done any of this without you. Stay tuned with me tomorrow as I continue to free-fall and we’ll find out if the chute opens.

Xo

Shannon Lee Simmons

Almost-Official Founder of The New School of Finance

Leverage the budget – like a boss

THE 2015 BUDGET IS HERE… dun dun dunnnnn

So, like, what does that even mean and why should you care? The budget affects you in SO MANY WAYS but often people don’t even know about it!

The 2015 Federal Budget outlines your tax rates, tax breaks, changes to your savings and how much money is going back into your wallet each year. It’s a BFD.

Rob Carrick nailed it in his recent article by noting that this budget definitely favours seniors and that GenY/Millenials didn’t get much attention.

But, here are some things in the budget that will affect GenY/Millenials/GenX

1)   TFSA or Tax Free Savings Account Increased Contribution Limit

The TFSA is the bomb. It’s an amazing savings account for everyone and for both long and short-term savings. The money that grows inside the TFSA is NOT taxed when you pull it out.  I repeat – NOT TAXED. This is key. When you pull your money out of an RRSP account you must include it in that year’s income and be taxed on it (iccccky).

NEW BUDGET THANG: The TFSA contribution limit has been raised from $5,500 to $10,000 effective immediately. Hella yes. More room for tax-free savings? YES PLEASE!

2)   Benefits for Post-Secondary Students

The budget assists university students starting in 2016. Usually, to be eligible for Canada Student Loan Programs, it’s dependent on what your parents are forking over/their incomes. i.e. if you’re parents made a certain level, you wouldn’t qualify. In addition, for every dollar YOU earned in school over $100 a week, that amount was deducted from your loans.

NEW BUDGET THANG:  If the parental units are forking over for your education whether the total amount or in part, your parents aren’t expected to pony up as much as before to make you eligible for the Canada Student Loans Program. Also, you can now earn money while a student without the amount you earn effectively becoming a drag factor on your student loan. WOOT!

3) Help for Parents with the UCCB and Children’s Fitness Tax Credit

While you may be sleep-deprived, there is a small token of appreciation for your current condition in the budget. The UCCB or Universal Child Care Benefit has been increased from $100 per month up to $160 per month for each child in your family under the age of 6.

The UCCB is taxable money from the gov that parents get REGARDLESS OF THEIR INCOME.

NEW BUDGET THANG: Effective from the beginning of this year, the cheques are in the mail as of July 2015 – PARTY!! Also, the budget has doubled the children’s fitness tax credit to $1,000 starting in 2015. Kid’s activities are so friggen expensive, amirite? Now, at least you get back 15% up to $1000.  Little Billy can go to swimming – hurray!

4)   Tax Rate Decrease for Small Businesses

NEW BUDGET THANG: The tax rate for small businesses will be reduced from 11% to 9% in 2019. (Now why would you give someone a gift that is so far off in the future? Oh yeah – it’s election time again). Note that this is only for CORPORATIONS – not sole-props or freelancers.

If you are curious about any of the four points above or of finding out in plain language how any of this applies to you, it may be time to book a financial planning sesh to flush out how you can leverage this 2015 budget like a boss.

What Does “Fee-Only Financial Planner” Really Mean?

There are so many different words floating around out there to convey someone who helps you with your money. Here are some – by no means all – that you may be familiar with: financial planner, financial advisor, investment advisor, money coach, fund representative, portfolio manager, stockbroker, and on and on…

That alone is confusing enough to the layperson (who exactly are you supposed to tap for help with your particular financial situation?) – but now on top of the various words used, an extra layer of complexity is added! This layer has to do with how that person is compensated for helping you with your money.

Here’s another list, by no means exhaustive: commission-based, transaction-based, fee-based, fee-only, advice-only, fee-for-service. One might start to wonder if there is a raison d’etre for the proliferation of so many descriptors.

And hey, what about accreditation? You should probably use someone who is accredited so they know whereof they speak and there is a whole list of designations for this, which will not be produced here.

Let’s just go with the fact that it’s a better bet to use someone who has a designation. Here’s an acronym for you: FPSC or Financial Planning Standards Council. This is a body that oversees approximately 17,000 Certified Financial Planners (CFPs). Out of these, the stats are that fewer than 1,000 are true “fee-only” planners.

That’s an interesting thing. Why would that be? Some say that there just isn’t that much demand for fee-only planners. I suggest that education comes before demand. If people knew the difference, would the demand grow?

FEE-ONLY FINANCIAL PLANNERS

So what is a fee-only financial planner? It is someone who receives a fee from you for delivering unbiased financial planning and advice to you for your benefit. They sell you nothing but their own expertise applied to your particular situation. This fee could be set at an hourly rate or it could be a flat fee established ahead of time for a certain service that you are seeking, e.g. retirement planning or entrepreneurial planning.

COMMISSION-BASED FINANCIAL PLANNERS

Compare that to commission-based financial planners who get paid not by you but by companies who make the financial products that they sell to you. Who would you rather get your advice from: someone you are paying or someone another entity is paying? That’s a rhetorical question.

FEE-BASED FINANCIAL PLANNERS

Compare that to fee-based financial planners who get paid a percentage of assets under management. This feels better, doesn’t it? Definitely there is more transparency here. At least you are playing on the same team in that if your assets increase in value, the fee-based financial planner stands to make more money. But let’s look at it from the other side. If your assets decrease in value, you lose money but they continue to make money as they always get paid whether your assets grow or shrink. Yes, to be sure, they make less if your assets shrink but they still make something whereas you lose. Also, fee-based does not negate commissions being paid to the advisor and you know only if commissions are paid to them if they are forthcoming with this information and I’m sure some of them are.

It is your money and definitely your choice.

The New School Team