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August’20 – My Passive Income Update!

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Another month passed by and I tell you if you set a clear and achievable goal(s), working towards making it a reality is quite gratifying! You can literally see yourself inching towards the goal with the help of numbers, charts, spreadsheets; and the journey itself becomes so much exciting and fulfilling. Now I look forward to month end when I update my tracker and look at all the earnings for which we didn’t had to go out and work! The beauty of passive income is it keeps accumulating while you enjoy life. August was again a busy month for outings and we tried to make the most out of pleasant weather. While it wasn’t warm enough for beach anymore, we along with bunch of friends decided to explore small towns so each week we visited one such hidden gem. We went to Paris, Stratford & Elora and were quite impressed with their their lively & clean downtowns and laidback lifestyle. Most of our trips we plan are on weekdays, it helps avoiding the crowd and maintain social distancing (yeah I think this is going to be a thing for long long time!). I would recommend weekday trips if you have the flexibility, it is so much more relaxing and fun when you meet less traffic and fewer faces! Everytime we visit a small town, me and my wife mull over moving to one, but can’t gather the courage to make the move. I guess we are so accustomed to a city life and gotten spoilt by its offerings, be it shorter commute or easy access to facilities or proximal options with everything. But then a city also gives you smaller (and expensive) abode, traffic, crowd, noise and other headaches! I think it is a tradeoff between what you really want and what you can let go. Maybe one day we’ll be able to break the shackle and move to one of these places and I am quite certain that financial independence will give our decision a boost; more of a reason to achieve our goals sooner than later!

In contrast to July, August was a very busy month on all front which I will discuss in detail in respective sections below. As I mentioned in my June and July postings, I updated below two pages to reflect the latest data:

Passive Income Split

Same as last two months, the passive income split doughnut depicts I am still heavy on lending income, but I plan to slowly align to our comfort level in coming months, once our ongoing real estate deals are closed. More comfortable ratio would look like:

  • Dividends – 60%
  • Lending Interest – 25%
  • Rental Income – 15%

I will continue to keep an eye on income opportunities and revise the ratio as needed, eventually inching towards our 2025 goals.

Monthly Dividend Earnings

August dividend earnings had been quite lacklustre and lesser, as compared to August of last year. This was due to dividend cuts announced in past few months for several of my holdings such as CHW (-$35 per month), CHR (-$14 per month), VET (-$91 per month). Key highlights for this month’s dividend income are:

  • I received dividend deposits from 9 Canadian & 4 US based companies, total value of $182.46
  • The dividend is about $20 less than last August due to several dividend suspension and cuts as I mentioned above

Dividend Goal Tracker – Planned vs Actual

This chart represents our Aspirational Dividend earnings by 2025 and shows Planned – Yearly (Blue bars), Monthly (Green dotted line) and tracks Actuals – Yearly (Pink bars) and Monthly (Green plot)

With 4 more months to go, we are only $1500 less in achieving our annual dividend goal of $5500 and even in worst of the market, I am pretty confident we will meet and exceed our target. As per our portfolio and forward yield, we may cross $6000 this year itself.

My Marketplace

A tweet by a person I follow had quite an impact on me and I decided to get active with my cleanup and rebalancing. The gist was, while you can get wrong with your picks, don’t stay wrong, instead be ruthless in cutting losers! This changed my perspective towards being lazy and giving losers time to recover, I decided to book loss (heavy ones I emphasise..) and move on. I setup several sell limit orders and none of them got executed in August but I am pretty certain I will “move on” from some of my losers especially in Oil & Gas sector. As far as adding more to the portfolio goes, I put our 3% of cash reserve to use by adding 50 shares of Manulife and initiating a position of 93 shares in Telus. I also dipped my toe in Apple the day their share split came into effect. As usual I kept accumulating about 5-7 shares (depending on price) of CIBC as part of Employee share purchase plan. Again will repeat for your benefit, if your employer offers share purchase plan then you must take advantage of it, it is FREE money and I haven’t come across a single person yet who like leaving money on the table!

As far as my Buy goes, any Canadian dividend investor will know the companies I traded in. Manulife averaged about 11% dividend growth rate in last 5 years and the last increase at the beginning of 2020 was 12%. The market haven’t been just to the share price though even after posting good last quarter result. Telus is again a household name in telecom sector and I always wanted to initiate a position. The recent stock split made it more “affordable” and impressive dividend yield made it too tempting to ignore any longer! Last but not the least, Apple – world renowned name and the first trillion dollar company and what a rally in last 1 year! Recent stock split spurred the price to an all time high and my buy was on the first day post the split, as this was probably the only time I could afford it. We had some chump change in USD, sitting in one of our RRSP which I utilized for a minuscule position. I do plan to add more when our sell order materializes. This will help us with our goal to diversify more into growth stocks based south of the border.

Rental Earnings

Few months back we thought of buying an investment property so we can increase our rental income. As I mentioned in my July post, we checked out several properties and put a conditional offer on a house subject to mortgage approval. I am quite excited to share the news that our mortgage got approved and we made our offer firm! The closing is scheduled for September end, thereafter the house will require good amount of renovation upstairs and legal second unit basement apartment will be added later on. If all goes well and our calculation holds true, we will have a positive cash flow of about $1000 per month and at least 10% appreciation in property value immediately after renovation. Our plan is to keep it for long term and let the value appreciate for higher capital gain, assuming the GTA real estate market will continue to be in top gear for coming years.

With the same hope, this month we also invested in a pre-construction condo unit. The down payment is staggered across 3 years making it less burdensome financially and there is a free assignment, meaning we will have the option to sell it before actually closing the deal. The scheduled closing is in 2024 and again going by the trend, we expect the price to appreciate by 20%, giving us a handsome gain on our investment. Pre construction market comes with several benefits primarily being no hefty upfront cost and more on this will be discussed in my upcoming blog on Rental Income, you can stay informed by subscribing via widget at the bottom of the page.

Lending Interest Earnings

Same as last month, both incoming interest and outgoing payments towards leveraged PLC account remained more or less constant. Since we have an upcoming property deal closing to take care of, we plan to redeploy half of our lending money towards 20% down payment and hence there will be a considerable dip in interest income next month onwards. This aligns well with our goal to reduce lending income and at the same time fund the new property. I strongly believe in minimum 20% down payment towards investment property to keep CMHC insurance cost out of the equation and overall cost low. You can read more on this in my earlier blog on Lending income.

To wrap up our August update, I would say I feel much more focused and confident ever since I started blogging about our goal and progress; and I hope you as a reader takeaway some action items too. Thank you once again for the read and would love to see your take on savings and investment ideas. Until next month.. Save-Invest-Repeat. 😊

July’20 – My Passive Income Update continues!

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This is my second monthly update and I tell you I still haven’t gotten used to this whole idea of posting our deeds in front of people! But as I mentioned in my earlier posts, I am doing this to discipline myself and hoping to “inspire” the readers, hope in the end it is all worthwhile. I think it will probably take few more months before this exercise a habit and eventually it will be a piece-of-cake! July was quite a busy month on touring front and we went to quite a few nearby places almost every week, to make the most out of this summer. I guess this hunger and urge was fueled by months of quarantine and cold weather so within a month we went to three different beaches, Niagara falls (again!!) and Cherry picking! The Covid-19 lockdown in our province was relaxed as the new cases count was on decrease and I must say the government is doing an admirable job balancing between lockdown to contain the virus but at the same time also opening up businesses in phases to ensure this battered economy get a boost. I strongly believe the wellbeing of people is as important as ensuring business do not suffer more, hence a measured approach is the need of the hour. While mayors and premiers are doing what is necessary, the citizens have an equally important role to play in this by being responsible and follow the laid out guidelines. I was appalled by seeing flood of people at Niagara falls with no mask or maintaining no social distancing at all! I think before this whole thing settles down, we all should try avoiding visits to crowded places, if at all one has to go, masks and six feet rule is a must. In the end we are all in this together and if we don’t take care then this pandemic will last much longer than we all want it to.

On the other hand the investment scene was totally lacklustre and boring, in fact there was no trading at all! Partly because of travels and mostly because I feels the market is not at all in sync with pandemic related economic downfall and business losses. To my amazement I have seen some of my watchlist stocks such as Apple surging 10% in a day on the news of stock split and decent quarterly result. The stock crossed $400 barrier for the first time and ended at an all time high of $425. To put it in perspective, Apple share price almost doubled in last 4 months since March crash! There have been several other crazy rallies I have seen sitting on the fence, and one of these days I may nervously jump into one of the technology stock, south of the border, I do have some cash on hand! As far as my 2025 Goal goes, I am still on track but mulling some decisions mentioned below.

As I mentioned in my June posting, I updated below two pages to reflect the latest data, along with month specific details further in other sections.

Passive Income Split

This colourful doughnut represents monthly percentage split between all 4 income streams. As in June, I am still pretty heavy on lending interest. I am targeting to adjust to a more comfortable ratio of:

  • Dividends – 60%
  • Lending Interest – 25%
  • Rental Income – 15%

The aim is to keep looking at opportunities to rebalance these streams till above ratio is reached or close enough to our liking.

Monthly Dividend Earnings

July dividend earnings had been quite a month from Dividend perspective as Covid-19 is still contributing to uncertainty and creating a havoc on earnings, resulting in companies either reducing or worst case, suspending dividends altogether. While many sectors have been on recovery path as the lockdown is relaxed, there are few exceptions such as Technology (especially eCommerce, Remote working enablers), Consumer-Staples, Utilities which have seen growth during pandemic. Key highlights for this month’s dividend income are:

  • I received dividend deposits from 17 companies out of which CIBC is set to drip, total value of $764.26
  • This is almost $300 more than June because of my large holding in CIBC, which I aim to reduce by increasing investment in other solid companies
  • As I mentioned in last month’s post, A&W indeed resumed its dividend (royalty actually) after suspending it from Apr-Jun. Though it is not at par with March payment, it is still a positive sign and we hope to see an increase in coming months. This will contribute $60 towards forward annual dividend income for 2020.

Dividend Goal Tracker – Planned vs Actual

This chart represents our Aspirational Dividend earnings by 2025 and shows Planned – Yearly (Blue bars), Monthly (Green dotted line) and tracks Actuals – Yearly (Pink bars) and Monthly (Green plot)

It is quite satisfying to see we crossing entire last year’s dividend earnings in July itself. We still have 5 months to go and are strongly on-track to achieve our 2020 dividend goal of $5500.

My Marketplace

No new addition this month except adding/dripping CIBC shares under RRSP account. As I mentioned last month, this is one of the best way to passively increase your earnings, icing on the cake it, employer matching a portion of your contribution. If you haven’t checked/enrolled into employer backed retirement plan, you should enquire immediately!

I have about 3% of cash left to be deployed and I am strongly mulling one of the technology stocks, either US or Canadian. I do hold bunch of top tiered Canadian IT stocks as part of XIT holding, which by the way is firing on all cylinders and adding further to the position may not be a bad idea at all! Another technology holding of mine Sylogist announced a dividend increase yet again, making it two quarters in a row, and I am still considering adding further more. On the other hand the recent Microsoft & Apple rallies are quite impressive and it is worth riding the wave, only demotivator is the CAD to USD conversion rate. Currently my dividend income comprises 90% out of Canadian companies and just 10% from US based stocks (keep in mind for me CAD = USD for simplicity!). I would love to alter this ratio to 50-50 and hence I may jump the gun on one of these US stock, sooner than later!

Rental Earnings

We aim to reduce lending interest earnings and increase rental income instead, it is also shown in the colourful pie above. Over the past few weeks we have been thinking and considering buying a rental property by deploying some of the lending money towards the property down payment. With this intention, we were quite busy looking at several properties. Running down the numbers to see what you can afford, finalize the neighbourhood, browse through the listings, checking photos and virtual tours, shortlisting, working with real estate agent to book visits, tour the property, review renovation need, scanning the neighbourhood, exploring commute options, check rental prospects, look at future appreciation potential, making an offer, applying for mortgage, providing papers, inspection, arranging down payment etc, the activity list is quite long, tiring and tedious. But I tell you it is equally exciting provided you are interested in real estate.

The single most important activity remains going through the numbers to look at your affordability and potential cash flow from the rental property. Always look at the risk and reward, in the end you are doing this to increase your passive income, not increase your blood pressure! Try keeping it simple, if you think the numbers doesn’t make sense and you can’t afford it then don’t get into it. After careful thinking we have put a conditional offer on a property, hopefully more on this in August!

Lending Interest Earnings

There is no significant change in interest earnings, and this is one of the reason lending money is a bit satisfying, the income more or less remains stable month after month. If our rental property deal materializes then there will be a huge dip in this income stream but it aligns with our overall goal to rejig our ratios. As I said under first steps for lending income, it still remains a high risk high reward endeavour if you have money to spare. There is not enough options to consider which consistently earns you 12% on your money.

Thank you for reading through the updates and as always, I welcome your comment and feedback. I hope you enjoyed the read and take away the main objective of these postings – Save-Invest-Repeat. Until next month! 😊

June’20 – My first ever Passive Income Update!

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This is my first monthly update since I created this website last month and I must admit I totally misjudged the amount of work involved to update, month after months. It is quite overwhelming to gather the past month’s data to the best of my ability, collate it, and most importantly to put it in a presentable format and sequence it, for readers to follow through. In the end, the monthly reporting and performance should contribute towards the 2025 Goal and the reporting should clearly show the progress and identify any corrective action required on my part. I am already feeling disciplined by this whole exercise which makes me believe I am in the right direction!

While reporting is an evolving process and I will fine tune it as we go along, I for now chose to report below metrics on monthly basis:

  • Update 2025 Goal tracker on homepage
  • Update Dividend Portfolio with latest holdings
  • Passive Income Split between Dividend, Rental & Lending incomes
  • Monthly Dividend Earnings
  • Dividend Goal Tracker – Planned vs Actual
  • My Marketplace – Highlighting my trades for the month

Now since this is the first update, I am also including two additional sections which will be optional for regular monthly updates, as I may not have enough changes or update to share.

  • Rental Earnings
  • Lending Interest Earnings

Passive Income Split

This colourful doughnut represents monthly percentage split between all 4 income streams. Currently I am pretty heavy on lending interest income but as per 2025 Goal, a more comfortable ratio would be:

  • Dividends – 60%
  • Lending Interest – 25%
  • Rental Income – 15%

The aim would be to keep looking at opportunities to rebalance these streams till above ratio is reached or close enough to the liking.

Monthly Dividend Earnings

June had been quite a month from Dividend perspective as Covid-19 is still contributing to uncertainty and creating a havoc on earnings, resulting in companies either reducing or worst case, suspending dividends altogether. While many sectors have been on recovery path as the lockdown is relaxed, there are few exceptions such as Technology (especially eCommerce, Remote working enablers), Consumer-Staples, Utilities which have seen growth during pandemic. Key highlights for this month’s dividend income are:

  • Out of 25 expected Dividend deposits, I only received payout from 23 companies totalling $474.54
  • Chesswood cut their dividend by 50% in Apr’20 and then took an unfortunate decision to suspend it indefinitely in May’20, reducing annual dividend by $262.50
  • TORC Oil & Gas reduced their dividend by 80% in Feb’20 and then suspended in May’20, reducing the annual dividend by $67.76
  • Suncor cut their dividend by 55% in May’20, reducing annual dividend further by $111.39
  • Total Jun’20 dividend loss is $43.05 while Forward annual dividend income loss is $441.65

Dividend Goal Tracker – Planned vs Actual

This chart represents our Aspirational Dividend earnings by 2025 and shows Planned – Yearly (Blue bars), Monthly (Green dotted line) and tracks Actuals – Yearly (Pink bars) and Monthly (Green plot)

This is a great visual telling us if we are on track or need adjustments to the portfolio. As you can see, so far, we are on-track to achieve our 2020 dividend goal of $5500 unless more of our companies chose to reduce/suspend their payouts. Considering the situation we are in due to Covid-19, my strategy is to have patience and not to sell any stock, even after a dividend cut. Once the tide settles down and if they still don’t reinstate the dividend, I may change my position. We are in this for the long haul so don’t see a point to panic and book a loss. I already heard that A&W Royalty is resuming their monthly distribution, more on it in the Jul’20 updates. Fingers crossed!

My Marketplace

As usual, I kept nibbling on CIBC shares under RRSP where my employer also adds 50% of my contribution up to a certain limit. I must say, it is a sheer waste of money if anybody who’s having this option from their employer and not using it. I can’t think of any bigger lost opportunity then this! There are several benefits with employee share purchase program primarily being Tax deduction under RRSP contribution, 50% upfront benefit (in my case and may differ for each), and not to forget the usuals like share price appreciation and all those dividends. In fact this was the whole reason I got interested in Dividend investing! Regular nominal payroll deductions to fund this only hurts first few months and after that you (and your budget) automatically adjust to it. Besides, regular contributions is one of the most efficient way to reduce risk due to share price fluctuations and grow your investment.

I also bought 100 shares of MAXR at $22 a piece. I didn’t buy this for dividend and don’t intend to keep it for a long term. It is purely a quick play as I had made some money on this in the past as well and I see some potential again. Those who don’t know this company, Maxar Technologies is a space technology company headquartered in Colorado, USA and specializes in niche area of Space communication, Satellite products, and related services. Their share price plunged from mid $80s in early 2018 to about $6 in a year after the company reported a technical glitch in one of their satellite preventing it from taking images. It was a nasty ride for both the company and investors and they had to sell assets and subsidiaries to cope up. Also a news back in mid 2019 that insurance payment clearance for the failed satellite to the tune of $183M had been quite helpful to revive the company. Recently they made an announcement to acquire Vricon, a global leader in satellite-derived 3D data for defense and intelligence markets, with software and products that enhance 3D mapping. So the road to recovery looks bright to me and my entry is purely from growth perspective. Needless to say the stock price is quite volatile and I may exit once I see the price in the range of $27-$32.

My last trade of the month was TOG where I bought 1650 stocks and sold at a profit of 0.42 cents a share, minus trading fees. TOG is a small cap Oil & Gas company operating out of Alberta, Canada and price had been volatile ever since the beginning of 2019. While this company is recommended as a buy by different analysts and bloggers, I am sitting on the side and satisfied with small tradings, while things settle down. If you have noticed, I do have a small position left in my portfolio and may sell it with my next “trade” as they have suspended their dividend in May’20.

Rental Earnings

Increasing net cash flow from an investment property is quite a task and requires tons of patience and more so, savings! The incoming rent is gobbled mostly within a week by Mortgage payments, Insurance, Maintenance fee, Property tax, Property management or some random expense going towards a leaking pipe or a broken switch! You are lucky if by the end of the month, you are still in green. We have a 50% partnership in an investment property which we acquired at the beginning of this year. It is rented out for now and the outgoing pretty much balanced out by the incoming. Due to Covid-19 situation, all Canadian banks offered mortgage deferral for six months for qualified owners. We had applied for it and got approved to put the mortgage on hold for 6 months (till Sept’20) and that’s the reason we are getting profit out of this property. By the end of the deferral term, we will get the new monthly mortgage payment amount including some of the interest which we haven’t been paying for 6 months. You didn’t thought this six months deferral is free, did you? Nothing is for free in this world, not even relief packages!

Lending Interest Earnings

Income from Lending interest is steady and predictable, and you can read about our strategy documented under first steps for lending income. The only notable is I waited for too long to get lending loop monthly statement which didn’t arrived till 10th of the month and hence I gave up. Instead going forward, for my monthly updates, I will include last month’s income (May’20 in this case).

I wholeheartedly hope you enjoyed the updates and please let me know if you have any feedback on monthly updates or if there’s any specific data that you would like to see. Good luck with whatever you chose to do with your money though I wish you Save-Invest-Repeat. See you next month! 😊

First Step towards Passive Lending Income

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I personally don’t like keeping more than $2000 in bank account, be it Chequing or Savings, they provide minuscule interest on the money and barely keeps up with the inflation rate. While there are situations when you still have to have some liquidity and keep the money in low interest bearing accounts, I mostly prefer to keep it in TFSA* account parked in Stocks. For bigger amounts that I surely don’t need for 1-2-3 years, I prefer to lend it on high interests mainly under following two categories.

Real Estate Lending

When I was first introduced to the field of high interest lending, my first reaction was – WTF! Who borrows money at these rates? Is it even safe? How can a borrower afford to pay so much in interest and still return the principal in the end? Is this a scam?

All logical doubts and concerns.. and I recall my real estate agent sat with me at a Tim Hortons somewhere, and on a piece of brown (not even white!) paper-napkin, front-and-back, jotted down the numbers and reasons why a decision to borrow money at a high interest still makes sense. Before I indulge you with details, keep in mind the most important dynamics here, we are ONLY talking about Greater Toronto Area Real Estate market investment where as you can see below, the price appreciated by more than double in last decade! This chart is sourced from TRREB where you can also find this data in a tabular format. I added the Green arrow (or should I have used Red?!) to show how steep the price rise was!

Source: http://trreb.ca/files/market-stats/market-watch/historic.pdf

We migrated to Canada in 2013 when the market was fiery HOT already and prices in some areas of Toronto was increasing at an average 15%-20% yearly, that’s an insane ROI for any investment! The market was so lucrative that rich foreigners were dumping their cash in real estate here along with other major cities across Canada. The ballooning price got the government worried as it may become a bubble which could burst and have disastrous impact on the economy, besides home ownership was getting out of reach for majority of the millenials. They intervened and introduced several measures like mortgage stress test, tighter down payment requirement, foreign ownership tax etc and to some extent they were able to reign in the price. The rules are still evolving and Covid-19 also helped with the cooling a bit, but as per many analysts and publications, Toronto prices are still expected to grow by 10% in 2020! The whole situation is so enticing that I personally known quite a few people who jumped into getting Real Estate agent license to work part time to ride the wave and make money!

While I will share our Real Estate ownership & Investment journey separately under Rental Income topic, the reason there is no dearth of people willing to borrow money at high interest rate is primarily hot real estate market here. I have seen short term lending interest rate as high as 20%, effectively costing the borrower in the range of 22%-25% including finder’s fee, legal paperwork and other formalities.

As per Canadian Criminal Code Section 347, it is a Criminal offence to 1. Enter in an agreement 2. Receive interest rate; beyond the maximum allowable annualized interest rate of 60%!

Honestly I personally would never want to see myself on the other side of this equation! Other reasons to borrow at this exuberant rate are:

  1. Poor credit history due to which mortgage with traditional banks is difficult to get approved
  2. Insufficient time in Canada to build a credit history, again resulting in banks declining the mortgage application
  3. Above two points may also result in getting mortgage approved but at a higher rate. I was in this situation and had to go with a B lender for first year at double the normal mortgage rate!
  4. Insufficient down payment funds due to which mortgage application is denied or approved at higher rate
  5. Less than 20% down payment also attracts CMHC insurance charges and they aren’t cheap

These reasons should be enough to give you an idea why people borrow at high rates and why lending money is a booming business. There could be several other reasons and factors leading a person to go this route but I am not into judging people, so will stop here. As I mentioned earlier, I personally won’t be comfortable borrowing like this and don’t wish this situation arising for others too. Having said that, high interest borrowing shouldn’t always be seen in bad light or risky all the time. There are deals where even after paying interest, people manage to make money. There could be a tight short term financial situation or money stuck elsewhere and a real estate (or any other opportunity) deal comes up which is too good to ignore and hence a person is inclined to borrow money. I guess in the end it all depends on one’s ability to crunch the numbers and putting the money to good use. Here I will present you with an oversimplified example on how money can be made in Toronto real estate even after borrowing at a high interest rate of 20%.

  • Say John Doe with $25,000 cash in hand sees a house on sale for asking price of $500,000. His market understanding and business acumen makes him believe this is a good deal and could potentially give him good ROI in 2 years. With price appreciating at 15% a year, he expects to sell the same house for about $650,000!
  • But having only $25,000 means he could only afford 5% down payment and with his income and other debts, he knows mortgage approval chance is slim and may not get a favourable rate with bank
  • Besides anything less than 20% attracts CMHC insurance, his meagre 5% down payment would translate into $19,000 CMHC insurance premium cost. To make the matter worse, if he can’t pay this fee upfront, it gets added to the mortgage principal, on which you pay interest. I won’t even go into that calculation! So instead of $475,000 mortgage ($500,000 price – $25,000 down), he is forced to borrow $494,000 ($475,000 + $19,000 CMHC) meaning he lost $19,000 plus 2 years of interest on it right away! In other words, his $25,000 is worth only $6,000.
  • Knowing the situation, he opts to borrow $75,000 at 20% interest rate. Which means he will pay total interest of $30,000 over 2 years period ($1,250 monthly) plus of course $75,000 principal at the end of the term when he sells the house.
  • With borrowed $75,000, he is eliminating CMHC fee of $19,000 upfront. Also with 20% down payment now, his chances of mortgage approval and that too at a much better rate, is bright!
  • So his net borrowing cost is only $11,000 ($30,000-$19,000), not to forget two other key benefit – he could actually afford to buy the house at a better mortgage rate & h avoided interest rate on $19,000.
  • At the end of 2 years, he sells the house for $650,000 as planned. After paying off the mortgage balance of about $375,000 & high interest loan of $75,000, he is left with $200,000.
  • Deduct another $100,000 towards expenses such as Realtor’s commission, Land transfer cost, Lawyer fee, Mortgage prepayment penalty (if any), Miscellaneous expenses towards maintenance of property, Rental fee, Capital gain etc. The list could be longer but we deducted a generous amount to take care of it all.

To summarize – on his initial capital of $25,000, John was able to convert it into $100,000 in 2 years! Is it a bad deal, did I missed anything? Of course this was a best case scenario, things could have gone wrong in numerous ways. Greater deal of risk was involved but money is made only when you know what you are doing and take calculated risk. This is not for everybody, even I won’t get into such deals myself but then there are people who take this sort of risk all the time.

Primarily our extra money is parked directly with our Real Estate agent, occasionally he also facilitate lending to a Third party. A lawyer is involved to put together the Agreement/Promissory note, where key points documented are – Amount you are lending, Duration, Annual Interest Percentage, Monthly Interest Amount, and Property details which is liened. You also get advance Interest checks for entire duration and at the end of the term, you either renew or get the principal amount back via lawyer. This mostly happens when the property is Sold or Refinanced with the bank at a lower interest rate. One can expect 8%-16% annual interest rate, now compare it against typical 2% (or less) you get in a Savings account and that too on a bigger amount! Ratehub is a great site to compare prevailing Interest rates if you still think traditional bank is still a way to go.

Lending Loop

Quoting their website – Lending Loop is Canada’s first fully regulated peer-to-peer lending platform focused on small businesses.

As it says, they provide a platform to connect carefully screened borrowers (usually small businesses) to lenders (like you and me). They charge 1.5% servicing fee on each loan/commitment you make. Depending on borrower’s application approval, financial condition, ability to payback and several other factors, they are assigned a Loan grade and annual rate of interest accordingly varies between 4.96% – 24.93%. They have a great and simplistic website and you can read about all of this in detail there, for some reason they discontinued their mobile app, which was really handy. Before we delve into details, one extremely important point to consider is, the money you chose to invest via lending loop is not insured and you may lose your entire investment. Having said that, as per statistics available on their website, there are more than 11,000 active investors who lent more than $74M CAD to 100’s of small businesses across Canada!

The steps to get this started is quite straightforward:

  • Create an Account by providing basic details
  • Upload required documentation
  • Attach your Bank account (used to Deposit/Withdraw)
  • Transfer funds, and you are set to lend to available borrowers!

If you enroll via my referral link, both you can me can get $25 each once you lend total of $1500 via their platform.

Various features that I personally find quite helpful are:

  • Auto-Lend, if you opt for this and set a limit & loan grade you are comfortable with, the system will automatically lend money to any new borrower available
  • Email notification for any new borrower available in the marketplace needing funds
  • Monthly Earning statements
  • Annual T5 – Statement of Investment Income

While the small businesses borrowing money on this platform are carefully screened and you can see their detailed plan and intention before lending, there is always a risk in high interest lending which everyone should consider. My three cents 1. You can lend as low as $25 for each commitment, and hence minimize the risk by diversifying across multiple borrowers. 2. Lend money to Borrower’s with Loan grade C+ or better, the interest you are offered for such grades are in the range of 5%-16% 3. Look at the commitment term carefully, as your money gets locked for that period.

One last point I would like to mention and it is actually the only point I don’t like about Lending Loop, the fund transfer time (both Withdrawal or Deposit) take about 4-5 business days, which at times is frustrating! It happens that a good commitment is open and gets quickly funded while you’re waiting for fund to come in!

My departing words on high interest lending – Don’t be too greedy, if you think a deal is too good to be true, it often is! Think if the interest rate someone is paying you is sustainable by putting yourself in their shoe. The decision is always yours, and there could be a better and safer deal out there, suitable for you!

Happy Lending!

My Personal Dividend Portfolio

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My “obsession” to build a quality dividend portfolio begin back in 2017 when I noticed the incoming quarterly dividends from my employer in my retirement account! It was quite encouraging to see hundreds of dollars coming in quarter after quarters, just by making small deduction per paycheck. The idea of letting your money make more money while you are sleeping (..or doing nothing) was quite exciting and a game changer. It was then that I made up my mind to gradually build a stock portfolio comprising of dividend paying companies which also raise their dividend every year. It would be quite awesome to let the side income pay for your monthly bills and eventually live off the dividends some day! I put some more thought to the side income earnings and expanded the sources to include rental & short term lending as well. I then put together a goal and worked on the approach. You can read more on this by clicking on the links.

Below is our portfolio so far along with PADI (Projected Annual Dividend Income):

Settling Nomad Dividend Portfolio
Settling Nomad Dividend Portfolio

Few notables:

  • We primarily invest in stocks listed on TSX/Canada & occasionally in US stocks
  • Majority of our portfolio is in stocks though started nibbling on ETFs for diversification
  • For the sake of simplicity we consider 1 USD = 1 CAD (and not vice-versa!!)
  • So far all our stocks are in RRSP or TFSA accounts with no taxable dividend earnings
  • To minimize tax implications, we contribute in following priority sequence:
    1. Under RRSP enough to capture employer’s match (¢0.5 for every $1 up to max $2250 annually)
    2. Under TFSA to narrow down life long contribution limits (we still have plenty of room)
    3. Once TFSA contribution room is exhausted, we will catch up on RRSP & also open taxable account
  • We don’t buy US dividend stocks in TFSA to avoid 15% tax withholding on dividends
  • While focus is on dividend stocks, we do buy quality growth companies – mostly US based technology stocks
  • Most of the stocks are setup for DRIP so dividend earned is automatically reinvested in buying more shares
  • As of now we have our accounts with CIBC Investor’s Edge or WealthSimple

Our dividend portfolio is available on google sheet here and is updated at the beginning of the month for previous month’s holding. Feel free to copy and use as you may want. All the grey colored cells are automatically populated (..or calculated) real-time and hence it is quite easy to maintain. I recently automated “Yearly Dividend” for shares after googling for help, while it works 99% of the time, sometime it doesn’t, mostly due to source connectivity, changes or other issue with used Yahoo/Google services. If you have any feedback or would like to see anything else on the portfolio sheet, let me know via comment and I will do my best to incorporate.

Building a portfolio is an ongoing endeavor and a lot depend on individual’s – age, time horizon, current financial condition, financial goal, risk tolerance/appetite, willingness to “sacrifice”, discipline etc. Hence always do your own due diligence before investing based on your situation and goals.

Good Luck building your own Portfolio and please do leave a comment letting me know your favourite stock(s) that you would hold forever!