September’20 – My Passive Income Update!

Hope you all are staying Safe-N-Sound, maintaining social distancing and staying indoors as much as possible, who knew we have to live in a time like this? I had a funny encounter a week ago when I was at a tiles wholesaler with my real estate agent to pick up some hardwood floor. Someone greeted him and my agent friend couldn’t identify the person behind the mask so the guy had to clarify – Hey.. I am Steve! I guess this is the new normal, earlier to forego small talks, you avoided eye contact by pretending to read an advertisement, now you simply wear a mask and stare at a known person without any hesitation! Schools started this month and it was expected that Covid-19 cases may increase and it did. Probably schools weren’t the only reason, relaxed social distancing norms, indoor rules relaxation and people taking Covid-19 less seriously also added to this second wave. I have seen a family of four coming to Costco which could be easily avoided. If your kids are getting restless, I would rather recommend going for a long walk outdoors as it is safer than an indoor crowded spaces. There are plenty of other safe outdoor activities that you can chose over a grocery shopping. We decided not to send our elder one to school and let her join online instead, and I am noticing she’s getting more independent with her computer skills and enjoying the short breaks to play with her sister. While our daughter do miss the social interaction and I’ll admit, also causes a bit of a trouble for us as we work from home as well, we still thought it would be wise to wait and watch which direction the cases go. Besides, there will always be another chance to enroll for physical schooling and we can take an informed decision, avoiding some risks. It is a bit of a pain with all the adjustments and while nobody asked for it, we need to live with the fact that restraints will be needed especially till a vaccine is available. We are all in this together and some patience and better decisioning will help us all contribute towards the eradication of this pandemic. September was one heck of a stressful month, both in my professional 9-5 life as well as part time investment gig. If you read my August passive income update, we had put an offer on an Investment property in July, Mortgage got approved in August and Closing was in September; and hence the stress. I will discuss some learnings and best practices further down under Rental Earnings section.

As usual, my monthly updates begins with updating below two pages with the latest data:

• 2025 Goal tracker on homepage
• Dividend Portfolio with latest holdings

Passive Income Pie

Monthly Dividend Earnings

While August saw a dip in year-over-year dividend, September was quite heartening as the dividend earnings increased 38% as compared to last September, thanks to new money and few dividend growths. Due to increased demand from day job and new investment property, I realized I am not doing justice to deploying accumulating dividends to immediate use, hence we set up DRIP on selected stocks which we want to keep for long term and are also get enough dividend to buy at least one or more share. Highlights from this month’s dividend income are:

• We received dividend deposits from total 24 companies (22 Canadian & 2 US stocks), total value of $542.06
• Dripped 13 shares in total for Brookfield Property, Diversified Royalty & Pivot Technology
• Saputo & Sylogist raised their dividend by 2.9% & impressive 13.6% respectively
• A&W, Pizza Pizza and Suncor continued paying their reduced dividend though I read A&W announcing a one time 0.30 per share special dividend!
• My top two earners were Brookfield Property & Enbridge, contributed about 40% of total dividends
• USD comprised of 11% of total dividend earned, though for this reporting I consider 1 USD = 1 CAD

Dividend Goal Tracker – Planned vs Actual

With 3 months remaining in year completion, we are about $1000 less in achieving our annual dividend goal of $5500. Looking at the forward dividend earnings, I am pretty confident we will meet if don’t exceed our target. This shall give us a good head start to next year’s target of $8500!

My Marketplace

My August wish to sell some of the losers remained unfulfilled as all sell limit order expired unexecuted! I know we are too heavy in Oil & Gas sector and overall portfolio is still about 8.5% down and it is mostly due to stocks in this sector. As much as I do wish to get rid of them, I think I am not ready to book heavy losses yet. I haven’t placed new sell orders yet, but I surely will in coming days giving some careful consideration to the selling price. While I wasn’t able to sell any losers, I did sold a winner Maxar Technologies as part of my preplanned swing trade. I bought 100 shares in June for 22 a piece and sold half of them at 37 each, adding little over $700 under my RRSP account. Talk about filling the whole tank, drop by drop! This trade made remaining shares almost free and I do plan to keep them and see how it goes, at the time of writing it already breached $42 mark!

We didn’t bought any new stock this month and have been pondering what to add with the proceeds from Maxar trade and so far I am tilted towards adding more Sylogist or Telus. For the first time, we also set multiple stocks on DRIP this month, keeping in mind busy schedule and lesser focus on portfolio or stock market in general. I figured it is easier to let the keepers keep accumulating and grow forward dividends on auto pilot without any attention; besides DRIPing also saves some transaction fee! As usual we also kept nibbling CIBC shares as part of RRSP contribution & Employee share purchase plan, it is usually 5-12 shares per month depending on current price and also dividend months when we DRIP more shares.

Rental Earnings

As I mentioned in my August post, we had a closing in end of September for an investment property we finalized. The mortgage was preapproved with staggering 16 conditions! With our high debt-to-earning ratio, we were fortunate to even gotten considered. Bank pre-approved in first week of August and it took me and mortgage advisor almost 7 weeks to fulfil them as per bank’s satisfaction. I have been through many property deals in the past but this was most nerve wracking as we got the final approval merely one day before closing deadline. No one should undergo the stress like this as it makes your night go sleepless. If you can’t secure a timely mortgage you won’t be able to close the deal and it shall have cascading effect starting with losing your deposit money. It would still be fine if you just lose the deposit but more severe consequences could be but not limited to – seller asking for punitive damages (at times legitimate but mostly outrageous) and drag you to court, your own plan to move-in/rent/renovate may go out of control. To me, the worst thing would be to recoup the confidence and get back on track. Sometimes the trauma and suffering could have long lasting impact and you may lose the optimism and self-confidence. Some of my learnings and best practices from this deal would be:

• ALWAYS secure your firm mortgage approval at least 1 week before closing day
• While shopping around for lower rate is good, also give importance to the mortgage advisor. A flexible and creative advisor makes this tedious process easier. One has to be equally well versed with the processes and loopholes and guide you with your unique situation.
• TRY to negotiate the deposit amount with seller agent, most of the time a lower deposit is acceptable
• ALWAYS ask your mortgage advisor for Cash back, most of the time bank offers $1000-$3000 back. If you go via brokerage, they usually keep this money (apart from their commission) and won’t tell you!
• Ask your mortgage advisor to register the property for a reasonably higher amount, they can do this easily and it can save you lawyer fee while refinancing in future
• Try to ALWAYS put 20% down payment towards the property as it helps avoiding CMHC insurance cost and secure better mortgage deal
• CONNECT directly with seller agent as it increases your chance of closing the deal and that too at a cheaper price, as agentless buyer save seller agent about 2% in commission payable to buyer agent

While closing was stressful, we only planned for 1 month for renovating upstairs, again put ourselves into a stressful situation! Real estate construction is a tricky landscape full with all kinds and you will be in luck if you find right people at right price at right time. And renovating 3 bedrooms with living room, kitchen and washroom can lead you to deal with bunch of contractors and challenges at each stage. You have the choice to give full contract to an established professional but then it will cost you much higher and mostly they don’t get their hands in smaller renovation work, so a bit difficult to find and could take much longer. My real estate agent is helping with the renovation as time is less and we live 50 kilometers to keep an eye on day to day work. At a high level, work involves demolition of entire upstairs – removing carpets, hardwood floor & doors, washroom and kitchen tiles & fixtures, scraping walls, tearing down the staircases and couple of walls to build an open concept kitchen; re-laying hardwood floor throughout the bedrooms and living area, tiles in kitchen, washroom and entry landing; redoing entire electricals including changing switchboards, wiring and lights/potlights; relocating & changing furnace, AC, HVAC, even water tank; cutting through the wall and adding a sliding door to patio; building new cabinets and island in the kitchen overlooking living room, adding a gas pipeline; fitting in new standing shower, toilet and vanity in washroom, minor plumbing job; changing staircase & doors; painting & finally cleaning. I missed on numerous smaller subtasks but trust me even when you have right people on the job, there are decisioning required every two hours and I am not even exaggerating! If all goes well and our calculation holds true, we should see a 20% appreciation in property value immediately and renting should see cash flow of about $1000 per month. Our plan is to keep it for long term and let the value appreciate assuming the GTA real estate market will continue to be in top gear in coming years. Fingers crossed, all the hard work that went into this deal, risk taken and primarily the time-money spent shall make this a successful investment. I will keep you updating on how this shapes up in coming days, feel free to subscribe via widget at the bottom of the page to stay updated.

Lending Interest Earnings

I had to settle half of the lending money to pay towards down payment of the property so this month the cumulative interest earning shot up significantly due to previous pending dues settlement. This action will also decrease our monthly interest by half starting October and is aligned with our goal to reduce interest earnings anyway. Also, to fund renovation work we have taken out heavy debt from our personal line of credit, hence we will also be paying significant interest towards it, which will further decrease the overall interest income.

That’s all for September folks! Tons of work still need to be done on all fronts and all we need is not to get restless, tons of patience, aggressive savings and staying focused. I don’t know about you but for us, this whole isolation thing have increased our savings – be it less commuting expense or negligible indulgence on unnecessary mall visits or no expense at all on formal clothes! While all our savings got diverted in buying a new property, I hope once things normalize we will be able to divert some of these savings towards new stock positions. Thank you for the read and as always, would love to see your take on savings and investment ideas.

See you next month and until then… Save-Invest-Repeat. 😊