July 2015 Net Worth update: $365750 (+0.7%)

Yay, positive again!  Though it really should have been much more positive, but it was just a ‘medium’ positive no thanks to the downward stock markets.  Mr. Market is obviously kind of grumpy and moody these days, whereas Mr. Real Estate Market in Vancouver is high on a kite somewhere in la-la land.

This gain is not bad considering I was on vacation for half the month and had to pay my car insurance and home insurance.  I think I am on track to reach my net worth goal, but really just barely.  It’s definitely very marginal.

As some of you following may know, my goal is to have a net worth of $385,000 by 2016 or $400,000 including my pension. I am over the $400K net worth with my pension contributions and and have under $20,000 to go if I do not include my pension.

Okay, so here’s the breakdown for July 2015 (+$2523, +0.7%)

ASSETS:

CASH: $30,285 (+19%)

Net Worth Update

  • I think I have about 6 months of living expenses and then some, so should start moving money into my investments regularly
  • A lot of the gain this month is from the tax return I received
  • I added up my chequing and savings accounts (High Interest Savings Account). I automatically deduct money from my chequing account and have it siphoned to the HISA account (paying yourself first)

Non-Registered: $93,430 (-1.7%)

  • My ZPR is down about $2400 in unrealized losses- I should sell some of these preferred shares soon
  • These are stocks that capture the “moment in time”, including unrealized gains or losses in my BMO Investorline and Questrade accounts. Continue Reading

Mailbag – Getting Started With Student Debt, TFSAs, RRSPs, and HISAs

*You all know the drill by now, we get a great question through our contact us page and allow everyone to benefit from it.  As always, these are real questions from real readers and identities are always protected.

Hi Kyle and Justin,

I stumbled across your podcast and love the show, its great listening to Canadian content!

I have a few general questions.

First a little background: me and my fiancée both recently finished post-secondary studies. She is a veterinarian and so her student debt and line of credit is almost $100,000 total and mine is $20,000. We are both starting out in our careers, with her in Vet-Med and me in the military. Presently we are trying to decide the best course of action in regards to finances.

Our goal is to eliminate most of our student debt this year and then to begin investing and saving for the future. Getting through our debt has been going smoothly so far. So what we want to do is set ourselves up with RRSP’s and a TFSA for us both right now as we continue to eliminate our debt.

I have shopped around for financial institutions that offer less fees and good TFSA and savings rates. I first looked at ******* (blocked out for legal reasons) but their rates are no longer competitive. I am leaning towards ************ where we would both set up TFSA’s (1.75%) and RSPs at (1.35%) and a savings account (1.75%).

Getting Started With Student Debt, TFSAs, RRSPs, and HISAsBear in mind this is amateur hour for me lol, so any help or advice would be appreciated.

My questions: Should we use the savings account for day-to-day purchases and living or get a chequing account?

For TFSA’s, how do I purchase an ETF/index fund and deposit it into a TFSA? Can I do it at most banks or do I need a 3rd party program etc?

What should we put into TFSA’s and RRSP’s? Index funds, GICs? How do we do that?

What is a good outline for saving, as far a structure goes? Should we both have a TFSA, a RRSP and then a joint chequing or saving account ?

I apologize if is this long winded, we just got through reading “Wealthing like Rabbits” and we what to have a good plan for the future. We’re freaking out a bit haha, just ordered your book as well. We are trying to stay informed.

Anyways thank you so much for the informative podcast :)

Cheers

Matt Continue Reading

Owning U.S. Real Estate- Tax Structures

Don’t worry readers, I didn’t end up buying U.S. real estate, but admittedly I was very tempted and enchanted by the idea that I ended up doing a bit of research to see how one goes about buying U.S. Real Estate.  In the end I thought that it seemed a bit too complicated for me and I didn’t want to sink so much capital (of my net worth) into another piece of property.  And not to mention that the prices have gone up and the Canadian dollar is down.

I first became enthralled by the idea when an acquaintance of mine bought a house in Washington state for just under $80,000.  Yes, for about the same price as a luxury care you can own a house in Washington state with a bit of land.  He was renting it out and had no trouble finding any renters.

Well, turns out there are certain states that are more amenable to owning a rental property than others.  There are also regulations in terms of rental income that need to be adhered.

Now, I’m by no means an expert nor do I have first hand, so take this information with a grain of salt!

Tax Implications of U.S. Real Estate

  • Owning U.S. Real Estate- Tax Structures30% o your gross rental income is withheld unless a W-8EC1 is filed.
  • You have to report rental income on United States federal and state tax returns (and if you don’t, you’re going to get into big big trouble)
  • Depreciation of your property is mandatory
  • On the Canadian side, you have to fill out a T1135 form, Foreign Income Verification Statement (and if you’re late with it, it’s a $2500 fine)
  • As mentioned, there are certain states that have no state tax.  These states still have federal tax, but no state tax.  These include Washington, Florida, Texas (and many others).  For Arizona, there is about a 6% tax which i pretty low.

Tax Implications on the Sale of U.S. Property

  • You have to note the year of acquisition, any improvements, and date of sale (well, of course)
  • If you have a lower net worth- you might consider a personal ownership/ structure, you have to consider that you have no limited liability protection (for example, if a tenant trips and falls on one of your U.S. properties you will be sued big time and there is no protection), that the long term capital gain on the sale of the home is 20% if you have held the property for more than one year (the benefit is that this is low).  Another consideration is that there is estate tax exposure if you own it personally.
  • On the other hand, many people hold U.S. real estate property through a Canadian Corporation.  It is expensive to start up and set up however the benefit is that there is no United States Estate tax.  The other thing to consider is that the tax on capital gains is taxed at regular income.
  • Finally, the third option is the Limited Partnership.  In the Limited Partnership Structure, you will still have U.S. estate tax exposure.  There is a one time legal cost which means more paperwork.

Continue Reading

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