As you all know, I won the lottery.
No, not really, I wish I did (or I wish I was that lucky but I'm not). I did walk away from the real estate “game” (if you can call it that) with a bit of money. I suppose the folks at Greaterfool.ca are probably all pissed off right now and are writing another rant post about me going into real estate and being completely irresponsible as we speak. I'm sure someone else is probably looking back at the archives and calculating exactly how much I made after all the fees, the mortgage payments (not principle, of course), and other carrying costs that I had to pay for during my time holding real estate.
Although a part of me is completely relieved that I don't have a ticking time bomb (a large mortgage) on my hands right now, another part of me is interested in delving back into the real estate game (with smaller fish to fry of course) because prices are low right now.
As a very practical person, I am conflicted as to what I should do about this large sum of money that I have now. So in true neurotic, youngandthrifty fashion, I will go through the possible options, and I welcome other options too!
Buy Real Estate Again Option A
One of my ideas (sometimes I think I have Bipolar disorder a la Silver Linings Playbook because once I start thinking about something I can't stop thinking about it and end up wasting hours of my time researching and thinking)… was to perhaps get two condos. Yes, I realize your eyebrows are raised and you are probably thinking ARE YOU CRAZY? But hear me out:
One in downtown that I can rent out (perhaps furnish it for short term rentals) and one to live in. This is probably the most risky option because:
a) condos rarely appreciate and mostly just depreciate because they get old and the maintenance fees just go nowhere but up. I would however try to mitigate this by going for newer condos.
b) If I don't find a tenant for the apartment, I'll need to have enough money to deal with months of no rent. However, this is probably not too likely since the vacancy rate for rentals in Vancouver is very low.
I did some calculations, I would probably receive a passive income cash flow of $300 to $500 per month from the downtown condo which I could use to lower the cost of the condo I live in. However, rental income is taxable and although there are a lot of deductions I can put towards it (like maintenance fees, mortgage interest income) but after all that's said and done, I will likely have to pay income taxes which lowers the real cash flow to something like $200 to $400 per month. If the tenant doesn't want the parking spot, I could probably rent out that parking spot too for $50 to $100 a month.
Some of the pros to this is that I get to play land lady again (I actually sadistically kind of enjoy this, I don't know why) and I will probably get an extra key for myself and can use the amenities the downtown condo has to offer, like free parking.
Buy Real Estate Again Option B
Another real estate option (must to the chagrin of the real estate bears) would be to buy a duplex or a triplex or something that has a basement suite potential and do it all over again. However, if I were to do it over again, I would make sure the place is new already because rats and mold don't fly with me anymore. I'm not sure how rentable a basement suite is in a duplex (probably much less possibility to rent out than an apartment) but could be done. I would have to put in more of a down payment than option A, obviously.
Another option is to poor this money into the stock market or into index funds. A part of me is leery about this just because the stock market seems currently over valued or at 52 week highs. The last thing I want is to see my hard earned lottery type money disappear because of the erratic bipolar moods of Mr. Market.
If I didn't have a short timeline to use this money, pouring the money into dividend stocks would be a good option because of the likely possibility that I could generate about $400 in monthly dividend income from this or at least $5000+ annually (a reasonable 3.5% dividend portfolio payout rate). Of course, with the better taxable benefits of dividend income, I would get taxed less. When I sell, I will have to pay capital gains tax depending on if I made a profit on the dividend stock.
The safest and most boring option (probably not safe since this would not even account for inflation costs) would be to leave this money in my high interest savings account at Tangerine. The high interest savings account generates a monthly interest of 1.65%. which equates to about $200 a month. This will be taxed at my marginal rate so it works out to be even less.
Update – January, 2018
I'm definitely glad that I didn't take the “do nothing option” when it came to managing my new windfall back in the day!
I thought it might be helpful if I revisited this article to tell readers about the choices that I decided on, and how they panned out. The first thing I did was max out my TFSA and RRSP, using my discount brokerage account, see my Questrade review for more information on just how I handle those logistics. I have been pleasantly surprised by the market returns since I made these investments!
Recently (about 18 months ago), I decided to take the chunk of this that I still had sitting in my high interest savings account (a pretty small amount) and try out these new robo advisor platforms. They are pretty neat overall, but I'm still not sure about the fees. You can check out my Wealthsimple review for more information on how the experience went. The summary is that I really enjoyed the hands-off nature of the platforms, but I'm not crazy about paying.6% MER or so for something I could do on my own. Definitely a solid option for a lot of Canadians though!
Readers, what would you do with $150K?