Monthly Archives: September 2013

My First Real Estate Investment

Houses in the PlateauReal Estate is the oldest way of accumulating wealth. Does it still make sense in our present day?

On December 1st 2011, I bought a condo in the best neighborhood of Montreal, “Le Plateau Mont Royal.” I bought this condo with the intention of renting it completely furnished.

Here is the cost of the property:

  • Condo $230,000
  • Notary expenses: $1,200
  • Tax of purchase: $2,050
  • Furniture: $3,000
  • Total purchase price: $236,250

The interest rate on this property is 3% and the term is 25 years.

Had that the bank had financed the property 100%, my monthly payment would be $1,120

Other monthly expenses;

  • Insurance: $21
  • Condo fees: $114
  • Taxes: $157
  • Electricity: $90
  • Internet: $50
  • Supplies: 20

      Total: $452

Total monthly expenses: $1572 ($52.5 per night)

In order for me to be cash flow positive, I must rent the apartment for $1,600 per month. (it is rented for more than that).

Additional benefits.

  • In 25 years, the condo will be completely paid
  • I get to increase rent about 2% per year, increasing my cash flow every year.
  • The value of my property will increase at the inflation rate of 2% per year.

Conclusion: 

I took me about 60 hours to do all the work involved in buying a condo, decorating it and renting it out. In exchange for those 60 hours I became an owner of a $230,000 property. Assuming an inflation rate of 2% my property will be worth $413,000 25 years after the purchase. If I do this same transaction, once per year for 4 years, I will be controlling the equivalent of 1 million dollars in properties; I will be a millionaire! If I divide $230,000 for the 60 hours that I put on, I am getting paid $2,833 per hour.

At this moment, I dare to say that YES! real estate investing is still worth your time.

Investing in real estate requires some courage, but if you manage to get the courage, the reward can be substantial. What are the alternatives? Working for the man?

Why I regret going to university.

student debtI regret going to university. 5 years wasting my time, energy and money.

Soon after graduation I got a job as a financial adviser which I hated, I quit and I became a dance teacher. I could have become a dance teacher five years sooner, I could have saved all the money that I wasted in tuition and my savings could have been compounding for 5 additional years.

We have been brainwashed by the larger society into believing the only way we’ll be successful is by going to university. I could have downloaded every book that I read at the university into my Android phone and read them in my spare time.

In the U.S., the land of the free, the average student loan debt for graduates stands at $26,000. In Canada the average debt after 4 years in university is about $27,000, according to the Canadian Federation of Students (CFS). In both countries the average student needs about 10 years to pay the debt.

Ambrose Bierce once said: “Debt is an ingenious substitute for the chain and whip of the slave-driver.”

To make things worse, more that 50% of unemployed people have a degree from university. How sad, all those years studying in the library, all that debt and they cannot find a job.

In addition, most of the information that you need to get started in most career is available free (or very low price) in the Internet. I met a woman who came from Romania, she bought a $50 accounting software, learned it for 3 months and then got a job as an accountant at a major corporation.  5 years later she was head of the accounting department. I learned how to do Canadian taxes by buying a $20 software and spending 3 weekends learning the software. In my first year in Canada, I sold almost $20,000 of tax services (I have never done an income tax before in my life).

By not going to university, you can get a 5 years head-start on your peers and even if you decide to do nothing for five years, you will still be ahead of on your peers by not being saddled with debt. More than 50% of them will not be able to find a job in their field anyway. I am sure that many of you know someone with a university degree who is working on a field totally unrelated to what they studied.

NOTE: Not going to university does not mean that you should not get educated. If you educate yourself, day after day, for the rest of your life, opportunities will constantly appear at your door and all you’ll have to do is to reach out and grab them.  

Here are some alternatives to university studies (for free)

  1. The local library. Every book that I was asked to read by my professors was available in the university library. I could have obtained the reading list and read those books on my own.
  2. Itunes University. Every major university in North America ( Harvard, Stanford, Yale..) post their lectures for free in itunes. All you need is a $50 ipod to take those classes with you and study anytime, anywhere. I constantly download classes on my ipod and listen to them while I work out at the gym.
  3. Coursera.org has 5,000,000 people studying 452 courses offered by 88 higher learning institutions. All for free!
  4. YouTube. A friend of mine (Jimmy) became a webpage developer and he learned most of his craft on YouTube from the comfort of his hammock while traveling through several tropical countries. Jimmy works the hours that he wants, he is location independent and he gets to choose his clients. I’m a self-taught tango instructor who learned most of my skills from YouTube videos. Recently I was invited to do a tango demo at the Festival International de Tango Montreal.
  5. Google. Whatever topic you have in mind, Google has an answer. Every professional uses Google, why shouldn’t you?

With very few exceptions, whatever you want to learn is available, for free, in the Internet. You can have all the knowledge in the world in your pocket and you can access it when it fits your schedule.

Don’t believe politicians, don’t believe financial advisers.

draculaAt one time I worked as a financial adviser. That was a failure.

I quit because I felt more dirty and dishonest than the drug dealer down the street. In fact, the drug dealer was probably providing a better product, a better service and was being more honest than I was.

I was one of the worst agents of the firm.

My boss suggested that I should pitch my friends and family to sell them life insurance, mutual funds and other crap full of hidden fees that would have never made any significant gains.

As you can imagine, my career as a financial adviser was short. I quit after almost one year of screwing strangers out of their money ( I was never able to do that to my friends and family). After I quit, I lost my working visa and I would have been deported if it wasn’t for my girlfriend at the time who accepted to marry me. Thank you ex-girlfriend, I will always be grateful to you.

Did you know that most mutual funds under perform the market? (“The Market” is the average value of a bunch of companies, which as a group, represent the health of the country’s economy.)

Here are some statistics borrowed from Forbes Magazine: “In 2012, 66% of all domestic equity mutual funds under performed the market. In 2011 a swollen 84% were laggards, while in 2010 “only” 57% did worse than the averages.”

On top of that, most people pay 2% of their hard-earned cash to someone who would do worse than the average.  Hell, you can do that yourself and spend that 2% on beer and food.

Here is the moral of this segment. Do not buy mutual funds. Do not diversify. Do not trust your financial adviser. They are there to suck the savings out of you, little by little, like a parasite who will eventually kill its host.

At one time I wanted to have a career, climb the corporate ladder, study at night and work during the day. Fortunately I never passed the CFA exam that would have made me a financial knight. A person with authority would have granted me the power to ask high fees for my bull shit opinion (most mutual fund managers have a CFA certificate and their performance is below mediocre, see quote above).

I live in Quebec, a French-speaking province where the government is constantly trying to shovel the French language down the throat of anyone who is not a francophone.

I became an entrepreneur mostly  because my French sucks… I would get lots of job interviews because my name “Alain Guillot” is French and employers believed that I would be one more white guy sharing the office space with them. As soon as they saw me and heard my Spanish accent they would say: “we’ll call you, don’t call us… ” whatever.

Can you imagine? I’d be sitting in an office, 8 hours per day, kissing ass and answering “Yes, Sir!” every week, for 30 years, so that at the end I would get a pot of gold and permission to start living my life. I was so lucky not have been hired.

Many people believe in the system. They believe the lies that they are told every day by the media. They debate with so much passion whether one politician will be better that the other. In 2008 the U.S. people were at the peak of believing the lies of one more politician.

Obama! Obama! Obama! — they would cry. He will bring peace, he will enforce labeling of GMO on foods, he will close Guantanamo, he will fix the economy, blah, blah, blah… and so many of us believed the lie.

Conclusion.

  • Don’t believe financial advisers and don’t believe politicians.
  • Do not diversify. If something is working, focus on that something and get the best out of it.
  • Create an outlet to express your opinion and try to be a critical thinker.
  • Be skeptical of everything that you see and hear.
  • Throw your T.V. in the garbage and ignore the frenzy of the media. They will always tell you distorted truth carefully scripted by the highest bidder.

My business Idea is not unique

Often we believe that to create a business, we have to come up with a unique idea, something that no one else is doing. We believe that we have to be the next Mark Zuckerberg or Bill Gates to succeed. The truth is that most people have amazing business success creating traditional businesses that have tons of competition. Their idea is not unique.

a corner depanneur in Montreal
a corner depanneur in Montreal

I live in Montreal. Here, like in many cities, there are little convenience stores on the corners of different streets, those stores are called “depanneurs”. Even if the idea is not original there as so many people opening new depanneurs every year. One time, I met a Korean immigrant who opened a depanneur after being in Montreal only one year. After 10 years he was the owner of 10 depanneurs and he was already a millionaire.

If you have a business idea, and you find no competition in the Internet or in the Yellow Pages, either your idea is so unique that no one has made a business of it yet, or perhaps many people have tried and no one has succeeded. I would be more worried about a unique idea where no one is competing than competing in a crowded market.

I have created a website called Tango time. With this website I am trying to sell instructional Tango dance videos. To be honest, I am quite nervous because I don’t see much competition. I don’t believe that I am the first one to come up with that idea, so maybe my idea is not a good idea after all. I will continue reporting to you and let you know whether the idea was a success or a failure.

How could you succeed in a market where there is a lot of competition already?

If you are participating in a market considered to be saturated, you can create a good business by offering good service and good value. Warning: good value is not synonymous with cheap.

I have found out that most companies give poor customer service. They’d rather spend more money in acquiring new customers. Do you remember the Internet company American On Line? Here is a video that showcases their poor customer service. It surprises me the number of times that I have gone into a store, I am the only customer and yet, I have to beg and do a rain dance in order to get someone to take my money away from me.

If you open a business in a saturated market, just by offering great customer service you will quickly be placed above the rest. Have you ever heard of a shoe Internet store called “Zappos”? I have never bought a pair of shoes from them, but I have heard so many times about how great their customer service is. Here is a book (Delivering Happiness), written by the founder of Zappos, Tony Hsieh, about the philosophy of good customer service.

It is not about the Idea; It is about the Execution

Alain going on a one evening cruise.
Alain going on a one evening cruise.

At times we find ourselves daydreaming about the future, we realize that we are a cog in the theater of life and that our lives have already been scripted for us (4 years college, 30 years working for a corporation, mortgage, retirement, death). We want to break free. We want to come up with the one idea that will change our life, that will make us rich beyond belief, the one idea that will make everyone speak about us with admiration.

However, only a minuscule percentage of successful people have come up with “the idea”, the innovation that changed an industry and/or our social habits. Most successful people have taken a well-known concept, made slight improvements and offered a service or product that made life better for the rest of us. Many successful people don’t even make improvements, they just follow a model that has worked for other people and executed it well.

Do you invest in mutual funds? Do you know that 80% of mutual fund managers don’t beat the index (whichever index they compare themselves to), yet a manager who does slightly worse than the index can have a successful career with hundreds of clients. Just by being mediocre they are being successful.

Do you know anyone who invests in real estate? My mother does. What a simple concept. Buy a property, rent the property, make enough money to cover the expenses and carve a little profit. After a few years, even a decade or two, the investor could be sitting on top of a real estate empire, admired by everyone and portrayed as a success story.

If you are hoping to get off society’s grind, quit your job and go on your own. Remember that you don’t have to have an innovative idea, you just have to learn how to execute your idea in a way that creates value for someone else.

There are three characteristics that can help you execute well and become successful.

1. Have a positive attitude. Most entrepreneurs are generally optimistic. They believe that their project could work out and without much hesitation they embark on it and work on it until they make it work. Call it naiveté, ignorance or positivism, a positive attitude is essential.

2. Stay focused. It is very easy to get distracted, to be taken off track by one thing or another, but one of the secrets of success is to stay focused. Work on the project that you cannot stop thinking about and work on it until it becomes part of you. Eventually you will develop the expertise that will make success inevitable.

3. Have patience. Have you ever heard of the investor Warren BuffettThis guy has made investments in companies for 10, 20 even 30 years. Have you ever heard of the New York Time bestseller writer Seth Godin? He had 300 rejection letters before a book publisher decided to take a risk on him. Patience has helped many successful people achieve incredible goals. Keep in mind that your project is a journey, not a destination and enjoy every minute of it. 

 

I will never understand Labor Day

Resting for Labor day
Faking that I enjoy Labor day

When I used to gamble in the stock market, I was so upset that the market would close on Labor Day. I had to wait one more day to get the adrenaline rush of gambling $10,000 in a company that I didn’t know and sell my bet a few minutes later or at the end of the day.

It’s Labor Day! Shouldn’t we all be working? How else could we celebrate it? Does anyone really celebrate it? I wonder how it ever became law? It must be another tradition that Canadians copied from their imperialist neighbors down South.

Then, as a dance teacher, people were surprised that I was willing to teach a private class on Labor Day. Why not? I like my job and I like getting paid for it. What would I do instead? Do the laundry? Do the dishes? Watch T.V.? Stay at home and do nothing? How awful!

For most people (I am guessing) Labor Day signifies the end of summer, the end of vacation. Real work starts. Students go back to school and real life stops.

“Choose a job you love, and you will never have to work a day in your life.”
Confucius

The idea of going to work at a typical 9 to 5 job is so horrifying to me. I’d hate to work for a living. Spending 8 hours per day with people who I have nothing in common with. Knowing that I’d be worth so much more than the salary I’d get paid, and always having the feeling that I’d be working to make some body else rich. I’d be working for my boss, my boss’ boss, the shareholders, etc.

We should decide when is Labor Day and celebrate it by working on that day. Our work should be something that we want to do, not something that we need to get away from.

Choose a job you love, and you will never have to work a day in your life. — Confucius