Earlier this year I wrote about buying a Saskatchewan property at an auction 🙂 But I had to raise $25,000 by the completion date, or I lose my deposit forever! 🙁 The seller has since pushed back the original completion date to October (lucky me) but regardless of the extension I’ve successfully secured the rest of my downpayment now 🙂
But what knocked my toque off is that I’ve managed to exceed what I actually need and somehow doubled the size of my property fund to $50,000 😯 And it’s all thanks to liquidity.
“Always aim for the Moon, even if you miss, you’ll land among the stars.”
― W. Clement Stone
I have definitely landed among the stars 😀 A few months ago I had no cash savings, and no rainy day fund. Today, I can literally buy a brand new BMW 3 series or an Audi A5 in cash!!!
But my priority for now is the farm. I can always use the income generated from the farm to buy myself a sweet ride some other day 😀 At first I wasn’t sure if I could come up with the rest of the down payment in time. But like I’ve stated on this blog many times in the past, wealth is more about what we do with our money than how much income we make or save. So I took my own advice and pulled through in the end 😀 Here’s a breakdown of the $50K.
- $10,000 – Sold Stocks. In the beginning I was concerned I might not find the $25,000 in time so I sold some stocks in May.
- $3,000 – Swing Trade. Turned $2K into just over $3K in a few short months. Sold earlier this week to get the money back.
- $5,000 – Credit Card. I took advantage of a low interest rate credit card balance transfer program.
- $21,000 – HELOC. Applied for, & was granted approval for a home equity line of credit to borrow money against my condo.
- $6,000 – Savings. Cash I saved since April from my income after expenses.
- $5,000 – Margin. The recent rally in the stock market means I can borrow more money without risking a margin call.
With Central Banks around the world printing money, I want to re-balance my asset allocation to contain less equities/fixed income, and more hard assets. By using my current investments as collateral to further invest and diversify my asset column, I can still benefit from any future gains to my existing portfolio while also taking advantage of new opportunities. Hurray! (^_^)
$50,000 – Total Available Capital ready to deploy!!!
As we can see, it’s due to the financial decisions I’ve made with my savings in the past that permits me to be as “Liquid” as I am today 😆 (Yes, pun totally intended.) The cash savings only make up a small portion of this fund, so we don’t need to a lot of cash in order to raise a large sum of capital relatively quickly.
“Oh, big whoop” some readers might retort sarcastically.”You just restructured your balance sheet. But it’s not like you’re $50,000 richer.”
Yes, that’s correct 🙂 But here’s a secret to making money: We don’t actually need to have money in order to profit from an investment. We just need liquidity 🙂 In my case for example, with access to this capital I now have the means to own the farm worth $172,500. The rental income will more-or-less cover the mortgage cost, so if the farm itself appreciates in value by just a modest 2% annually, then that’s several thousand dollars added to my net worth every year going forward. Which is money I would not otherwise make 😀 By thinking outside the box like this we can make easy money by creating the illusion that we have cash to invest, without actually having any cash to begin with, lol. Mind = blown right? (゜o゜) I believe people on Wall. St call it “financial engineering” 😀
- Don’t equate what you can save to what you can spend. If I had tried to buy all my investments through cash and savings alone I would probably be in my thirties before accumulating the same net worth as I have today. The reason is quite simple: If time is money, then wasted time is wasted money. If we think we HAVE to save $50,000 first to afford a down payment on a home (like many people think,) then by the time we save that much money the down payment would need to be more than $50,000 because the price of the home would have probably gone up. So get into investments and own assets as early as possible! Even if the real value of the property stays the same, it would still cost more in the future because of inflation.
- Cash isn’t King, liquidity is more important than cash flow.
- Being fully invested can maximize our returns. And if we have enough assets to shuffle around, then we don’t need an emergency fund.
Why not a more diversified approach? I know everyones talking that hard assets are what to be into because of the future inflation that is about to come…. but what if it doesn’t come?
Diversification is key 🙂 Lots of people bought heavily into gold last year because they were afraid of inflation, but look what happened to the price of gold in 2013 so far, lol. Right now I have too much equity in my home. If Vancouver’s real estate market has a correction I don’t want to be too exposed to it. So I’m taking some money out of my condo to increase my farm portfolio. Once this is done I will be under weight in stocks again so I plan to invest more into publicly traded companies 😀 I’m also looking at bonds, the exempt market and other alternative investments like colored diamonds, hedge funds, and private equity but those asset classes usually require a minimum investment of $10,000 or more. I want to invest in everything haha, but I have to be patient and save diligently.
I’ll echo JR’s comment: Holy crap!
Congratulations on completing your farm fund. I remember when you first posted on the subject and I was nervous on your behalf. Your cash finding abilities far exceeded my expectations!
Honestly I’m as surprised as you are. Now I have the option to make a larger down payment than I had originally planned 🙂
Congratulations! You did a great job!
Thanks a lot. The funny thing is I didn’t really do much for this to happen. Most of this liquidity comes from sources that are completely passive. All I had to do was buy something and wait for its value to rise 😉
I’m glad to know you went the extra mile. Well done!
Yay, thank goodness for leverage 😆
Doesn’t cash = liquidity? That would still make cash king? I guess you can separate out cash on hand vs cash flow (money coming in on a regular basis). But cash on hand is definitely still king, correct? Congratulations by the way on your accomplishment!
That’s a great point. For the most part I prefer to have the ability to turn investments into cash than to actually have cash itself, due to the long term deflationary nature of fiat money. But that said cash is the most liquid asset there is, and can usually be used interchangeably with liquidity 🙂 Yes, I too think cash on hand is ultimately what matters since everything has to be converted into cash before we can buy anything anyway.
Farm instead of BMW, you sound like a teenager telling people he is eating greens instead of burgers lol.
Investing is like nutrition for our financial health 😮 It’s important to take care of both our bodies and our money 😀
Congrats and well said that wealth is more about what we do with our money. You really have a good vision on liquidity and definitely you have now landed on stars
Thanks. I think learning how to manage your own finances is one of the most rewarding things 😎
Congrats on raising the cash Liquid !!!
P.S. You can drive my Silver Audi convertible anytime your in the area 🙂 lol
Awe, you’re so kind 😳 I’ll have to remember to do that next time I visit the Niagara Falls region 😉 I’ve wanted to drive an Audi ever since I saw the Iron Man movie and thought “wow, that looks like a sweet ride.” lol.
Mr. Turner recently posted an article explaining how Canadian real estate sales and prices will likely fall as we head towards the end of 2013 so I’m glad I was able to get my home equity LOC approved early. No matter how much my condo falls in value now the bank can’t take away that $21,000 of liquidity I have 🙂 What’s interesting about current interest rates is it only seems to be changing in the medium and long term assets. Luckily farmloans and HELOCs won’t be affected too much by rising rates on the long end of debt instruments 😀
You certainly don’t have any issues taking on debt! I like watching you work with your assets, margins and now HELOC, but I probably wouldn’t be as comfortable taking on the debt level you’re comfortable with. But, you do have a lot of farmer’s rent income coming in at least!
I think psychologically it might be easier for me because I don’t have to worry about financially hurting anyone else if I go broke if my leveraging strategy goes awry. But even I have limits, so my plan is to rack up to half a million dollars in debt and stay there until interest rates in the bond market moves upwards 🙂
I like how you’re not afraid to take on debt to make more money. So many PF bloggers get so caught up in debt reduction that they fail to see the big picture. Props to you for making it happen.
I think a lot of other PF bloggers are more concerned with their short term goals and haven’t yet build up the confidence to take a bigger picture approach to investing. What I’m doing with my money is arguably more risky, but I think there is a larger risk (long term) of not being able to retire when I want to because I don’t have enough investments to live off of in the future.
I had no doubt from the outset that you would not have reached your goal. It amazes me that so many others are by what you accomplish. If you have a sound plan (which you always seem to) and execute it (most don’t as fear creeps in, but you always do), you can almost (some things are not in your control, so on occasion things might not work out, even if everything is planned and thought out) always reach your goal. Bonus is that you have learned this at a young age. The key for you is to not let greed creep in. Greed MUST be kept in check and should be your final question before executing a plan – Am I being too greedy? Your swing trade history I think, has taught you that even with what you might have thought was a sound investment, might not be, so you do not bet the FARM on what you think might be a sure thing ( and yes, pun intended!) – Cheers.
Haha, nice pun. Thanks for offering to help me out when all this started. People like you gave me encouragement along the way and your support means a lot to me 😀 I may not have needed a loan this time, but if I get myself into a real pickle next time I’ll know who I can talk to (^_^)