Melissa is the 49 year old real estate maven enjoying early retirement in sunny Southern Ontario. When she's not traveling with her family, she's documenting her FIRE journey and curating personal finance content on her blog, Our Life Financial. In a warm, honest and down to earth sensibility Melissa lays out actionable insight and challenges our emotional relationship with money.
Melissa's investment portfolio is built heavily on real estate investment income, and if you're thinking, “well good for her, she probably got in early,” actually, you're right. But Melissa knows this and doesn't turn a blind eye to the dystopian state of affairs that is the current housing market.
She fully understands that her foray into real estate was a bit like catching a tailwind just ahead of take off. But while timing may have provided an air of luck, it was her sticktoitiveness and financial acumen that really carried her FIRE journey to new heights.
Financial illiteracy is a silent epidemic, with many of us leaving the nest woefully unprepared for the road ahead. But it's not entirely our fault. Money was something you just didn't talk about when we were growing up. Navigating the world of finance looks a lot like trying to find the bathroom in the dark – awkwardly feeling your way along furniture and committing major financial mistakes that hurt almost as much as stubbing your toe on the corner of the credenza.
It's a vicious cycle of the blind leading the blind. Today's financial literacy is just a crash course in the school of hard-knocks – instead of a teacher imparting wisdom, we learn from trial and error.
It's not our parents' economy anymore. We have a snowball's chance in hell of retiring above the poverty line when we're graduating into low paying skilled jobs, under a mountain of student debt in an over-inflated housing market that has outpaced the average Canadian income by almost 400% conservatively ( depending on where you live).
If the current economic climate has you feeling a little melancholy, you aren't alone. But Melissa offers the kind of so-obvious-it-isn't-obvious-at-all kind of insight you wish you had been told by the people responsible for teaching you how to be, well, responsible . It all starts by changing your relationship with money.
Easier said than done, right? But like any bad relationship, some attachments die hard. Unloading that kind of emotional baggage is hard work, but it's necessary to put you in control of your money instead of your money controlling you.
With a warm yet sensible maternal voice, Melissa guides us through the process of re-organizing our priorities, setting realistic goals and how to invest in real estate even when homeownership isn't exactly accessible.
Can you detail for our readers how you paid off your mortgage in just 5 years?
First, let me start by saying we grew up in a time period where properties were much more reasonable as compared to the average salary. Home prices have gone bonkers across the country over the last 2 years, and now the cost of a home compared to the average salary is way out of whack. I can't imagine paying a mortgage off in 5 years today.
Our first house cost $ 84,900. It was cheap and was in dire need of major renovations. The average starter home at the time was about $ 130,000. We chose to buy a fixer-upper because it was so much cheaper and we thought we could make money by renovating it and selling it later down the road. We were in our early 20's and my salary was $ 23,000 and my husband was earning $ 36,000. Take a moment and consider our combined salary and the cost of the average starter home back then. Today's prices are completely unrealistic when compared to the average household salary.
This first house was not the mortgage we paid off in 5 years, but it taught us our biggest lesson on mortgage debt. The mortgage was amortized over 25 years at 8.5%, so 6 years later when we sold the house, the balance on our mortgage was relatively the same. That shocked us, and taught us to really think about amortization and how, for a few hundred dollars more each month, we could shave 10 years off the amortization of our next home.
We sold that first house making a profit, and ended up with a mortgage of $ 128,000 at an interest rate of 5.9% on our next home. I returned to work, after staying home for a few years to raise our kids, and banked all my salary in a separate savings account. We were so used to living on one salary for all those years when I wasn't working, that now, all that extra money was a bonus. We made a lump sum payment towards the mortgage every year thereafter. That accelerated our paydown schedule, and we were debt-free 5 years later.
Was there an “ah-ha” moment for you that set your journey in motion?
Our ah-ha moment was when we became debt-free by paying off the mortgage on our second home. We were in our 30’s and we realized that if we didn’t have something to save for, we would just spend our money frivolously, so we went out and bought our first vacation rental property. We continued the same plan as before, using my salary to make lump sum payments towards the mortgage. That’s when we realized that early retirement could be a possibility if we continued on this plan.
On the blog you talk about the importance of having a clear plan with specific goals. Can you tell us how your goals helped you get to where you are today?
I’ve always had financial goals right from the moment I graduated from university. I have a Type A personality and am a big planner, whereas my husband is more spontaneous. We had a multi-year plan which determined where we wanted to see ourselves in 5 years, then 10 years etc. We would occasionally do check-ins to see our progress, but we weren’t stressing over it. If it happened, then great, if it took us longer, so be it.
Several times on our journey we were presented with opportunities and jumped on them. They were not in our plan, but thankfully we were willing to take on new ideas at the drop of a hat. People need to be flexible with their goals so they don’t lose out on great opportunities. Often it’s those random opportunities that can lead to the greatest decisions of all.
Can you describe your investment portfolio for our readers?
Up until recently, we had two rental properties. One was our Airbnb vacation home in NY State, which we sold in November, and we still own a student rental in Southern Ontario. We also have a portfolio of dividend-paying stocks.
As a shareholder, I own Royal Bank, Bank of Nova Scotia, Bank of Montreal and TD Bank and have been a customer of each one. I also own Laurentian Bank because they are the first Canadian bank to hire a woman CEO.
Why did you choose that particular strategy?
I grew up hearing money talk around the table, but just never had the opportunity to invest until we first became debt-free. At that time, my mom encouraged me to open a direct investing account and I began putting money towards stocks using her suggestions (BNS, TRP, ENB were the first purchases I ever made). My parents had always self-managed their own portfolio, so the thought of having someone else do it for me never crossed my mind. When my husband and I bought our first rental property, our focus returned to paying off the mortgage ASAP. We only just began concentrating on our stock portfolio again in 2020 after selling our property in the US.
Are you using an RRSP or TFSA as part of your strategy?
I have an RRSP and TFSA but use my RRSP only if I need the tax break, otherwise, I mainly focus on building the TFSA.
What investment brokerage do you use and can you tell us why you chose them?
I use bank brokerages for my investments and have recently started to use Wealthsimple. Each bank offers a similar service, in my opinion, there may be slight differences but overall they provide much of the same. I also find that “limit order” trades are more timely executed through the bank brokerage than they would be on Wealthsimple, but the latter is excellent for a new investor starting out and building their portfolio because trading is free.
Do you use a robo-advisor or do you manage your own portfolio?
I manage my own portfolio entirely, including the joint account with my husband. My husband manages his own TFSA.
In another post you talk about how not investing is one of the major roadblocks to financial independence. Many people are not invested in anything because they find the process overwhelming, complicated and scary. What would you say to someone who feels too intimidated to invest? Where should they start and what is the first thing they should do?
Everything seems intimidating at first if you aren’t familiar with it and investing is no different. The more people learn about it, the less intimidating it becomes. The power of compounding is a wonderful thing, and as soon as people start to invest, they understand its power, but they have to begin the process and take that first step.
There are so many resources online or in print form that can help people learn more about the topic, in addition to seeking the advice of a financial advisor. Although I don’t personally use an advisor, they are certainly beneficial for someone who would otherwise not take the opportunity to invest on their own.
What advice can you give to someone who is about to purchase their first income property? What were some unexpected challenges you ran into that you wish you had known about beforehand and how did you overcome them?
We grew up in a different time, and even though we’ve owned 5 properties, and still own 2 of them, we never paid over $300,000 for a single one. Now starter homes are $800,000 and I can’t imagine being a young couple just starting out. Given these prices, it would be difficult to have an amortization shorter than 25 years simply due to the cost of the home. This is a huge challenge for the younger generation – my kids included.
Rental properties on the other hand are investments that keep on giving. For anyone interested in owning their first home, I would encourage them to look for properties that could be converted to a two-unit, meaning one part of the home is a separate apartment that can be rented out. Having tenants to help pay off your mortgage is a wonderful idea and the tenants don’t need to stay forever, and you don’t have to own the same house forever either. This is just one way to get into the market.
If you are thinking strictly of owning a rental property but prices are too high, consider joining a real estate investment group. Not only will you meet like minded people, you may be able to work in partnership with someone to buy your first property. At the very least, the group leaders can become excellent mentors to help you begin your real estate investing journey.
Can you tell us how you feel about credit cards and lines of credit?
It’s important to build up your own credit score as a woman because once you are married every credit card thereafter will usually be under your husband’s score. I still have my first credit card from the age of 18, and I encourage any woman out there to obtain their own card, under their own name, and based on their own employment and/or credit score. Once you have one, never give it up.
I would say the biggest tool we used was our line of credit. The ability to pay off as much as you want, or make the minimum interest-only payment if needed, was wonderful. It provides for a lot less stress, plus you can make quick financial decisions and access the money in seconds.
Can you share some of your favorite money saving tips?
We never owned new cars during our journey to financial freedom. Our cars were always at least 10 years old or more, and we drove them until they died. We bought our first brand new vehicle just under 2 years ago. We could have easily bought a new car many times over instead of a rental property, but why? We always looked at the big picture and how it could possibly make us money in the long run, and that always guided us in our decision-making.
Also, when we travel we usually rent an apartment or home where we can do our own cooking. Eating out costs a fortune and can really add to the overall price of a vacation, especially when you consider buying breakfast, lunch and dinner daily. This doesn’t mean we don’t eat out at all, we just choose to cook some of the meals ourselves, like breakfast. I really dislike having to pay for breakfast.
We also do a lot of research before we purchase anything, trying to find the best deals we can.
Do you have a strict budget or strategy that keeps your spending under control?
When we were in our 20s and early 30s, we had to maintain a strict budget because our mortgage payments were set. I remember a lot of months when our bank account was in overdraft. Once we bought our first rental property, however, we weren’t on such a tight budget anymore because we had rental income coming in and could make interest-only payments as we had a line of credit rather than a mortgage. I haven’t really maintained a strict budget since. We buy what we want, but never in excess and have never had consumer debt.
How do you manage slip-ups and unexpected expenses?
When I would save my salary in a separate savings account to put towards the mortgage, that was our emergency fund. This created a problem, that once we used that money, the balance in the account would be almost zero. If an emergency had occurred at that point in time, we wouldn’t have had a backup plan and would have been in trouble.
Once we bought our first rental property, we had a line of credit. The minimum payment was interest only, so we knew if something came up, we only had to make that minimum payment if necessary. We increased the balance owing on occasion but I can’t recall anything that really caused us any undue stress. Our debt was always minimal in relation to our equity, so we never really worried too much. At the very least, we could always sell the rental property, so that helped us worry less.
In one of your early posts you talk about how anyone can be a millionaire if they really want it and work hard enough. But is that really true for anyone? How can people earning minimum wage, at the very least, achieve financial security?
The more a person makes, the easier it is to obtain financial security, but this doesn’t mean that someone who earns minimum wage (roughly $30,000/year) can’t build a good financial footing for themselves. It just means it may take them longer. The key to achieving financial security is being money-wise, meaning living within your means.
I never said financial independence would be easy. It’s hard. It takes a lot of discipline and it takes opportunities to present themselves – whether that’s a new job, a move to a lower cost of living area, or a new investment or business opportunity – you just have to be willing to consider other options and figure out your own path.
What has been one of the most significant moments for you on this journey?
The most significant moments on my journey have been witnessing the power of real estate. I think the whole country can see how powerful it is now, even though it’s completely out of control. The question now becomes, will it continue on this trajectory? I think people will get tired of the blind bidding process, but these elevated prices may be here to stay for the foreseeable future. Those home prices from my younger days are long gone. I can’t even see the pre-pandemic prices returning, and homeownership from here on out will be tough. We were very lucky to have the opportunities we had.
Can you describe a time that made you want to give up? What helped you to keep going?
We would have likely kept our property in NY State for several more years, but not being able to cross the border and having to rely on people to manage it full-time for us was hard to accept. We have always been hands-on owners, so we struggled with that. In hindsight, it all worked out for the better, but if you had asked us at the beginning of 2020 if we were selling, the answer would have been “no”. I can’t reiterate enough how important it is to remain flexible in your investment decisions. You never know when things will change, and you have to be willing to change with them.
If financial freedom and retiring early didn’t work out for us, we would continue working or downsize by selling our home. There are always options, and that’s why you can’t be too rigid on your goals. Life is hard, and sometimes your reality changes for various reasons and when that happens you have to re-evaluate and figure out your next steps.
What is the one thing you know now that you wish you knew before you started FIRE?
I never thought about retirement when I was young. Who does at that age when it’s so far off? I never asked about the pension plans when I was working, I just waited until my employer told me if they had one. It just wasn’t something I thought about until much later. If we had taken advantage of investing earlier, we would be that much farther ahead now. Don’t wait.
Do you feel like your FIRE journey has changed you?
It has made me more aware of the importance of financial literacy. I was fortunate to grow up in a family that talked openly about money and why they were making the decisions they were. This was a rare gift. Many people go out into the world and learn from trial and error, and some errors, like consumer debt, can take years to correct.
I encourage everyone to learn as much as they can as early as they can. I may have reached FIRE but my learning continues, and there are so many amazing bloggers sharing their stories online. It's the reason I began my own blog. If I can encourage one other person to begin thinking about their money and investing, I will be happy.
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About The Author: Heidi Unrau
Heidi Unrau is the senior Finance Journalist at Hardbacon. She studied Economics at the University of Winnipeg, where she fell in love with all-things-finance. At 25, she got her first bank job as an entry-level teller. She moved up the ranks to Credit Analyst, Loans Officer, and now a Personal Finance Writer. In her spare time, you'll find her hiding in the car listening to Freakonomics podcasts, or binge-watching financial crime documentaries with a pint of Häagen-Dazs. When she's not chasing after her two little boys, she's in the hot tub or arguing with her husband over which cash back card to use for date night. She’s addicted to coffee, crypto, and obsessively checking her credit score on Borrowell.
Fun Fact: Heidi has lived in five different provinces across Canada, loves her free Tangerine bank account, and will never cut back on Starbucks. Like ever.
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