It may surprise you, but to start a website is not too expensive at all and ongoing costs are manageable.  The costs tend to creep up a bit once the website starts to get higher traffic, but income from the website is generally proportional to the traffic that it gets.  Note that this post is more about self hosted blogs rather than a blog on a free platform like blogger or wordpress.com.

Domain Name

The first step in starting a website is to purchase a domain name (ie. milliondollarjourney.com). This step is not trivial because first, you need to come up with the name, and second it needs to be available.  I tend to use GoDaddy.com for my .com domain name registrations. While it is a bit pricey, I find their domain service to be reliable.  I have also used 1and1.com for their low pricing (which includes private registration) and domainsatcost.ca for my Canadian domains.  Expect to pay around $10-$20/year per domain name including private registration.

Hosting

Once you purchase a domain name, the next step is to choose a hosting company.  A web host is basically a computer that holds your website files to be displayed when someone goes to your domain name.

There are different types of hosts from shared to dedicated.  Shared hosting simply means that multiple sites will be on the same computer, thus they will all share the same computer resources.  As resources are limited, their ability to handle higher traffic is limited as well.  However, shared resources means lower costs for the client.

As websites get busier, their resource requirement will increase (as will the costs).  Typically, site start off in a shared environment, then move onto more dedicated resources like through a virtual private server (VPS), or at the high end, a dedicated server.

Shared hosting costs typically range from $5-$20/month, a reliable VPS usually starts at $50/month (MDJ uses SERVINT VPS), and dedicated server pricing is all over the map with pricing anywhere from $90/month to $200/month.

WordPress

WordPress is a popular piece of software that sits on your host and runs your website.  Best of all, it is free to use.   I’ve read a statistic that in 2011 over 50 million blogs were using WordPress , and used for about 22% of all new websites.  WordPress makes it extremely easy to post, manage and organize articles for a blog and makes for an intuitive content management system for regular websites.

The biggest downside I can see with WordPress is that it’s so popular that it’s often the target of hacking attacks.  One way to keep the hackers out is to keep all core files and plugins up to date and to ensure that you use a strong username and password.

If you want to go with WordPress, I recommend that you go with a host that supports WordPress one click install which will get you online in a matter of minutes.  This way, it also guarantees that the host supports WordPress and its software requirements.  Personally, I’ve setup over a hundred WordPress based sites and most of them run on Bluehost -  low cost, reliable, and one-click WordPress installation.

As a side note, even though I recommend 1and1, GoDaddy and Domainsatcost for domain names, I do not recommend them for WordPress based hosting.  Remember that you can purchase your domain name separately from your host.  I usually recommend the separation as websites often change hosts, and having a separate domain name provider makes it an easy transition.

Design

Once WordPress is installed your website is basically ready to go live, but most want to customize the look.  WordPress offers a number of free themes within the admin control panel, and there are also a number of premium themes that can be purchased separately.  For someone starting out, a free theme should be fine.

Once you have your design complete, the website or blog is pretty much ready to go.  For a blog, the next step is to create some content and start building your readership via social media etc.  This will lead to other factors to consider such as monetization and additional features like an email newsletter.

Final Thoughts

Bringing all the costs together, it really comes down to two costs, the domain name and the hosting. If it’s a new website or blog, budget around $20/year for a domain name, and around $5-$10/month ($60-$120/yr) for a basic WordPress compatible host.  While you can see that the annual costs aren’t too extreme, the real cost is the time commitment required to grow a website (think second job).

Do you own a website?  What are your annual costs?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

What is the program about?

Service Canada delivers the Wage Earner Protection Program (WEPP) to compensate eligible employees when their employer files for bankruptcy or becomes subject to a receivership under the Bankruptcy and Insolvency Act. Since December 15, 2011, the program has been expanded to also include workers who lose their jobs when their company’s attempt at restructuring fails and ends in bankruptcy or receivership.

This program provides for unpaid salaries/wages, commissions, vacation pay, gratuities (waiting to be disbursed by the employer), travel expenses, production bonuses, severance pay and termination pay due to such employees. The maximum compensation through WEPP is restricted to the equivalent of 4 weeks of insurable Employment Insurance earnings ($3,531 for 2012), minus amounts set by WEPP regulations (6.82%). There is an eligibility period beginning 6 months before restructuring commences and ending on the date of bankruptcy or receivership. In case of no restructuring, the eligibility period is the 6-month period ending on the date of bankruptcy or receivership.

Non-restrictions worth knowing about

Being related to an employer does not automatically make an employee ineligible but they will have to fill out the WEPP Supplementary Form – Additional Information Regarding your Relationship to your Employer (PDF) to determine if they received special treatment due to their relationship.

Being a foreign worker does not make an employee ineligible either. Having a SIN and meeting these eligibility criteria will help a foreign worker use this program.

Working for the trustee or receiver is not a limiting factor under this program and such employees are also eligible.

How to apply?

Using a valid SIN, workers can apply online through this page. Information about the required documents can be found here. Post-approval, payments are usually disbursed within 4 to 6 weeks. WEPP applications must be submitted within 56 days of the later of the date of bankruptcy/receivership, the date that employment ends due to termination, resignation, etc. or the date on which the receiver terminates employment.

WEPP payments and taxation

The WEPP payment is taxable and recipients will be issued a T4A slip at the end of February.

Have you used the WEPP? Was it a straightforward application process? Do you have any tips for other people who might find themselves with a need for the program?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

What is a Stop Loss Order?

A stop loss order is a “sell” order but will only be executed under certain conditions defined the by investor.  This type of order is typically used to minimize losses while holding onto a stock position.

Stop Loss Market Order

Clicking the “sell” button, and selecting the “stop” order type is a stop loss market order.  Once the stop price is set, the broker will execute the sell market order once the stop price is reached.

For example, say you own 100 XYZ shares @ $10 and would like to set a stop loss order for $9.  Once the sell order is set, it will only execute once XYZ reaches $9 at which time it will sell as a market order.  The advantage of a market order is that the sell order will execute and fill.  The downside is that your sell order is subject to “market” prices, which can potentially be much lower than your stop price.

Stop Loss Limit Order

A stop loss limit order is slightly different than the stop loss market order.  When “stop limit” order type is selected both a “stop price” and the “limit price” is entered.  Once the stop price is reached, the brokerage will execute a “limit” order at the predetermined limit price.

Using the same example above with 100 XYZ shares @ $10, a stop loss order of $9 and now a limit order of $8.90.  In this case, once the sell order is set, it will only execute once XYZ reaches $9 AND there is a buyer @ $8.90.  The advantage of this is that you have set a limit on your sell price, which removes the risk of selling at market which can potentially be much lower.  The disadvantage is that the stop loss order may never be filled if it cannot find a buyer @ $8.90 thus defeating the purpose of downside protection.

Trailing Stop

What about the scenario where the stock price is rising, you want to let the stock run, but you don’t want to give back all your gains in case the stock starts to turn over.  In this case, you can use what’s called a “trailing stop” order which will set a stop order when your position falls a certain percentage or dollar amount.  The trailing stop will set a new stop price as the stock rises, but will trigger the order if it falls by the stop percentage or amount.

Keeping with the same example with 100 XYZ shares @ $10 but in this case, the stock is rising fast.  Say that it makes it to $15 and you want to let it ride, but you don’t want to give back all your gains.  To set a trailing stop, you can either choose a percentage or a dollar amount, as well, as a market or limit order.  Say that you would like to sell if the stock drops by 10%.  Once you set that percentage in your discount broker trading interface, it will execute a stop order if the stock falls to $13.50 (10% x $15).   If the stock continues to rise, it will automatically adjust the stop price upwards according to the set percentage or price.

Final Thoughts

Setting stops can be useful for traders, but for long term investors it may lead to prematurely exiting your position.  For traders who have a set amount of risk per trade (maximum loss amount), then setting a stop may be a disciplined way to sell your losses early.  Or alternatively, if your stock position has risen significantly, a loose trailing stop is useful to help ride and maintain your gains.

Back to you, do you use stop orders?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Life Balance vs Financial Balance @ Retire Happy Blog

Disagreement over Investing in Bonds @ Michael James on Money

Compound Interest In Your 20s and YOLO-ing @ Young and Thrifty

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Lets start off with one of the favorite topics here on MDJ – the stock market!  The TSX was on the decline in March and April, but roared back in May with a gain of 1.9%.  The S&P500 continued its charge at the beginning of the month but pulled back a bit during the last trading week of May. However, it managed to keep the winning streak for a 1.2% gain for the month of May.  The market gains resulted in gains in my portfolios listed below.  However, take note that I have made cash contributions to those accounts as well, so the gains are not completely organic.

As my work place has a defined benefit plan (not vested yet), my RRSP contribution room has been decreased accordingly, but I still made a $2,500 contribution in May.  We also received our defined benefit pension statements that include our contributions (plus interest) which came in a bit higher than expected.  Finally, I ran out of cash in my Smith Manoeuvre investment account, so I moved $5k from my HELOC to the trading account.

Although the markets have been strong up until now, some investors follow the “sell in may and go away” strategy and reduce risk over the summer months then repurchase in the late fall.  The reason being is that the markets have historically been weak from May to October.   There are some convincing arguments out there, but I’m sticking with the buy and hold strategy.  Do you follow the strategy “sell in may and go away?”

On to the numbers:

Assets: $870,600 (+2.04%)

• Cash: $4,500 (+0.00%)
• Savings: $20,000 (+0.00%)
• Registered/Retirement Investment Accounts (RRSP): $155,200(+2.44%)
• Tax Free Savings Accounts (TFSA):  $52,500 (+0.96%)
• Defined Benefit Pension: $45,400 (+7.54%)
• Non-Registered Investment Accounts: $159,000 (+2.58%)
• Smith Manoeuvre Investment Account: $124,500 (+5.06%)
• Principal Residence: $309,500 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities: $105,600 (+5.28%)

• Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
• Investment LOC balance: $105,600 (+5.28%)

Total Net Worth: ~$765,000 (+1.61%)

• Started 2013 with Net Worth: $690,400
• Year to Date Gain/Loss: +10.81%

In my last update, readers suggested to chart my net worth progress over time.  Below are the net worth values since Dec 2006 with data points taken semi annually.  If you cannot see the chart, please click here.

• December 2006: $198,500
• June 2007: $254,695
• December 2007: $279,300
• June 2008: $310,483
• December 2008: $309,950 (rough second half)
• June 2009: $355,850
• December 2009: $399,600
• June 2010: $456,910
• December 2010: $505,800
• June 2011: $558,713
• December 2011: $585,228
• June 2012: $631,400
• December 2012: $690,400

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Where Does the Savings Come From?

We don’t live a lavish lifestyle (how we save money) and do not carry any bad debt.  The only debt we have is an investment loan (which pays for itself), so we end up pocketing a majority of our earnings.  Our earnings come from salaries, private business income (via dividends to shareholders), and eligible dividends from publicly traded companies.

Real Estate

Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.  The commuted value of the pensions are not included in the statements as they are difficult to estimate.

Updated 2013 –  My wife has recently changed her job position which has resulted in switching from a defined benefit plan to a defined contribution plan.  This amount will be added to the RRSP totals going forward.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Refunds and Exchanges

Many stores (especially clothing ones) have a refund and/or exchange policy for items that a consumer does not like or finds a defect in (or realizes the hit to their monthly budget at a partner’s insistence!) after purchasing them. However, it is likely that there is a limited time period for such refunds/exchanges (typically, 7 or 14 days).

Most stores will replace a defective item, repair it or provide a refund. For non-defective returns, it is good practice to ask a store employee before the purchase or check the receipt (may be too late already). Some examples of items that may not be returned include certain electronic items that have been opened, open box items, ski lift tickets and personal wear such as undergarments.

It should be noted that private sales such as those involving items purchased on Kijiji may not have any recourse in the event of a problem as they are not covered by consumer protection laws.

Lowest Price Guarantee

Currently, many stores such as Best Buy and Future Shop offer a price match or lowest price guarantee. The price match can take different forms: starting from mentioning a competitor’s price before a purchase and getting the lowest price to going back to seek a lower price by comparing to a competitor’s offering within 30 days of purchase. Nonetheless, if an item goes on sale after a consumer has purchased the item, the policies differ. For example, Future Shop will provide a refund for their own price differential if the same item goes on sale within 30 days but it might not be the case with every store.

Editors Note: Some free credit cards, like the MBNA Smart Cash World or Capital One Aspire Cash World card offer price protection as part of the benefits insurance package.

Measurement Discrepancies

Although not common (based on limited media attention to this topic), there may be instances when a consumer suspects an inaccurate meter (e.g. gas pump) or scale (e.g. an electronic balance) that may have been manipulated. The first step is to express the concern to the establishment manager or owner to resolve the problem (assuming the suspicion turns out to be valid).

In the absence of a direct resolution, a consumer can register a complaint with Measurement Canada through one of their local offices. However, it is worth noting that Measurement Canada only reports the findings of the investigation and does not get involved in the subsequent course of action; that is left to the individual parties to decide.

Consumer Recourse Information

Every province has its own consumer protection division, board and/or commission to regulate the local marketplace in an efficient manner and help its functioning in an ethical way. This page provides links to every provincial body’s website; the individual links offer detailed overviews of that province’s business practices, legislation and recourses available. The link above also offers resources that discuss the Canadian government’s role and how it deals with consumer affairs across different areas.

Have you been in a situation that required the intervention of a third-party to solve a consumer problem? Or, were you able to find resolution directly with the establishment? Either way, please share your experience in the comments.

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

For example, say I wanted to purchase $10,000 worth of Walmart stock with Canadian dollars.  If I did a straight purchase with Canadian dollars with my Questrade account, the fee (on top of the spot rate and commission) would be 1.99% or $199.  The shares would need to increase by almost 2% just to break even on the trade. To look at it another way, the $199 is almost enough to purchase three additional shares.  There has got to be a better way right?  Keep reading!

The Strategy

I stumbled across a thread on Canadian Money Forum (and Canadian Capitalist) that discussed a relatively easy and low risk method of saving money on currency conversions.  Curious?  It’s through using Horizons DLR and DLR.U ETFs.

At a high level, you would buy DLR through your Canadian account then sell DLR.U on the US side.  DLR will track the CAD/USD exchange, so once you purchase the ETF, you have locked in your exchange rate.

The Step by Step Procedure

I used this strategy with my Questrade account, which was pretty straight forward with the added benefit of not having to pay the buy commission because DLR is an ETF.

1. Buy DLR. Purchase DLR using a limit order with your Canadian trading account.  As of May 24, 2013, DLR costs $10.31.  So if you want to exchange $10,000 CAD, purchase approximately 970 shares (total $10,000.70)
2. Journal the Shares. Contact Questrade support (via phone or online chat) and request to journal the shares to your US account as DLR.U.  There should be no fees to journal the shares over.
3. Sell DLR.U. Once the shares are in your US account, sell DLR.U using a limit order. As of May 24, 2013, DLR.U costs $9.97 and selling 970 shares will net you $9,670.90.  With xe.com (spot rate) quoting  0.96941, this strategy gives you 0.96702.  You have now exchanged your Canadian dollars into US dollars at a relatively low cost.

The Savings

So now that you have some CAD exchanged to USD, how much did you save?  Using this strategy results in paying a fee of approximately 0.20% – 0.25% (plus spot rate and commissions) compared to 1.99%.  On $10,000 CAD, that’s a savings in the tune of $180.  Do this a few times throughout the year, and the savings become significant.

Final Thoughts

Using DLR/DLR.U ETF combination for foreign currency exchange (CAD/USD) is a low cost and low risk strategy that I’ll likely being using a lot over the years.  My instructions above are for Questrade, but have any of you used this strategy with other Canadian discount brokers?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Smith Manoeuvre Mortgages

To set up the Smith Manoeuvre, the home owner needs a readvanceable mortgage combined with a significant amount of equity.  A readvanceable mortgage is basically a regular instalment based mortgage combined with a home equity line of credit with a small twist – the HELOC’s credit limit increases as the home owner pays down the mortgage.

Changes to HELOC Rules

Up until recently, home owners could access up to 80% of their home equity in a revolving line of credit/HELOC and pay interest only on the balance.  With the new rules, home owners can only borrow up to 65% loan to value (LTV) in a revolving HELOC.  If an investor has a mortgage free home valued at $100k, the new rules states that he/she can now only borrow up to $65k in the form of a revolving HELOC.

However, the rules also state that you still have access to 80% of your equity, but the remaining 15% must be in the form of an amortized mortgage (instalment mortgage) where the monthly payments are principal + interest.  Many thanks to Canadian Mortgage Trends in helping me clear up the details.

How do the new HELOC rules affect the Smith Manoeuvre?

First, people with existing HELOCs are not affected by the new rules.  However, even with the new rules, home owners still have access to 80% of their equity, but now only 65% can be in the form of a revolving HELOC.  In order for it to be a true Smith Manoeuvre implementation, the homeowner will need at least 35% equity in their home.  As a reader points out in the comments, as soon as a home owner has 20% equity within a readvanceable mortgage, they have access to their revolving HELOC right away for investing purposes, but the credit limit for that account is 65% LTV.

For example, say that a home is worth $500k with $375k left on the readvanceable mortgage balance.  Since there is greater than 20% equity in the home, the home owner has access to $25k in equity which can either be an instalment mortgage, or a revolving line of credit.   If using a revolving line of credit, the account will max out at $325k (65% of home value) using the new rules.

Note that lenders tend to have their own rules (like minimum credit limits etc), so best to consult a broker for the fine details.

Final Thoughts

While the new rules put a small damper on those looking to implement the Smith Manoeuvre, it’s really not all that bad.  The  new rules basically lowers the credit limit for revolving HELOCs from 80% LTV to 65% LTV.  If you manage to max out your HELOC, you can contact your mortgage company to access the remaining 15% of your equity via instalment mortgage.

On another note, I’ve read that some credit unions will still allow up to 80% LTV on revolving HELOCs, so there are other options!

For those of you considering the Smith Manoeuvre, what are your thoughts?  Did the new 65% LTV requirement change your view?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

The Beginner’s Guide On How NOT To Start Investing @ Boomer and Echo

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As more people retire, there is a good chance that many of them would want to remain active and still contribute to society in some new form by utilizing their well-developed skill sets. One of the possible beneficiaries of this retirement boom may be the not-for-profit sector of Canada. The Canadian government has recognized this opportunity and offers the New Horizons for Seniors Program, which is discussed in some detail below.

About the Program

The New Horizons for Seniors Program is a federal Grants and Contributions program designed to support projects initiated or inspired by seniors. The program offers an avenue for seniors to keep their skills sharp after retirement by volunteering and making new contributions to society.

These contributions could take the form of sharing their knowledge with youth (e.g. providing assistance in developing a business plan, serving as a mentor, etc.), helping improve community facilities (e.g. parks, seniors’ centers, etc.), speaking to educate the masses about certain causes (e.g. domestic violence, bullying, etc.), preserving heritage through art restoration work (e.g. volunteering at museums), sharing their experiences about volunteering with soon-to-be-retired people and others as a means to encourage more people to donate their time, etc. More success stories resulting from the program can be found here.

Program Objectives

As mentioned above, the program is designed to help seniors participate in society after retirement. Proposals under this program need to align with one or more of the five objectives quoted below:

• Promoting volunteerism among seniors and other generations;
• Engaging seniors in the community through the mentoring of others;
• Expanding awareness of elder abuse, including financial abuse;
• Supporting the social participation and inclusion of seniors; and,
• Providing capital assistance for new and existing community projects and/or programs for seniors.

Federal Funding

The Government of Canada provides up to $25,000 in grants per year per organization for community-based projects. Pan-Canadian projects involving the prevention of elder abuse are eligible for up to $250,000 per year in contributions or grants (maximum of 3 years).

Eligibility to Apply for Funding

The following entities are eligible to apply for federal funding:

• Not-for-profit organizations;
• For-profit organizations with the stipulation that the nature of the proposed activity is non-commercial and does not generate profit, while meeting one or more of the program objectives;
• Municipal governments;
• Band councils and other Aboriginal organizations;
• Educational institutions;
• Public health and social services bodies; and,
• Community-based committees.

To receive the publication about the program, contact:

Publishing Services Human Resources and Skills Development Canada 140 Promenade du Portage Portage IV, 10th Floor Gatineau, Québec K1A 0J9 Fax: 819-953-7260

To speak to an agent:
Phone 1-800-277-9914 for service in English
TTY: 1-800-255-4786

Have you participated in or led an activity under the New Horizons for Seniors Program? Do you have any stories that you can share? Are you aware of other similar programs for seniors?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Six Ways to Save Money at Disney World

1. Time your Trip – Go During Low Season

Perhaps one of the biggest ways to reduce the cost of a Disney vacation is to go during low season.  When is low season?  In Orlando, low season is when kids are in school.  September to early December, then January to early June (minus holidays, like Christmas and Easter which are extremely busy).  Yes, even the stifling hot summer months are high season for Disney.

Disney recognizes the low season and usually has reduced pricing for their onsite resorts during the fall.  In fact, in recent history, they have included free dining (~$50/person/day for the standard plan) for guests who stay at a Disney resort during the fall season.  In addition to reduced Disney resort rates, accommodations all over the Orlando area usually have reduced pricing during this time.

 2. For Larger Groups or Families, Stay Off Site

If you have a larger family or group that requires multiple bedrooms, it’s usually more cost effective to stay offsite.  There are numerous resorts just outside Disney World that have condos and townhouses at very affordable rates, particularly during low season.

From our research, a 3 bedroom condo at a highly rated and popular resort outside of Disney World costs around $100/night including taxes and cleaning fee (providing that you stay longer than a week).   We received numerous quotes that ranged from $68/night to $130/night. Besides price though, there are considerations like reputation, communications with the owner, proximity to the resort pool, distance to Disney World, and the condo level (the higher the floor may mean less noise).  In addition,  the more popular resorts will have gated security, a large swimming pool, a clubhouse, and a play ground for kids.

3. Save Money on Car Rentals

My article on how to save money on car rentals explains a strategy, that I have used a few times, to help get the best price possible on a car rental.  At a high level, watch car rental prices over a few weeks on Hotwire until you see a price that you are happy with.  Then bid a slightly lower price on Priceline.  Note that car rental prices in Orlando are typically very reasonable during low season.

4. Save Money on Disney World Tickets

Another significant cost of a Disney vacation are the Disney World tickets themselves!  I must admit that I was in disbelief when I first did a quote for how much tickets would cost.  For  a single day pass, it costs around $96 USD/adult, however, ticket prices reduce quite significantly when you purchase more than a 3 day pass. For example, once you get up to the 5 day pass level, the price per day works out to be closer to $55/day/adult (around $50/day/kids ages 3-9).

Unfortunately, there are very limited legit ways of getting discounted Disney tickets, however, there is one way that saved us around $35 or 4.5% off our tickets.  A popular site to buy Orlando theme park tickets is UnderCoverTourist which has some reduced pricing on multi-day passes.  However, Mousesavers has a special link which gives you further reduced pricing on UnderCover’Tourist, particularly when you buy a 5 day pass.

5. Plan your Park Visits to Save Time (and Money)

A park day will go by much faster than you think, likely because of all the time spent in line ups.  If you have limited park days purchased, then time is money, so I recommend planning and optimizing your park visits.

One strategy is show up when the park opens and go to the busiest rides first while utilizing the FastPass system as much as possible.  One of the better resources I’ve found is a blog post on EasyWDW that includes “cheat sheets” on the recommended order of rides to take.

Another great resource for planning your Disney vacation is “The Unofficial Guide to Disney World” which can be picked up in most libraries.

6. Save Money on Food

If you are staying outside the park, I would recommend a hearty breakfast before you leave for the theme parks.  However, even still you’ll need to consider lunch and dinner meals which can be costly if eating out with a large group.  If you follow the strategy of showing up first thing in the morning, then it’s likely that you’re going to have a meal in the park itself.  Fortunately, lunch meals in the parks are not too onerous and average around $10/per adult ($5.99 for kids meals) and some of the portions can be generous for sharing.

One tip is that all meals come with sides included, but if you request to not have the side, you’ll save $2 on the meal.  Another tip is to bring a back pack full of snacks and freeze water bottles the night before.

If you decide to leave the park in the evening and go out for supper, the good news is that eating out at the franchises in Orlando is very inexpensive.  For example, IHOP has a promotion where kids eat free after 4pm, or Applebees offers an appetizer and two entrees for $20.  As well, coupon books are plentiful in Orlando, so keep your eye out and you’ll likely find appealing restaurant deals.

If you’d rather cook back at the condo/house, then groceries are very reasonable at the Target/Walmart/Publix nearby.

Final Thoughts

Disney is a very enjoyable trip, but even more enjoyable knowing that you got the best deal possible (at least it is for me).  Do you have any money saving tips for a Disney World vacation?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

If you’re filing your own income tax, you’ll need to fully understand the form to properly file your taxes; the last thing you want to do is get audited by Canada Revenue Agency (CRA).

Tax Treatment of Rental Income

Similar to income earned from self-employment, you’ll need to report rental income earned in a calendar year. If you work a regular 9 to 5 job, you’re probably used to taxes being deducted at source by your employer. However, since taxes aren’t deducted from each rent cheque received from your tenants, you’ll need to pay your fair share of taxes come April 30th. The advantage of rental income is that you’re able to write off a percentage of the expenses related to your rental property.

Completing Form T776, Statement of Real Estate Rentals

If you’re the sole owner of a rental property, completing the first part of Form T776 is pretty straight forward. After you’ve completed your basic personal information, you’ll start by entering your gross rents under the income section. For example, if you receive rental income of $700 per month for your basement apartment from January to December, your gross rental income for the year would be $8,400.

Claiming Your Expenses

The next section of the form is for claiming your expenses related to your rental property. Expenses are claimed on a cash basis (not an accrual basis). That means your expenses are claimed when you actually paid for them. For example, if you paid your hydro bill in December 15, 2012, you’d claim the expense on your 2012 income tax return, but if you paid your water bill on January 25, 2013, you’d wait until your 2013 income tax return to claim it.

Before completing your expenses, it’s important to understand there are two columns you’ll need to complete: total expenses and personal portion. If you have a rental property that’s 100% rented out to tenants you won’t have any personal portion, but if you live in your principal residence and rent out the basement, you’ll need to enter your total expenses for the year and allocate the amount for your personal portion. You can estimate the percentage of your house rented out. For example, if you rent out the basement in a bungalow, it’s probably reasonable to claim 50% to 60% as personal.

Here are the most common expenses you’ll claim:

• Advertising – For example, if you put an advertisement in the local newspaper to attract tenants, you can claim 100% of the expense.
• Insurance – This is for home insurance paid on your property.
• Interest – You can claim mortgage interest (not principal) paid.
• Property Taxes – Even if your property taxes were prepaid by the seller when you purchased your house, you can claim a portion here.
• Utilities – Heat, hydro, water, etc.

Maintenance and Repairs vs. Capital Cost Allowance (CCA)

It’s important to understand whether an expense is current or capital. Canada Revenue Agency’s (CRA) website has a helpful questionnaire to determine where an expense should fall under.

According to CRA, renovations and expenses that extend the useful life of your property or improve it beyond its original condition are usually capital expenses. For example, painting your rental unit is probably considered current and should be claimed under maintenance and repairs, since it’s an expense that usually recurs after a short period. Meanwhile, a capital expense generally gives a lasting benefit, such as reroofing your house. Another important decision is whether to claim CCA at all. Although claiming CCA reduces your taxable income for that year, when you sell your property previous CCA claims will be recaptured and taxed accordingly.  Here is more information on how capital cost allowance works.

Once you’ve entered your expenses, at the bottom of the form is your net income (or loss). This final amount is reported on line 126 of your income tax and benefit return. Once you’ve completed the form the first time you’ll get the hang of it. As long as you keep your receipts and bills organized, you should have no problem filing your rental income taxes every year.

About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

As most people filed their tax return before the income tax deadline, it’s now a matter of waiting for that juicy tax return.  Most consider tax refunds to be ”free money” that was unaccounted for.  And it’s true, you can do whatever you want with the money.  However, in my opinion, tax returns should be used wisely as it’s basically money that you overpaid to the government during the year.

Although they may seem like common sense, here are my some ideas on how to use that tax refund:

Pay Down High Interest Debt

If there is credit card or other consumer related debt on your personal balance sheet, then all “unplanned” income should pour into high interest debt.   Paying down a 19% rate credit card balance, is the same as returning 19% after tax (guaranteed) on the market.  Good luck finding a GIC with that kind of yield.

Pay Down Your Mortgage

I must admit that when people ask on what to do with their excess cash flow, besides the obvious of high interest consumer debt, paying down the mortgage is probably what I suggest most.  There are a couple reasons for this.  First, paying down the mortgage provides a guaranteed after tax return, second, it’s dead easy to do.  Even though investing in the markets may outperform paying down the mortgage balance (if rates are low), not everyone has the time or patience to learn how to invest.

Contribute to your RRSP

I remember a while back when I read Preet’s RRSP Book that it had many examples of RRSP vs non-reg portfolios.  To my surprise, the non-registered portfolios can very close in after tax returns.  The conclusion was that RRSP’s are superior only if the tax refund is reinvested or used to pay down debt.   What does that mean for you?  If you contributed to an RRSP, at the very least, take the portion of your tax refund attributed to your RRSP contribution and reinvest it/pay down debt.

Contribute to your TFSA

Depending on your situation, it may be more efficient to contribute to your TFSA.  Certain cases like employees with a generous defined benefit pension plan where retirement income will be fairly high, the tax free withdrawals from the TFSA during retirement is welcomed.  In addition, TFSA withdrawals do not count as income, thus will not be used in senior benefit clawback calculations.

Contribute to an RESP

Here’s something a little different.  If you have children, if you contribute $2500 per year to an RESP, you can receive the max government matching of $500.  The account can grow tax free and withdrawals are taxed in the hands of the student when they start higher education.

Build your Emergency Fund

Having a large emergency fund may not be required for every situation, but I believe that having some liquidity is extremely important in every household.  If you haven’t started a cash emergency fund, one way to fund it is with the tax refund.

Invest in Yourself

Instead of investing the tax refund in the market, consider investing the money in yourself (or your business).  Most of the money accumulated in your life will be due to your career or your business.  Take courses, improve your credentials, even buy some books.  Do something that adds value to your company, whether you own it or not, it will bring benefits.

Final Thoughts

This year, I ended up with taxes owning with my wife expecting to receive a refund.  Going down the list, we’ll most likely use the refund to contribute to our RRSPs.  Back to you, how will you be using your tax refund?

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Copyright 2012 MillionDollarJourney – All Rights Reserved

What is your retirement sweet spot? @ Retire Happy Blog

Teaching Kids About Credit @ Balance Junkie

Invest in Yourself @ Young and Thrifty

Lending Money To Friends And Family @ Boomer and Echo

Ten Financial Lessons We Can Learn from Warren Buffett @ Blunt Bean Counter

Getting a Handle on the Cost of Cars @ Michael James on Money

Risk versus volatility, is there a difference? @ My Own Advisor

Why I’m Excited to See Gold Lose Its Lustre @ Canadian Finance Blog

Why Yard Sales are Sustainable @ Sustainable Personal Finance

Committing to a Credit Card? Don’t Underestimate Annual Fees @ Lazy Man and Money

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Copyright 2012 MillionDollarJourney – All Rights Reserved

How does the fraud happen?

Crooks need to get their hands on a consumer’s credit card information in order to perpetrate the crime. Stealing personal information could occur by skimming the card through a secondary reader, capturing card information from improperly shredded (or not shredded at all) credit card statements in the trash can, phishing for details through emails that either contain fraudulent links or ask the recipient to reply with card details, or hacking into store databases to get the same information. Once the thieves get the credit card details, they can either sell this information to other criminals or use the card themselves to make unauthorized purchases.

How to prevent credit card fraud

Credit card companies have started rolling out new credit cards with chip technology, in addition to the existing magnetic stripe, to make it tougher for thieves. The embedded microchip encrypts the stored information making it difficult to counterfeit.  Combine this with the personal identification number (PIN) and you have a relatively strong layer of security.

Nevertheless, losing the credit card and creating an easy-to-crack PIN could still be recipe for disaster. In addition, credit card companies have protection policies in place to safeguard the consumer from credit card fraud.

From a consumer’s standpoint, there are several things we can do to make it almost impossible for criminals to get our credit card information. A brief list is included below but a comprehensive one can be found at this Financial Consumer Agency of Canada page.

• Cover the keypad when entering the PIN;
• Avoid giving your credit card or PIN to anyone;
• Shred credit card statements properly;
• Obtain your credit report for free once a year to review your history;
• Maintain a list of contact numbers that would be needed in case of credit card theft or loss; and,
• Secure your online transactions by paying attention to the website and getting to it from your bookmarks or favorites rather than by clicking on an email link.

If your best efforts have failed…

If you face the unfortunate situation of watching someone else use your credit card information, follow the steps below:

• Contact the credit card issuer immediately; the phone number should be on the back of the card. Of course, if the card is stolen, the contact list that you maintain will be a savior;
• Inform the credit bureau agencies [Equifax Canada: 1( 800) 465-7166; TransUnion Canada: 1 (877) 525-3823], so that fraud alerts may be placed on your credit report; and,
• File a report with the local RCMP.

Have you been a victim of credit card fraud? Do you have any tips to offer for the rest of us to remember?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

Lets start off with one of the favorite topics here on MDJ – the stock market!  The TSX started its decline in March, but the drop really accelerated in April with commodities leading the way to a 4.7% overall loss.  However, even with the significant monthly drop, I’m staying the course and watching to see if any of my favorite companies fall within buying range.  Fortunately, my dividend portfolio held up pretty well during the decline with a small loss of 0.42%.

The S&P500 continued its winning streak for a 1% gain for the month of April.  As I mentioned in a recent post, most of my RRSP holdings are in large US dividend stocks which has worked out well so far this year with another  gain of 1.75% in April.  On the other side of the spectrum, an account that hasn’t been performing is the TFSA with very little gains over the years.  That account is mostly cash, short term bonds, and only recently have I been adding REITs.  I hope to move more of the cash into equities for long term growth.

Even though expenses were higher this month, our savings rate was maintained due to withdrawing a little more out of the company.  There is some cash on the corporate balance sheet that I hope to invest soon and include, after tax, on the net worth updates.

On to the numbers:

Assets: $853,200 (+0.84%)

• Cash: $4,500 (+0.00%)
• Savings: $20,000 (+0.00%)
• Registered/Retirement Investment Accounts (RRSP): $151,500(+1.75%)
• Tax Free Savings Accounts (TFSA):  $52,000 (-0.57%)
• Defined Benefit Pension: $42,200 (+0.72%)
• Non-Registered Investment Accounts: $155,000 (+3.33%)
• Smith Manoeuvre Investment Account: $118,500 (-0.42%)
• Principal Residence: $309,500 (+0.00%) (purchase price adjusted for inflation annually)

Liabilities: $100,300 (+0.20%)

• Principal Residence Mortgage (readvanceable): $0 (0.00%) (Paid off in 2010!)
• Investment LOC balance: $100,300 (+0.20%)

Total Net Worth: ~$752,900 (+0.92%)

• Started 2013 with Net Worth: $690,400
• Year to Date Gain/Loss: +9.05%

In my last update, readers suggested to chart my net worth progress over time.  Below are the net worth values since Dec 2006 with data points taken semi annually.  If you cannot see the chart, please click here.

• December 2006: $198,500
• June 2007: $254,695
• December 2007: $279,300
• June 2008: $310,483
• December 2008: $309,950 (rough second half)
• June 2009: $355,850
• December 2009: $399,600
• June 2010: $456,910
• December 2010: $505,800
• June 2011: $558,713
• December 2011: $585,228
• June 2012: $631,400
• December 2012: $690,400

Some quick notes and explanations to net worth questions I get often:

The Cash

The $4,500 cash are held in chequing accounts to meet the minimum balance so that we pay no fees (accounting for regular bill payments – ie. our credit card bill). Yes, we do hold no fee accounts also, but I find value in having an account with a full service bank as the relationship with a banker has proven useful.

Savings

Our savings accounts are held with PC Financial and ING Direct. We usually hold a fair bit of cash in case “something” comes up. The “something” can be anything that requires cash such as an investment opportunity that requires quick cash or maybe an emergency car/home repair.  We also need cash to cover any future tax liabilities.

Where Does the Savings Come From?

We don’t live a lavish lifestyle (how we save money) and do not carry any bad debt.  The only debt we have is an investment loan (which pays for itself), so we end up pocketing a majority of our earnings.  Our earnings come from salaries, private business income (via dividends to shareholders), and eligible dividends from publicly traded companies.

Real Estate

Our real estate holdings consist of a primary residence and REITs plus a rental property. The value of the principal residence remains valued at the purchase price (+inflation) despite significant appreciation in the local real estate market.

Pension

The pension amount listed above is the value of both of our defined benefit pension plans.  I basically take the semi annual statement and add the contribution amounts (not including employer matching) on a monthly basis.  The commuted value of the pensions are not included in the statements as they are difficult to estimate.

Updated 2013 –  My wife has recently changed her job position which has resulted in switching from a defined benefit plan to a defined contribution plan.  This amount will be added to the RRSP totals going forward.

Stock Broker Accounts

Another common question is which discount broker do I use?   We actually have accounts with multiple institutions.  I’m hoping to reduce the number of accounts that we hold in the near future.  Here is a review of some of the more popular online stock brokers.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

CYBF Start-up Program

Overview

As would be evident from the name, this program offers the resources and support needed to launch a business. A Canadian citizen or permanent resident between the ages of 18 and 39 who is not a full-time student, living or running a business in a community offering the CYBF program through a community partner, and capable of producing a viable business plan is eligible to apply (complete eligibility criteria can be found here). The foundation offers the resources needed – including a mentor, financing and access to Entrepeer – to start a business and continues its support through post-launch help initiatives.

Financing

The foundation in conjunction with the Business Development of Canada offers up to $15,000 under the standard program (loans over $7500 are amortized over 5 years, while those less than $7500 are amortized over 3 years). The interest rate is tied to CIBC’s prime rate. Only interest payments are required in the first year with principal plus interest being required to be repaid in equal monthly installments over 2 or 4 years depending on the loan amount and there is no penalty for early repayment.

There is a nominal fee of $50 for initial setup and a $15 monthly administration fee charged for the duration of the loan. After being approved for financing under the standard program, a young entrepreneur may be eligible for additional funds (up to $45,000 in total) through the Business Development Bank of Canada partnership (please see terms). Eligible interested youth can begin their path to success from here.

CYBF Newcomer Program

Overview

This program is similar to the Start-up Program but it offers extra help to support the needs of newcomers. The program seeks to address the language and cultural barriers that typically stifle newcomers and help them understand the business practices of Canada. A credit history is not required to apply for financing under this program.

Most of the eligibility criteria for this program are the same as the Start-up Program. Key differences are that the applicant under the Newcomer Program must have lived in Canada for less than 60 months from the application processing date, provide 3 character-based references (with at least two being Canadian citizens) and can submit a business plan in English or French. A specialized mentoring program is offered to help entrepreneurs acclimatize to the Canadian business environment better; a Mentoring Checklist can be obtained here (PDF).

Financing

This program offers up to $7500 (amortized over 3 years) for young newcomer entrepreneurs. Only interest payments are required in the first year with principal plus interest being required to be repaid in equal monthly installments over 2 and there is no penalty for early repayment. An applicant may be eligible for additional financing (up to $15,000 in total) through the Business Development Bank of Canada partnership (please see terms).

Eligible interested newcomers can begin their path to success from here.

If you have used any of the CYBF programs, do you have any stories to share? Any general words of wisdom for young entrepreneurs?

About the Author: Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.

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Copyright 2012 MillionDollarJourney – All Rights Reserved

If you could move in and out of the market at the right time, you would obviously increase your returns and avoid some losses. On the other hand, many of the best investors, such as Warren Buffett, tend to stay invested all the time. What is the most effective strategy?

Let’s look at timing the market and how we could do it.  The most important part of timing the market is to get the general direction right. There are all kinds of predictions, but to keep it simple, let’s categorize your prediction for the next year into one of the four in the chart.

Table 1: S&P500 since 1950. Source: Standard & Poor’s (click here if you cannot see the table)

What’s your prediction for the next year?

If you are predicting an “up a lot” or “up a little” year, you would want to be fully invested. That means you need to be fully invested at least 3 years out of 4. The biggest risk of market timing is missing the 76% of years that are gains.

Most years, you would probably predict a “normal” year – right? Note that “normal” returns are abnormal! On January 1 each year, the media publishes predictions by many financial experts. Most predictions are in the normal range. Since the stock markets average a bit over 10% long term, you would expect most years to be somewhere between 0% and 20%. However, more than 60% of years are abnormal.

If you are predicting a “down a little” year, it is probably not worth changing your investments. The issue is that what if you are wrong? The human gut is almost always wrong when it comes to investing. And remember there are three times as many gains.

How much would you gain anyway if you are right? Remember, you would have to be right both in the timing of selling and buying, and you may incur some costs and tax consequences to make changes. The “up a little” and “down a little” years could also easily have turned out differently in a couple months at year-end.  Unless you are very sure of a down year and you know you have your human gut in check, it is rarely worth it to try to avoid a “down a little” year.

Predicting bear markets

Where market timing could make a big difference is if you could avoid the “down a lot” years, or the bear markets. If you could be fully invested all the time, except just avoid the bear markets, you would outperform significantly.

How do you see a bear market coming?

The first thing to remember: “Bad news doesn’t hit you between the eyes. It hits you in the back of the head.”² Most predictions of bear markets happen when there is well-publicized bad news expected. For example, recently we had fears of a collapse of the European Union and U.S. debt fears. Bear markets almost never result from anything well publicized ahead of time. Can you think of any time in history when bad news was widely predicted, then actually happened and after that the market falls?

Probably the only way to predict a bear market is to see a market bubble. The issue here is that true bubbles are rarely identified as bubbles. Hardly anyone thought energy was a bubble in 1980 or technology in 1999. Both times, everyone thought “this time it’s different”. The internet was going to change the world. Remember “The New Economy” and “clicks, not bricks”?

Bubbles are really about extreme overvaluation. The mood is usually euphoric with many people predicting continued large gains.

There are issues with predicting bear markets, though. First, remember that there have been only 3 “down a lot” years in the last 63 years¹, which averages to one every second decade. If you are predicting them more often than that, it is probably your Stone Age human gut creating false fear. Many people predicted another bear market after 2008, but few predicted one before. The people that correctly predict bear markets are often the “permabears” that are always pessimistic.

I know 3 people that correctly predicted the 2008 crash and moved all their investments to cash before the drop. Great for them, right? The problem is that, last I heard, all 3 are still in cash today. Being permanently pessimistic is a disaster, since it means you will miss the 76% of years with gains¹.

Second, if you correctly predict a bear market, you need to get invested again quickly. All three “down a lot” years where followed immediately by one or two “up a lot” years. Predicting the bear market is useless unless you buy in lower than you sold!

Third, make sure you know something few investors know. If you are only responding to scary news articles about well-publicized fears, the market has probably already accounted for them in its current price.

The last 2 bear markets show some of the issues. Each one is different. The market was not overvalued before the 2008 bear market, which is part of why few predicted it. In retrospect, the technology bubble was a clear overvaluation and bubble that could have been identified ahead of time. The issue is that the market was already overvalued in 1997. If you sold then, you missed the 3 big gains from 1997-1999 before you correctly avoided one big loss.

The reason predicting a bear market is so challenging is that if you miss even one of the “up a lot” years, you will probably underperform long term.

Today, many people are skeptical of recent market gains, and are expecting a downturn soon. However, there is no sign of euphoria or overvaluation. The market P/E is about 14³, which is below the long term average. What’s more is that we just had a bear market. Remember that we should only expect one about every two decades. I believe that the skepticism today is mostly Stone Age human guts overreacting to fear and still remembering the pain of the recent crash in 2008.

Buy and hold investing

The difficulty in correctly predicting a bear market, getting the timing right, and not missing out on all the up years, is why, in general, it is best to be a “buy and hold” investor. The key to successful stock market investing is to be fully invested during the 76% of years that are gains.

The stock market has very reliably produced large gains long term. If you invested $1,000 in 1950, you would have $749,330 today¹. “Buy and hold” investors can get the long term gains of the stock market. Market timers are far more likely to get lower returns.

Predicting bull markets

Should we give up on market timing altogether? From my experience, there is one type of market prediction I have been able to do successfully – predicting an “up a lot” year after a bear market. Markets have historically almost always bounced back quickly. The 3 bear markets since 1950 were all followed immediately by one or two “up a lot” years. The 27% drop in 1974 was followed by a 72% gain in 1975-76, the 22% drop in 2002 was followed by an 82% gain in 2003-7, and the 37% drop in 2008 has been followed by a 73% gain in 2009-2012¹ (which may be larger after 2013).

These predictions require no great insight on my part – only the assumption that the market will always recover.
In my opinion, the best investment strategy is to be a buy and hold investor (to be fully invested) all the time. Then once every decade or two, there will be a big sale – an opportunity to invest more at a discount of more than 20%. Taking advantage of every bear market is an easy way to beat the market.

My prediction for 2013

I don’t usually make short term predictions, but I do always have opinions. Certainly one of the most reliable indicators is that the popular sentiment is usually wrong, since it is already priced in. Most financial experts and most amateur investors today are predicting either a “normal” year or another downturn. Therefore, those two scenarios are unlikely.

We are starting year five of this bull market, but we have not yet had the normal gain from the last market peak. Sir John Templeton’s quote explains a lot: “Bull-markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria.” The mood I see from investors today is skepticism, which is why my opinion is that we are only on second base in this bull market.

Considering that the market is very cheap (especially compared to bonds), sentiment is overly skeptical and the markets have not yet had their normal gain in the last 6 years, in my opinion the most likely scenario for 2013 is an “up a lot” year.

¹ Standard & Poor’s
² Oscar Belaiche
³ Wall Street Journal. S&P500 forward P/E: http://online.wsj.com/mdc/public/page/2_3021-peyield.html

About the Author: Ed Rempel is a Certified Financial Planner (CFP) and Certified Management Accountant (CMA) who built his practice by providing his clients solid, comprehensive financial plans and personal coaching.  If you would like to contact Ed, you can leave a comment in this post, or visit his website EdRempel.com.  You can read his other articles here.

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Every year residential property owners across Canada receive their assessment notices in the mail. The biggest concern is probably how much your property tax is going up, but do you understand how your municipality determines your property’s assessment value?

Assessment corporations simply don’t have the time or resources to assess individual properties, so they’ve come up with their own methods for determining the value of many similar properties at once. Let’s take a look at how residential properties are assessed and how to appeal your assessment if you believe it’s overvalued.

Your Property’s Assessment Value

Residential properties are assessed at a provincial level; each province has its own assessment corporation that determines your property’s value. Although the methods to arrive at your assessment value may vary slightly depending on the province in which you reside, market value is the most widely adopted assessment method in municipalities across North America.

Provinces including Ontario and Alberta adopted the market value in the 1990’s, as it’s easily understood by property owners and governments consider it the most fair and equitable way to value properties.

What is Market Value?

In a nutshell, market value is the price a willing buyer would be expected to pay for your property if sold on the open market on the valuation date. As mentioned, assessment corporations simply don’t have the manpower to assessment individual properties – that’s where mass appraisal comes into play. Mass appraisal is a way for assessment corporations to value a group of similar properties using data, mathematical models and statistical tests.

The sales comparison approach is the most commonly used mass appraisal method. This approach determines your property’s value by comparing its value versus the selling price of similar properties in your neighbourhood. Properties aren’t identical, so adjustments are made to the assessment value. For example, your house may have a walk-out patio, which will increase the value of your property. Other factors that affect your property’s value include location, lot dimensions and living area.

Assessment Value vs. Sale Price

If you recently bought your home, you’d probably expect your assessment value to match your sale price, but that often isn’t the case. Although your home’s selling price is a good indication of its value, your assessment value can often be higher or lower. The reason is simple: your property’s sale is simply one real estate transaction. Meanwhile, your assessment value is based on the most likely selling price obtained through an analysis of the recent sales transactions in your neighbourhood to determine its most likely selling price.

Appealing Your Assessment

Before you go through the time and aggravation of appealing your assessment it’s important to understand that an increase in your assessment value doesn’t necessarily mean an increase in property tax. Your property tax will only increase if your property’s assessment value goes up faster than average assessment value increase for your municipality.

For example, if your property assessment value increased by 3.4%, but your municipality’s average only increases by 2.5%, you’ll likely see a tax increase. It’s important to understand in a healthy real estate market your assessment value should increase each year since it’s based on market value. If you believe your assessment value is overvalued and your property would never sell for that much at the valuation date you can file an appeal.

The process for filing an appeal is different in each province. In Ontario filing an appeal is a two-step process. First you must file a Request for Reconsideration form. If you don’t agree with the decision, you must present your case in front of the Assessment Review Board (ARB). Although the onus is on the assessment corporation to prove your assessment value is correct, it’s a good idea to come prepared.

In British Columbia not only is the onus on homeowners to prove that their assessment value is incorrect, it’s also a lot tougher to dispute your assessment value. Property owners must appear in front of a three-person panel at their Notice of Hearing. If you still disagree with your assessment value, you can appeal your decision with the Property Assessment Appeal Board. No matter what province you’re in it’s very important to file your appeal by the deadline date.

Have you ever filed an assessment appeal before? Were you successful in lowering your assessment value?

Sources:

http://www.mpac.ca/property_owners/how/residential_property_assessment.asp

http://www.bcassessment.ca/public/Pages/AppealGuide.aspx

About the Author: Sean Cooper is a single, 20-something year old, first time home buyer located in Toronto. He has experience in the financial sector as a Pension Analyst, RESP administrator and Income Tax Preparer. He holds a Bachelor of Commerce in business management from Ryerson University. You can read some of his other articles here.