How you can make $450,000 in ten years by doing no work

Posted by neil on January 13, 2010
General

If you think that the claim that I am making in my title is impossible, you are wrong.

Anything is possible if you put your mind to it. You just have to find ways to get things done.

Unless someone has a very successful business that they own and run, or unless they invest in real estate, it would be quite difficult to save $450,000 in 10 years.

If someone made $45,000/year net, they would have to save their entire salary, without spending anything for 10 years straight.

Not going to happen!

The strategy that I am about to share with you is a strategy that is used by some people. However,the minority of people use this strategy, and as a result, it is the minority of people that are able to build this wealth.

I have personally witnessed people use this strategy with success.

If you want to use this strategy, all you have to do is the following.

1) Buy a new house before it is constructed (buy it off of the plans)
2) Wait for the house to be built
3) Live in the house for a while
4) Sell the house after it has gone up in value
5) Repeate

In Canada, you can sell the house that you live in, your principal residence and pay no tax to the government on the capital appreciation. This is by far the greatest aspect of home ownership in Canada, with respect to one’s principal residence.

In the 1990s, I had one neighbour that used this strategy. He bought a house in the neighbourhood at the time for around $200,000. He moved 4 times. He never spent more than 2 years in a single home. He had young children. His children were never displaced nor were they sad that they were moving, as they attended the same school. All of the moves occured within the neighbourhood, so they never ended up moving out of the school district. By the 4th move, I began to lose track of this person as we fell out of touch with him. At the time though, the house that he purchased was valued at $600,000, which was 3 times more expensive than house number 1 that he purchased.

Today, I was visiting with my real estate lawyer, Bob Rose. I was into see Bob as I was signing off on the paperwork for a new rental property purchase. Bob is an extremely knowledgeable real estate lawyer who has been servicing the Oakville, Ontario, Canada and Halton, Ontario, Canada area for many years.

Bob and I were discussing this very same strategy and he shared with me a couple of stories that have inspired me to really believe in this strategy and use it through out my life.

We were discussing the Oakville real estate market and the fact that Oakville is one of the remaining towns in the Greater Toronto Area, where there is still land to build homes. As a result, the demand for these homes is very high.

Bob said it best himself, “Oakville is home to Toronto Maple Leafs and Bank Executives.”

He shared with me a story of one of his clients. This client has moved homes 10 times in the past 14 years. During this time the client has bought all new homes, that have yet to be constructed. With each subsequent home, the client was able to make a profit on each home so that eventually, he had no mortgage at all on his current property, and the home that he was living in was valued at $1 million dollars.

Another story that he shared with me, reminded me of my neighbour from the 1990s. This particular client of Bob’s served as the inspiration for my title to this article.

Over 10 years, this particular client moved 3 times. He did not move far each time, in fact each time, he only moved to the next street over from his current one. He first purchased a new home in a new development. He lived in the home for a while, and then bought a new home off of the plans from the builder. While he waited for this newer home to be constructed, the value of his existing home that he was living in continued to rise. By the time the newer home was ready, he sold his existing home, and moved in just one street over. He did this a total of 3 times. Over these 10 years, he was able to make $450,000 tax free profit. Also, over these 10 years, because of his careful planning, his home was now free and clear with no mortgage.

If you have any comments or questions on this article, I welcome them. Please place them in the comments section, just below. Also, if you would like to subscribe to my blog, please do so by licking on the orange RSS button at the top right hand corner of this page.

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4 Comments to How you can make $450,000 in ten years by doing no work

  • Your blog posts are normally top notch but this is just painful
    There are major issues being ignored with this strategy:

    Risk of prices dropping when your needing to sell your current home to purchase new one that’s not built

    Carrying costs of overlap time between house sale when you own two residential properties

    Moving costs and sale transaction costs – realtor’s fees, land transfer tax, lawyers fees, etc.

    Reduction of quality of life – Hassle of packing and moving, lack of initial amenities of constantly being in a new house (finished basement, deck, landscaping, etc..) – Living in an area with new construction on going- noise, dirt, etc..

    Possible CRA reassement the profit is taxable

    • Hi Adam,

      Thanks for your comment and your honest feedback. I really appreciate it.

      I agree with all of your points, and I think this is why a lot of people don’t end up using this strategy.

      In addition, I think there are only a handful of real estate markets that this can work in, as well, limited time frames that this strategy can work in as well.

      Personally, I feel that I am overly optimistic and I have a lot of belief that there will be increased demand in the Greater Toronto Area in particular.

      I am cautiously optimistic that this strategy will work over the next several years in this particular geographical area.

  • I am in the planning stage. I haven’t made my first investment purchase as yet. I do however have a variation on this plan.

    My plan would be to use the equity from my current home, in which I have 100% equity, to purchase a multi-family home to rent out. Then repeat on each subsequent home. I’m concerned this could create a house of cards.

    I could also live in one of the units for a year with each purchase. Thus being able to qualify for low interest principal residence mortgages. In that scenario each home would have its own financing independent of each other.

    What do you think?

    • Hi Rachel,

      You have the right idea. The idea you are talking about is “leverage”. This is an essential concept in real estate investing. The key thing now for you is to get in touch with a real estate investment savvy mortgage broker who can plan your financing. In his books, Robert Kiyosaki talks about leverage and the importance of it with real estate investing. If you have not read his books, I would definitely check them out. Hope this helps!

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