Historical article note: This article was originally published on 2019-12-26. Rates, policies, home prices, statistics, product names and qualification standards reflect the environment at that time and may have changed. This archive is for historical record and general education only. It is not mortgage approval, investment, legal or tax advice.

This is the 100th article on the 'Henry Wang in Canada' public account. Over the past two years, I have shared my thoughts and reflections with our subscribers through one article per week. When I wrote the first article, 'The Essence of Mortgages as I See It,' I set a standard for myself: only write knowledge-based articles that can stand the test of time. I invite readers to examine whether the content and viewpoints of that first article from two years ago are still correct today, and whether they can withstand the test of time. The three achievements in life are contributing to society, cultivating virtue, and creating lasting words. Writing each article by the standard of 'creating lasting words' is my personal requirement for self-cultivation.

Why write these articles sharing investment insights openly? Some say it’s just soft advertising, some say it’s just showing off after a lucky gain. Both reasons are somewhat true. But as I kept writing, I realized that 'sharing' is indeed a very joyful thing, and it’s a kind of advanced joy. And the readers? As they read, some actually become enlightened about financial literacy. With the positive feedback from readers, my joy takes another small step up. I can especially understand the kind of advanced happiness that comes from realizing financial wisdom. The first time I read 'Your primary residence is not your asset,' I was very angry. I was 32 at the time, had a house in Harbin, with bank savings of only five figures, while that house was worth six figures—it was my biggest asset. And you say it is not an asset? Who are you humiliating? It wasn’t until I was 45 that I understood only rental properties are assets, and a primary residence is a liability. After awakening to this truth, I felt the person I was before was from a previous life. If I had understood that crucial sentence at 32, my financial intelligence would have 'died early and been reborn early.' Continuing to write this public account is just in hopes that strangers, the readers, understand this as early as possible—'Your primary residence is not your asset'—so that they can achieve financial self-enlightenment sooner.

01 The Failed Life of Immigrants Is Ignorance of the Secrets of Capital

Among the Chinese who have immigrated to Canada, many do not live happily, and some return home having gained nothing. Life lasts about a hundred years; is it worth tossing oneself back and forth during one’s prime years just to suffer? If you are going to immigrate, then 100% move both your body and your heart: make your new place your home, treat the foreign country as your homeland, understand Canada, integrate into Canada, and strive to find a stage that suits you. There are countless articles online regretting immigration to another country, including those written by Chinese immigrants to Canada; a common complaint is 'it would have been better not to immigrate.' One of the most enviable regrets is that if they hadn't immigrated, they could have bought property early in Beijing, Shanghai, Guangzhou, or Shenzhen and now be worth tens of millions of RMB. Ten years ago, when CCTV announcers righteously said that housing prices should be suppressed, would you really dare to buy property in Beijing, Shanghai, Guangzhou, or Shenzhen? Suppose you did go through with it; you bought the property and now it could be sold for 10 million RMB. Convert that to Canadian dollars for immigration—could you actually remit it over? Okay, suppose you did remit it—200,000 CAD in total, right? Is that a successful life? Over the past ten years, an ordinary working-family could have taken loans to buy 5 or more properties in Canada, steadily earning 2 million CAD in home equity, and still collect rent while property prices continue to rise. China's past ten years of real estate boom are gone forever, while in Canada, investment opportunities in real estate are still available every day, every year, BUT these opportunities are only for those who understand 'the secrets of capital.' In my article 'The Secrets of Family Wealth Leap,' I introduce this capital secret to readers. If anyone has not yet been striving toward the correct path of family wealth leap, it is a waste of talent and Canadian resources; to return home early, in my view, is also fine.

Canada has already passed the period of rapid development, and the increase in wealth is very small. Therefore, starting a business in Canada, creating wealth, and making money present extremely slim opportunities. Canada has enormous existing wealth, but tools are needed to leverage this existing wealth. The competition for existing wealth is the most brutal and intense. The younger generation or new immigrants cannot get a share from vested interests, and the smallest spark could ignite a powder keg. Even if it was once the Pearl of the Orient, what difference does it make? Canada has high welfare support, so the poor will not starve to death, making the possibility of a proletarian revolution among the lowest in the world. Wage earners and the middle class can calmly plan and capture existing wealth. For investment immigrants, after transferring savings from China to Canada, you can use the bank's high-net-worth lending programs to buy investment properties. For technical immigrants, if both spouses are working, investing in real estate is very suitable. Each property can be mortgaged up to five times the annual income. The bank looks at the borrowing ability of each property, not the total debt, which is very advantageous for middle-class wage earners to build their own real estate investment portfolio. They can hold up to 10 residential properties. It is recommended to read "Should Wage Earners Invest in Real Estate?", "The Relationship Between the Middle Class and Real Estate Investment", "How to Balance a Lifetime of Income: The Underlying Anxiety of the Middle Class", "How Many Poor Fathers Need Extra Lessons?", "Watermelon is 20,000 Times Bigger Than Sesame, So Why Pick Sesame?", "Can You Still Be Happy With a High Mortgage?", and "People Who Work All Day Don’t Have Time to Make Money."

02 Imagination Trapped by Income and Taxes

Canada is a welfare state with high tax rates, so many people miss the opportunity to gain financial leverage in order to avoid taxes. Is it faster to save money or to borrow money? The answer is clear, but even though everyone understands the principle, why is life still hard to live well? First, because the boundaries of fear determine the boundaries of life; second, because the order of tax saving is reversed.

Borrowing money to consume and overdraft the future is bad debt; borrowing money to invest is using OPM (other people’s money) to accumulate wealth, which is good debt and leverage. Readers who have gone through the previous 99 articles should be able to distinguish between debt and leverage. Some people set their boundaries of fear at the point of borrowing money, and then they cannot invest with borrowed money, making any other discussion meaningless. Further reading: "Is Being Able to Borrow Money a Skill?"; "The Courage to Act"; "Can You Still Invest in Real Estate During an Economic Recession?"

High taxes are necessary to ensure high welfare, and high welfare is meant to prevent the poorest people in the country from rebelling. Paying taxes is both an obligation and a way to create conditions to acquire existing wealth for oneself. When banks approve loans, they look at income; if taxable income is low, the bank will not approve leverage, and without financial leverage, it is impossible to move existing wealth. Further reading: 'Only When Taxes Are Not Painful Can Debt Be Comfortable'; 'A Detailed Explanation of the Pros and Cons of Leverage'; 'The Most Romantic Thing I Can Think Of: Borrow the Most, Pay the Least Taxes'; 'How Much Tax to Pay to Get a Mortgage'.

Once I saw an ad in my social circle selling an immigration consulting company that had been in operation for 10 years, asking for 160,000. Suppose someone bought this business for 160,000, then the owner who sold it made 160,000 in income, which averages to 16,000 per year over the past 10 years. Loan capacity is five times the annual income; if this owner had given themselves an extra 16,000 salary per year over the past 10 years, they could have borrowed an extra 80,000 in mortgage per year, so in the first two years of the business they could have borrowed an extra 160,000. Ten years ago, the average price of a detached house in Toronto was 365,000, and the average price of a condo was 227,000. This owner could have at least bought one condo over the past 10 years. There are still many businesses in Toronto that are simply not worth running. Small, family-run enterprises, after operating for many years, are sold for very low prices or are not sold at all. During operation, because owners try to save on taxes, they are reluctant to pay themselves a salary, and the end result is not only no personal investment assets, but the business also struggles and is difficult to sell. If the owner in this example had spent 160,000 ten years ago to buy a business from someone else, and during operation did not pay themselves a salary to save on taxes, they would be unable to get a mortgage to buy a house, and their past 10 years would have been wasted.

After taking out a loan to buy an investment property, the expenses of the investment property, including loan interest, are tax-deductible. Many small business owners focus their tax-saving efforts in the wrong direction. My personal view for everyone’s reference: if you can grow into a large company and sell it at a high price, you can invest all your time and energy, use all personal tax-saving methods, tighten your belt, make the company's financial reports look good, apply for business loans, develop your business, or buy some warehouses; if the business can’t grow, the company's income should be distributed to individuals as much as possible. Although the personal tax rate is higher than the corporate tax rate, once the tax is paid, the bank recognizes the income, allowing you to borrow up to five times your annual income to buy property. Buy 10 investment properties, and when you want to retire, if the business is only worth $160,000, just close it and go home to count your property deeds. Focus on generating personal income; don’t be reluctant to pay taxes. Reporting more tax first allows you to get leverage from the bank to purchase property, because all expenses on investment properties are tax-deductible. Increasing income and reporting more tax comes first, buying investment properties and saving on taxes comes later; this is the smart way to live in Canada. Many Chinese small business owners pay themselves a salary of $20,000 a year; isn’t that overly focused on saving taxes? How does the bank see you? Oh, your value in the company is $20,000 a year, so how can we dare lend you money? I have seen too many compatriots who think this way, and it pains me. I hope they can realize the truth soon.

Entrepreneurship is tough in any country; it is not only hard work but also carries risks, and one should rightfully earn a risk premium and excess profits. However, the Chinese entrepreneurs I see in Canada are not like that. Many of them live worse off than regular employees. What is most worrying is that the financial literacy of many small business owners is so disappointing—they only feel the pain of paying taxes, while the opportunity costs, which are not visible to the naked eye, are treated as if they don't exist.

Further reading: 'Are You Investing in Real Assets?'; 'The Killer Ranking on the Way to Applying for a Mortgage'; 'Seeing Through the Illusions of Wealth in Life'; '18 Ways to Become Poorer'; 'A Minimalist Course Schedule for Investment and Financial Management'.

03 Real estate investment is a practice of debt management

Income minus expenses equals savings; when savings increase, you can start investing. Investing is meant to balance consumption over a lifetime, and in a way, it also balances lifetime income. Investment requires tools. Between compound interest and leverage, which one will you use? Since I don't know how to use compound interest, I focus on introducing how to use leverage to everyone.

Poor people in the United States do not know how to use leverage. After loan brokers find them, leverage is pushed onto them because banks want to earn interest on loans, and Wall Street needs these loans as raw material to process into subprime cookies to feed the world. For those who don't know how to use leverage, debt is not a gift; it is Pandora’s box. When housing prices fall, these poor people suffer the most, losing their down payments, houses, and jobs—turning the American dream into a nightmare. I have written many articles analyzing the causes and outcomes of the subprime crisis, just to let readers understand how to use leverage and overcome the psychological fear of using it.

Debts incurred from premature consumption are repaid with one’s own after-tax income, such as mortgages for owner-occupied homes, car loans, student loans, and credit card debt. These debts are bad debts and should be eliminated as quickly as possible, because families with bad debt have very fragile finances. Loans for investment properties are paid by tenants, and investment expenses can be tax-deductible, including loan interest, property taxes, condo management fees, etc. Even with negative cash flow, it is just a portion of the down payment being gradually repaid. With an 80% loan-to-value ratio, a Toronto condo currently yields a positive net rental return at an interest rate of 3%. Debt you repay yourself is debt; debt repaid by others is leverage. This distinction must be clear. Without understanding the nature of debt, one cannot lightly use leverage. If you can’t distinguish between debt and leverage, it is recommended to reread: 'Is Housing Debt a Devil or an Angel?'; 'Is Your Mortgage Too Much Compared to Other Canadians?'; 'How to Quickly Repay Your Owner-Occupied Mortgage'; and 'Detailed Explanation of the Pros and Cons of Leverage.'

For friends who invest in multiple properties, the biggest enemy is the mortgage on their primary residence, and the best friend is a stable income. A mortgage on a primary residence is actually the biggest luxury loan in life—the larger the amount, the more fragile your financial situation becomes, making it very difficult to get a loan for investment. A bad debt of 100 yuan per month reduces borrowing capacity by 25,000 yuan, whereas a monthly income increase of 100 yuan increases borrowing capacity by 6,000 yuan. The debt-income inequality shows that reducing debt is the most effective way to improve borrowing capacity. The 'debt-income inequality' is caused by banks requiring monthly debt to be less than 44% of monthly income. Increasing income not only incurs more taxes but is also less effective than reducing debt. It is recommended that all households prioritize early and accelerated repayment of their primary mortgage as their highest financial planning priority. For understanding the relationship between debt and income, it is recommended to reread: 'The Tricks of Real Estate Investment'; 'What Prevents You from Investing in Multiple Properties'; 'The Many Faces of Real Estate Investors'; 'Invest in Pre-Sale or Second-Hand Properties?'; 'The Most Important Things in Real Estate Investment'; 'Where to Start Real Estate Investment'; 'Politics and Economics in Real Estate Investment'; 'The Punishment of Impulse in Real Estate Transactions'; 'How to Calculate Real Estate Investment Returns'.

04 Characteristics of Urban Real Estate Investment

The characteristic of urban real estate is that people gather wealth, and the rich survive. The more expensive the city’s property prices and rents, the more it attracts new immigrants. The later stage of urbanization is the formation of large metropolitan areas, with medium and small cities migrating to mega-cities. All of the above characteristics are present in Toronto. The characteristics of Toronto's population and real estate, as well as the impact of loan policies and government regulatory policies, can be seen in the following articles: 'Is Real Estate the Watershed of Family Wealth?'; 'Toronto House Prices Took a Hit, Losing 1.35 Billion with 988 Transactions Affected'; 'Land Supply Determines Toronto House Prices'; 'Are High-Rises in the City Still Worth Investing In?'; 'Population and Housing in Canada'; 'Housing Conditions and Mortgage Solutions for the Elderly in Canada'; 'Types of Housing and Population Structure in Canada'; 'Greater Toronto Real Estate Big Data Analysis'; 'Who Misled Toronto House Prices'; 'When Toronto Meets Real Estate Investors'; 'The Reason Why Toronto House Prices Remain High Has Been Found'; 'Pros and Cons of Positive Cash Flow in Real Estate Investment'; 'How to Solve Toronto’s Rental Difficulties'; 'How Much Difference is There Between Renting and Buying?'.

05 How to Use Leverage

Friends who are interested in investing in multiple properties will find that the down payments for the first three investment properties come from their own savings, but starting from the fourth property, they can take out cash by refinancing their existing investment properties. The first three investment properties are like pushing a stone uphill; the subsequent properties are like pushing a stone downhill. At the top of the hill, you can do refinancing, and the bank provides the stones. To say goodbye to the Sisyphean way of living, you have to use the stones at the top of the hill, rather than always pushing stones up yourself. The bank's toolbox has plenty of tools to facilitate this, yet most people stop at three properties. Why is that? Look for the reasons in the 99 previous articles.

Further reading:

"Learning Real Estate Investment from Buffett"; "Clearing Up What Refinance Really Means"; "How to Solve Cash Flow and Liquidity Problems in Real Estate Investment"; "What Are the Characteristics of the Real Estate Cycle"; "Why Do House Prices Rise Fast but Fall Slowly"; "Attributes and Applications of HELOC"; "Treating the Bank as a Friend"; "Common Misunderstandings Among Chinese About Canadian Credit Records and Scores"; "Ten Tips for Mortgage Renewal"; "What to Pay Attention to When Buying Pre-Construction Properties"; "Is the Strict Mortgage Policy Worth Praising"; "How Mature Buyers Should View Mortgage Policies and Interest Rates"; "Four Basic Principles for Choosing Mortgage Rates".

06 How do you know when you are 'enlightened'?

Many people define 'enlightenment.' My favorite definition is by Eckhart Tolle, who said, 'Enlightenment means transcending thought.' Of course, the 'thought' here means your own thoughts. Transcending your own thoughts is basically impossible without external help. Tolle tells a story in *The Power of Now*: Once, a beggar had been sitting by the roadside for more than thirty years. One day, a stranger passed by. The beggar mechanically raised his old baseball cap and muttered, 'Give me something.' The stranger said, 'I have nothing to give you.' Then he asked, 'What are you sitting on?' The beggar replied, 'Nothing, just an old box. I've been sitting on it for as long as I can remember.' The stranger asked, 'Have you ever opened the box?' 'No,' the beggar said, 'what's the use? There's nothing inside.' The stranger insisted, 'Open the box and look.' Only then did the beggar try to open the box. Then something unexpected happened: the beggar was filled with surprise and ecstasy—inside the box was gold. Before I understood the point in *Rich Dad Poor Dad* that 'your home is not an asset,' I spent over 40 years as a beggar and now feel anxious when I see other beggars. If one day you tell your friend, 'You know? I used to think my home was an asset, but now I realize it is a liability,' at that very moment, your financial intelligence has self-enlightened. If you find your friends cannot understand you, tell the story I shared with you to the next beggar. A beggar cannot discover the box beneath him without the guidance of a stranger. Robert Kiyosaki was my stranger; I am your stranger; you might be the next beggar's stranger. Let wisdom and wealth be warmly passed between strangers, allowing more beggars in the world to discover the treasure beneath them as soon as possible.

Further reading: 'The Causes of Economic Recession and How to Respond'; 'How to Easily Have a Miserable Life'; 'Lack of Money and Following the Crowd Are Two Major Weaknesses'; 'Real and Fake Rich People'; 'Where to Start Investing'; 'Only Two Eggs, How to Put Them in Ten Baskets'; 'Can You Still Invest in Real Estate During an Economic Recession?'.

07 What happens after the 100th article is written?

The goal I set for myself is to write 100 articles for my public account, covering the basic principles of private economics related to debt, as well as in-depth knowledge of real estate investment. The next step is to focus on building a financial literacy book club local to Toronto. The aim is not to read a large number of books, but to thoroughly understand those wisdom classics that profoundly impact our current lives. Knowledge is the wealth left to us by our predecessors; how to apply it to the present, to life, and to guide our daily living and investments still requires us contemporary people to learn actively and apply it in practice.

I have my own political ideal: to help the first-generation Chinese immigrants ruthlessly exploit the weaknesses of capitalism so that more people can own multiple properties in Canada. There is a viewpoint in Adam Smith's *The Theory of Moral Sentiments*: in any country and society, no matter how civilized it becomes, there may be no distinction of skin color, but there will definitely be a gap between rich and poor; 'disdain the poor and love the rich' maintains all social hierarchies and orders. Thomas Sowell, in *A Brief History of African Americans*, provides a statistic: using the average American income of 100 as a benchmark, Chinese earn 112, while Black Americans earn 62. Even though the Black community demands high political rights, their economic income has not increased correspondingly. In Canada, democracy is sufficient, and the more wealth the better, because here too, people disdain the poor and love the rich.

Virtue is not left to stand alone; it is sure to have neighbors. Since its creation, this niche public account has had over 7,000 subscribers. In 2020, I will update it once every two weeks, focusing more energy on interactions in the financial literacy reading group. This reading group serves locals in Toronto who share my ideals, striving to take advantage of capitalism and determined to use financial leverage to hold multiple properties. The criteria for joining the reading group will be announced later.

This article is presented to everyone as a Christmas gift. 'Save it,' and use it as an index for previous articles. I wish all readers a Merry Christmas and a Happy New Year.

Red Rain

December 25, 2019