Historical article note: This article was originally published on 2019-03-21. 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.
After reading Teacher Wu Jun's "Insights," one sentence keeps popping up in my mind: 'A watermelon is 20,000 times the weight of a sesame seed.' Every time I see someone lose something big because of something small, this sentence automatically goes on loop. 'If I refinance my investment property, I can take out 150,000 in cash to use as a down payment to buy another investment property, but my original mortgage contract still has 2 years to go, and refinancing now incurs a 5,000 penalty. I’ll wait 2 more years to refinance.' One could have easily filled out two application forms and bought another investment property with zero down payment, but just because of this 5,000 yuan, they missed the opportunity. 'We’re self-employed, so you know our income. Do you think we can get a mortgage with a 35% down payment?' Low personal taxable income directly impacts mortgage borrowing capacity. Being self-employed is tough; working hours are even longer than those of regular employees. For a self-employed person, the simple question of whether it's faster to borrow money or save money is actually a tough problem. In Canada, 76% of wealth is in real estate, while cash + deposits + cars + stocks + bonds + commodities + antiques and paintings + etc. only make up 24%; about 45% of Canadian household wealth is in owner-occupied homes and investment properties, while the remaining 55% consists of liquid assets including corporate pensions. It should be natural to go where money is to earn money, and to go where wealth is to find wealth, yet most people insist on trying to pick up sesame seeds. Since the gold standard was abolished in 1971, the way to preserve the fruits of labor is, in other words, the 'brick standard.' 'Taking money in hand' is a term used in the A-shares market, while 'taking a brick in hand' is a universal method of asset preservation worldwide. People like Wu Jing, who bet their property on their careers, are only seen succeeding; as for others, well, both their property and career become silent evidence.
Teacher Wu Jun made a diagnosis for those who are willing to pick up sesame seeds all their lives: their aspirations are too low; they are used to mindlessly repeating simple tasks; they don't pick up sesame seeds when they see them, feeling that it is a loss; they lack the ability to pick up watermelons; and they have no respect for time. How to remedy this? The prescription is: raise your aspirations; challenge your cognitive boundaries, keep learning, and improve your ability to pick up watermelons; correct your evaluation system and establish the value that time is more important than money.
Raise your pursuits and adjust your financial goals for retirement to: a mortgage-free home to live in, 2 million in financial assets, not causing trouble for the government, the people, or your children, and handle your own retirement. Some financial advisors complain that 'everyone is spending their retirement money on buying homes.' Wealth is in real estate; if you don’t buy a house, what will you use to retire? If you don’t buy a house and invest the money in stocks, where will you live in the future? In Ontario, the average monthly rent for a standard senior apartment had already risen to 3,618 CAD in 2018, and senior apartments with Chinese services charge over 5,500 CAD per month. When a person gets old, without their own home, they simply can’t afford a retirement home relying on pension alone. If you own a house, by age 65, if you still have a mortgage, you will not be able to retire. The white-haired Walmart employees are a living example. Having 2 million in financial assets seems like a lot, but to keep the principal intact and withdraw 100,000 CAD annually from investment returns for living expenses is not easy; it still requires continuously learning financial wisdom to ensure that, when active income stops at retirement, there is enough passive income to maintain a decent life. Real estate investment can bring forward the retirement goal of a mortgage-free home plus 2 million in financial assets by 10 years. Adding an investment property, withdrawing cash for the down payment on the next investment property, buying another investment property with zero down payment, having tenants pay off the mortgage around the clock, accumulating property rights, laying bricks for security—how can a 5,000 CAD fine delay you for two years? When compared to a property, a 5,000 CAD fine is like comparing a watermelon to sesame seeds. A motivated young man in Toronto owned 10 properties at the age of 32, with a property market value of tens of millions. News reports stated that when he first bought a house, he lived in the basement and rented out the rooms above, which is the same as all the multi-property investors I have met: squeeze all your cash as a down payment, find every possible way to leverage, live like an ascetic, firmly believe that Toronto’s population will continuously grow and housing prices will keep rising, and the later generations have stronger financial capability and take real estate investment as a difficult journey in life. The ability to 'pick watermelons' is not innate; it is developed and honed through practice, obtained by delaying gratification. If you only eat snacks and watch TV all day, you will merely pick sesame seeds.
Feeling uncomfortable when seeing sesame seeds and not picking them up is a kind of illness that needs treatment. Canada is a country with direct taxation, where businesses are taxed very little on operations, and the tax burden falls on individuals, with progressive rates. China has indirect taxation, mainly levied on businesses, with low personal tax rates, which is effectively regressive. Many smart Chinese self-employed individuals and small business owners have noticed this feature and, to avoid taxes, leave the money earned in the company without paying it to themselves, or distribute income to family members, resulting in very low reported personal income. Banks assess a borrower's ability to repay based on personal taxable income, not gross income or corporate income. Paying an extra 4,000 yuan in taxes can allow borrowing an additional 50,000 yuan for a mortgage—this is the relationship between sesame seeds and watermelons. Canadians earn the most income between ages 37 and 53 over 16 years: buying a primary home, buying investment properties, adding mortgage to investment properties, and continuing to invest in real estate. This needs to be accomplished within this short 10-15 year period; after this period, there is basically no opportunity. Be strict with yourself, do not bother with small gains, and focus on major achievements. Some people who pick up sesame seeds even do so while consuming them, recording even the cost of milk purchased for home as company expenses; such people will never be able to stop picking up sesame seeds throughout their lives. Ninety percent of self-employed individuals or family-run small businesses cannot be sold or passed on, so it is recommended that small business owners or self-employed individuals, during their highest income years, increase their personal taxable income, leverage it, and invest in real estate for security. Real estate is the ultimate form of wealth—just look at Pingyao Ancient City and the Qiao Family Compound to understand.
For many people, retiring with financial freedom is a big deal. Once passive income replaces active income, a significant life milestone has been reached, regardless of age. It's worth sacrificing a little sesame for this watermelon. Here's an inspiring story: Couple A used 300,000 yuan of funds temporarily unused by domestic relatives to pay off their primary residence mortgage, freeing up their borrowing capacity. They then leveraged three investment properties, taking out 600,000 yuan in cash from the three properties, returning 300,000 yuan to their relatives and keeping 300,000 yuan for themselves. The cash flow from their other unleveraged investment properties could cover normal living expenses. The entire process took only three months, yet the result was milestone-worthy: the couple reached retirement ten years earlier than expected. There were friction costs such as penalties for paying off loans early, legal fees for leveraging, and the inability to deduct interest if the leveraged cash was used to pay off the primary mortgage... and so on, but in front of the watermelon of early retirement for couple A, these were just sesame seeds. Some people refuse to pay for a car wash and instead wash their own car with a hose because their hourly wage is 14.2 yuan, and washing one car costs 15 yuan, so it seems more cost-effective to spend an hour washing it themselves. This is a typical calculation of the poor. The wealthy calculation is: my current hourly wage is 14.2 yuan, but if I spend 15 yuan to hire someone to wash the car, I save an hour for learning. By improving myself, my hourly wage may rise to 30 yuan in the future, so it's worth spending money to buy time now. Only when a person realizes that time is the most valuable can they see the watermelon; otherwise, all they see are sesame seeds.
In the Records of the Grand Historian, Book of the Economic Worth, it says: Regarding wealth and poverty, no one can forcibly take it from you, and the skillful have abundance, while the clumsy have insufficiency. Wealth and poverty cannot be granted or taken away by external forces; only by actively striving oneself can one achieve prosperity. Those who are dull and unadaptable are always barely getting by, constantly busy, while the intelligent and clever always enjoy abundance. There was a poor man who went to God to complain that the rich were wealthy but unkind. God, according to the poor man's demand to beat up the rich, turned the rich into poor people and at the same time gave each of them a coal mine. The poor man, being healthy, dug a lot and quickly, earning more money than the rich and buying many good things for his wife and children; the rich worked slowly, and after earning money, were unwilling to spend it, hiring two strong men to help dig coal. In less than a week, the rich remained rich, and the poor remained poor. In this world, there are too many sesame seeds—busy picking and eating sesame, one cannot see the watermelon. Satisfied with a few fragrant sesame seeds in the mouth, one loses both the motivation and courage to pick watermelons.