Naked (uncovered ) puts are a useful way to earn some money with low risk if you intend to purchase the stock anyway and don’t need to get in immediately.

You are “naked” when you sell a put (the put guarantees you will buy X shares on contract at the strike price if exercised) without a corresponding short position in the stock.

This scenario is exposed to “risk” because if the stock drops below the strike price and the option is exercised you will be forced to buy the stock. Therefore you would have to lay out capital on a stock that has decreased in price and could be a dog.  If the company has a catastrophe you would be stuck with shares that may never recover. 

But what if you want to buy the stock anyway?  Then being forced to buy at a lower price might not be a “risk” after all.

So here’s the deal:

If you’ve found a stock you want to buy at its current price and have done all of your homework, consider selling a front month naked put at an out of the money strike price.

You will have the premium deposited into your account and you have essentially agreed to purchase the shares at the strike price if the option is exercised.

You already have the desire to buy the shares and wouldn’t mind getting them a little cheaper.

Most major Canadian discount brokers will not let you trade uncovered.  After looking around, TD Waterhouse and ETRADE are your best bets for the discount brokers.

Here is an example:

You like the proposed infrastructure spending that the US has pledged to undertake.  Steel will be a significant component of the spending and commodity prices might be poised for a rebound next year.  So you’re thinking Nucor Corp (NUE), Andrew provided an overview back when they were really booming,  which is currently trading at $39.19 with a 52 week high of around $83 and a low of $25.

The March $37.50 put has a price of $2.50. 

1)You sell 5 puts (Total Potential Purchase of 500 shares x $37.50 = $18750 if exercised) and pay associated commissions (ETRADE will be a max of $19.95 per order plus $1.75 per contract) of $28.74.

2)$1250 is deposited to your account (500 shares x $2.50)

3) Waiting game begins. Do your best not to check Yahoo Finance every 5 minutes.

4a)It is getting close to March 20 and the stock price has stayed steady around $40. The option will not be exercised and you keep your premium. 

4b)The stock drops to $35 and you are required to buy 500 shares at $37.50 on or around March 20.  Keep in mind that you have collected $2.50 per share in premiums and paid $37.50. So unless you spent the $1200 on a gold-plated iPhone, your cost basis is $35.  You have then bought the shares at market price after an 11% drop in the stock price over a month.  If you bought before the drop you are now down 11%.

5a)Repeat the next month until you get exercised and keep the premiums while you wait.

5b)Hold the stock as per your bullish take on steel and infrastructure and you have now bought Nucor for $35 when you were ready to buy at $39.19.

There’s no time like now to find some great stocks you wouldn’t mind buying for below current levels.  Consider naked puts as a way to get into those positions when Mr. Market permits and be paid to wait in the process.

Risks are present, but if you like a stock and are ready to buy at current levels, go naked and sit around for a while instead!

So by now everyone is asking how they can open a TFSA and every financial institution is loving the attention. However, there are some important things to note before opening up your account.  

• Some banks charge fees for account transactions while others do not 
• It is more than just a “Savings” account
• Know the rules regarding deposit and withdrawal
• Know the tax benefits to assist in the RSP / TFSA debate

In my previous post I discussed the greatness of the TFSA but lacked the operational details because it was only March 2008.Now that the banks are unveiling the full set of info, its time to dive in.

1. Fees

The major banks are offering these accounts with varying fee structures. The fees consist of an annual administration charge because of the record keeping and such required for reporting purposes. Withdrawal fees are triggered when you withdraw money from the account.

For GIC’s, Savings Accounts, and Mutual Fund activity only major banks will not charge you for administration or withdrawal. In fact TD Canada Trust branches are the only ones that have a free withdrawal limit (1 per month, $5 per withdrawal after that). TD Mutual Funds do not have a withdrawal limit however.

For Stocks and activity requiring use of a brokerage (full service or discount) at the major banks the fee structure changes for the worse.

No Fees at all:RBC Direct Investing, Scotia McLeod Direct Investing, and HSBC Invest Direct.

Some Fees:BMO InvestorLine is a discount brokerage and charges a withdrawal fee of $25 per transaction and an admin fee of $50.  The admin fee is waived for the first year of an account and/or if you have over $100,000 in assets with BMO.BMO Nesbitt Burns is a full service entity and has an annual admin fee of $50 and a $15 withdrawal fee. TD Waterhouse has a $50 annual admin fee, waived if you have over $100,000 in total assets. You can also eliminate fees at TD if you use the electronic statement option for your billing.

Verdict: Watch out for the fee structures especially if you don’t bank at a major institution.  These admin fees are equal to 1% of the annual contribution limit, which is kicking you while you’re down if you’re also invested in mutual funds (and paying MERs). Ask about the fees and if you’re not happy go somewhere else.  It is easy to open up the accounts and transfer money, so this is no time for loyalty in the face of high fees!

2. Investment Options 

The name Tax Free Savings Account is being taken too literally.  Looking at CIBC offering the wonders of a “Tax Advantage Savings Account” with “a guaranteed high interest rate tax free” sounds like a dream doesn’t it! The truth is that banks are pushing high interest savings accounts and GIC’s really hard for the TFSA accounts (can’t blame them because they’re attractive in today’s market).  Some offer different accounts altogether depending on what you want. However, you can invest in the same things as your RSP. Tim Cestnick, who writes for the Globe, offers a great outline of the more specific ones outside of funds, bonds, and stocks. For instance, you can hold options, shorts, and private company shares (this one is detailed further by Tim).  The highest taxed forms of investment income are a sure bet to go into your TFSA. These include interest generating investments, foreign dividends, and options and shorts whose gains may be treated as regular income. 

3. Deposit and Withdrawal  

It looks like you can deposit up to $5000 per year, yeah, “we knew that already”. But many banks are offering a monthly contribution plan, so it appears that you can contribute at any frequency until you reach the $5000.

Withdrawal is the same.  You can withdraw money at any time. Money taken out of your TFSA frees up that amount of “room” so it can be put back in later. 

Example: You deposit $5000 on Jan 15, 2009.  You withdraw $1000 in Dec, 2009.  You now have $1000 of cap room you can use in 2010 on top of the $5000 annual limit.  So you would now be able to put $6000 in during 2010.

4. Tax benefits

 This is a critical factor.  The decision of RSP / TFSA, if you have to decide, comes down to what you predict your income tax rate will be upon retirement.  Because your RSP money is taxed at retirement age, it is most advantageous to contribute now if you think your annual income will be lower than your current level.

If you expect your annual income to be higher than current levels, the TFSA offers an advantage. You would be giving up the tax benefit of the RSP now and putting the money into your TFSA.  Upon retirement, you could withdraw from the TFSA tax free and at a higher marginal tax rate this represents substantial savings.  In this situation, if you had your money in an RSP, the annual withdrawal would be taxed at the full marginal rate.

In the event that you can maximize both TFSA and RSP contributions, by all means.

If you’re unsure about your future tax situation, it might be best to straddle the line and put a similar amount in your TFSA and RSP. Tim Cestnick provides a similar, yet more detailed, analysis.

Overall, the TFSA presents a new investment opportunity with substantial benefits.  Just make sure you ask a few questions before you open one.

Well, I must admit that I’ve not been making adequate time for FDF lately as a combination of travel and settling in from a move are my best excuses.  A ton has happened since I was last writing about Real Estate comparisons and getting into detail regarding a few stocks.

Most recently, I had an article in the pipeline on Labrador Iron Ore (LIF.UN) because a major expansion of the Iron Ore Company of Canada (of which LIF owns 15.1%) was announced in September.  The USD exchange rate was also turning in their favour amounting to a great buying opportunity at $45 a share.  During the process of researching and analyzing future cash flows for LIF, iron ore prices promptly shrunk with the commodity slide.

Now trading at $19.32 as of Dec 9 they don’t seem like such a great deal in the short term as IOC has just announced major scalebacks in production which will hamper distributions.

With the new information, I have to do more investigation into the potential of ore prices to recover (some say by 2010 when China gets back on track) because there is a lot of guessing going on.

I do think there are some great long term buys out there and will be looking to sniff some out over the next quarter.

I am also interested in the direction of the real estate market, especially in Southwestern Ontario.  Data keeps suggesting that sales are down and we are moving into a buyer’s market.  I have been looking at some properties in Waterloo that are cheaper than ever and have excellent cap rates (near 8.5%).  Given the direction of interest rates as well, this could be a great time to go shopping.

The wonders of Small Claims Court have been taking up a chunk of time also.  After a terrible group of tenants, I have a substantial amount in damages that need to be recovered.  I find this process both intimidating and chock full of learning opportunities. I will be keeping you posted on the process to give some insight and so you can learn from my experience.

Andrew has also been a busy man over the last 4 months and is taking in the entertainment (aka volatility) of the markets like most of us.

So bottom line, we’re back and ready to go. Look for continued writing on our activities and the lessons that can be had!

Jeff McLarty from the financial blog Blue Moat was nice enough to write a post on his site answering some of my options related questions that have come about regarding some of the recent posts on this site. Anyone interested in understanding the nitty gritty of options trading should check it out. He explains in depth the terminology and fundamentals behind both sides of an options trade (puts and calls), as well as the possible scenarios at expiration. Also, if you’ve never visited his site before you should give it a read. Its one of this sites that I visit regularly. He’s a fellow Waterloo alum, so you know that he’s good people.

One specific question that I had was related to the covered calls strategy that I wrote about recently. My understanding was that the only way to exit the contract was to let the options expire (ideally worthless so you keep your shares and the premium). However, Jeff left a comment on the post saying that another way to exit the trade is to buy the calls back. As the calls near expiration the options become less valuable and, as a result, the premium will decrease in value (this illustrate the time value of options). Therefore, your profit will be the difference between the premium you collected and the premium you pay to buy back the calls. Typically he buys the calls back when they are very close to worthless. Why risk losing the potential upside in the stock for an extra $0.05 per share. He almost always sells the front one or two months, usually one or two strikes out of the money. Of course there is the risk of losing your shares with this strategy but the idea is to sell the calls at local peaks where, if the stock does hit the strike you wouldn’t mind taking the profit and selling your shares anyway. Plus you are pulling in the premium every month that options expire worthless. The ideal stock for this strategy would be a slow moving stallwart that trades in a well defined range so you can easily identify the sell points (the local peaks).

Thanks again to Jeff from Blue Moat for sharing his expertise with us and answering some of my questions.

I’m always interested in new equipment that is cost-effective (provide a decent payback period) and better for the environment. Let’s face it, most of us will talk the green stuff until we’re blue in the face but won’t adopt until it actually impacts our pocketbook. There has been plenty of research to back up this claim but we are finally starting to see some great products that you can feel good about buying.

Not exactly the most glorious piece of equipment, but we all have a water heater. Until recently, I didn’t think much of a water heater because they haven’t changed a bit. Until now!

I’ve discovered the tankless water heater and pretty soon we’ll all have them in our homes and cottages. These save money and space and last twice as long as tank models. In North America, these things haven’t been overly important until now. However, it appears tankless water heaters have been used in Europe and Asia since the Second World War.

Here’s the old water heater (left) beside a tankless model:

Many companies with solid reputations such as Bosch are producing these water heaters. They are also being sold by the likes of Home Depot. The residential market is great for these products because you can literally walk into the store and order them like a cup of coffee. If you are a commercial customer requiring larger units, often they are not stocked by most retailers. In that case, you’ll be searching the net to look for someone to serve you or you can ask your local HVAC outfit. I don’t have any good references, so I would just be giving you the results of a Google search if I linked anything.

So, these new gadgets save some space right? I can hear you saying “I’m not sold yet”. How do lower energy (gas / hydro) bills sound? How about a longer operating life?

Here’s some details to back it up.

Heating water consumes an average of 30% of our total energy bills.

Moving to gas will incur higher capital costs, but operating costs will be reduced by 50% compared to electric models. This principle applies for tank and tankless models.

Tankless water heaters use a minimum of 20% (up to 40% depending on usage, high usage will save more) less energy for gas-gas / electric-electric comparisons. When you start to look at changing from an electric tank to a gas tankless the operating cost savings can be as high as 60%! Keep in mind that it is difficult to obtain accurate numbers because most of the people providing them sell tankless water heaters. Consumer Reports is a good source for reviews on most products, but they only have two related articles with limited detail.

I have summarized some of the best info I could find in the table below:

As you can see, capital costs are higher but operating costs are lower for tankless models. After you factor in the extended life of the tankless versions (and calculate the actual capital cost / year of operating life) payback periods shrink to less than 1 year for gas and electric. If you won’t be owning the model for its entire operating life, the payback scenario changes. For a gas tankless vs. tank comparison you would get your money back after 11 years. Electric tankless vs. tank will get your money back in less than 3 years.

The length of time you plan to use the water heater will obviously influence your decision in the above cases.

Bottom Line: If you plan to stay in your house for a while go gas tankless. Even though the payback versus gas tank would take 11 years, compared to either electric model you’re still way ahead.

If you have installed a tankless system I would appreciate some feedback on the ease of installation and whether the promised savings have materialized for you.

You may have heard about the good news handed down in the recent federal budget by Finance Minister Jim Flaherty regarding a tax-free savings account.

This is good news by the way! Big business was looking for more, but a tax free savings account was long overdue considering the US has had the Roth IRA since 1998. Many other good ideas have been published in recent editorials, but most of these debate the merits of this program relative to other options. This minimizes the importance of putting something in place to shelter gains for the average Canadian and generate more action from the retail investor.

The new Tax Free Savings Account (TFSA) differs from a Roth IRA in the following ways:

1) Roth IRA withdrawals are tax free once you turn 59.5 years old and you have had the account open for 5 years. The TFSA provides full flexibility to withdraw and contribute, at any age, in any amount.
2) Annual contribution limits for the TFSA do not depend on age, whereas the Roth has higher limits for those 50 and over.

Here are more details on the TFSA as they apply to Canadian citizens:

• Canadians 18 and older can contribute a maximum of $5000 per year.
• Contributions are not deductible for income tax purposes, however, all capital gains and investment income earned in the TFSA are NOT TAXED.
• Unused room can be used in the future. For example, if you contribute $2000 in one year, you then have $3000 of room that can be used in any future year. The next year you could put in $8000 if you wanted.
• Funds can be withdrawn and put back in at any time without affecting your contribution limit.
• You are allowed to contribute to a spousal TFSA.

Okay, the verbiage is officially over. What does all of this mean? Who does this account favour?

This means we now have polar opposite investment vehicles, as seen in the diagram below:

In terms of who will get the maximum absolute benefit, it will be those in the highest tax bracket. This is because their personal tax rates are highest (as high as 46.1%), so they would be saving the most with a tax free account.• Investments with interest income are taxed at the maximum rate (your personal income tax rate). Interest income can come from GIC’s, bonds, high interest savings accounts, and private loans. Some income trusts classify part of their distribution as interest income and part as a dividend.

• Dividends received from foreign companies are taxed at 100% of their value rather than being grossed up by 45% and then subtracting a federal and provincial dividend tax credit. Therefore, foreign dividends are also some of the highest taxed investment products.

A TFSA offers greater savings for these investments because you pay a higher tax rate and would therefore have greater savings.

In terms of relative tax savings, it would be useful for everyone to put their investments that incur the highest level of tax in their TFSA. However, the analysis is complicated by the fact that one would contribute to both the TFSA and RRSP.

Anything you put into your RRSP will be taxed at your personal rate when you withdraw. This means capital gains, dividends, and interest income will all be treated the same upon withdrawal. Therefore, if you are choosing between putting something into your RRSP and your TFSA, it doesn’t make much difference what the taxation rates are on the investment types. It then becomes a decision of whether you want the tax savings now or later and if you have enough to maximize both accounts.

Small Business Owners: Here’s a little tidbit to leave you with. If you’re the owner of a small business and you’re paying yourself a dividend, not a salary, to keep your tax payments down, you won’t build up RRSP contribution room (because it is based on earned income). This means your RRSP contribution room will be small or non-existent and the TFSA could then be your only option.

I’m still learning more about the best strategy for the TFSA versus RRSP if you plan to contribute to both. Look for more on this topic from the major Canadian business magazines and us at FDF.

Here are magazines I have perused over the years.

My sophisticated, scientific, highly objective rating scale is as follows:
Total Green Light Special: This is a must have, no excuses for missing this one!
Worth every penny: Well said
Comes in Handy: You will find some important info, a little junk.
Rarely Useful: Mostly junk, contains minimal content worth remembering.
Dumb and Dumber: Like Billy Madison before them, everyone in the room is now dumber for having (read) it. If you rely on this stuff you better be lucky!

The Economist
Key Benefit: You can schmooze with any world leader or billionaire after 2 issues! Outlined in a concise format with loads of charts and data that provides a foundation for further research into whatever sparks your interest.
Content: Current events, politics, strong global exposure relative to other magazines.
Price: $140 CAD for 51 weekly issues
Justin’s Vote: Total Green Light Special

Maclean’s
Key Benefit: Keeps you updated on all Canadian pop culture and political news. There is usually 1 or 2 unique stories that grab your attention such as “Suddenly Teen Pregnancy is Cool” on Jan 28/08 released after the movie “Juno”. Very heavy on Canadian politics. The most interesting global issues are covered better in magazines like The Economist.
Content: Canadian politics, current events (mostly Canadian)
Price: 30 issues for $19.95 CAD
Justin’s Vote: Rarely useful

The Walrus
Key Benefit: A Canadian gem that covers issues with high quality writing and unheard of depth. The feature article usually focuses on a piece of Canadiana that hasn’t been covered in a while or isn’t the new “hot topic”.  You’re also bound to find some great articles on environmental issues and specific global interest pieces. This magazine allows you to actually converse with someone on a topic after reading a Walrus article about it. The same can’t be said for a lot of other general interest mags.
Content: Canadian, environmental, and global issues.
Price: 10 issues (1 year) can be had for $29.75
Justin’s Vote: Worth Every Penny

Money Sense
Key Benefit: Sorry, I blanked out here. If you don’t want to be bombarded by the buy mutual funds, diversify, and wait approach, don’t even touch this mag. Articles don’t even attempt to address any complicated financial or investment concepts. Instead you might find out which MP3 player is the next best thing to an I-Pod. I’m not sure where Money Sense begins and Consumer Reports ends.
Content: Insurance, RRSP’s, Mutual Funds, etc…
Price: Doesn’t matter
Justin’s Vote: Dumb and Dumber, this thing is like kryptonite for active, sophisticated investors.

Report on Business
Key Benefit: Reading this gives insight into happenings and personalities behind the best of Canadian business. You’ll get your Canadian Business 101 from ROB and enjoy every minute of it. There are always a few interviews with leaders that are not total PR jobs and provide insight into decisions and performance.
Content: Canadian business, business leaders, investing tips, market commentary.
Price: $31.85 a month to get the Globe and Mail. ROB will come each month with the subscription. Think of it as the cherry on top.
Justin’s Vote: Comes in Handy

Conde Naste Portfolio
Key Benefit: Coverage of American business issues that is anything but dry. Throw in a bit of fashion and travel and you have a magazine that is readable from cover to cover. This is the best for a long plane ride or sunny day sitting on the porch.
Content: American business, finance, some general interest
Price: 1 year (12 issues) will cost you $12 USD.
Justin’s Vote: Worth Every Penny considering the low price.

These magazines, except for The Economist, tend to be popular in the Air Canada Maple Leaf Lounges.  I’ll admit I don’t seek to try a ton of magazines, so if there are some better business mags out there let me know.

While I don’t pretend to be a legendary landlord competing with the likes of……..I can’t really name a famous one………..I do think I have a lot of common sense and a passion for improving my skills.

After posting an ad on craigslist for my rental property in November, I received many responses. One response was from a girl named Joan B. She was from London, UK and wanted to rent a room starting Jan 1. Her email was joan_godisgood@gmail.com.

She was apparently a Masters Accounting student. This all sounded fine to me, so when I asked her for more information, like her date of arrival, student number, etc. I didn’t get any response. She would just reply back with more requests of where to send a cheque to.

Here are the messages:

#1
Hello,
Hope you are doing great?
I m interested in your Ad,i m pleased with every stuff stated about the unit on the website.Kindly get back to me if you have the place available for rent and you.Wishing Merry christmas and new year in advance.
Cheers

#2
I m still in London,UK,i want to secure the unit before my arrival.Thanks

#3
Email me the name,address and phone number for the rent deposit.Thanks

#4
How are you and your family out there,i hope God is taking control in and off the home.
I really appreciate your effort and love for me.I m glad you will be renting the unit to me.I can move in immediately i m in town.I will be arriving on the 20 of January.You will enjoy every minute with me in and off the home.Wishing for more understanding in the future.I will email you the date and time of arrival when confirmed.Thanks
Joan

As you can see these emails keep getting more unsettling. But I thought ‘she’s a little different’, and so in an effort not to judge, I responded politely.

#5
I want to confirm if you have receivedmy rent money yet?

#6
How are you and your family?
I m sorry for not getting intouch with you for a while,i have been busy with my project,i need to get some stuff done before coming over,my dad company accountant have send you a posted check(Jan 4th 08) she sent you the money via post,you dont have any rent to lose holding the unit for me even i m not in town yet.My rent have started already.I will email you my date and time of arrival when it is confirmed.Can you pick me up at the airport?
See you soon.God Bless.
Cheers
Joan

#7
Please update me about my rent payment,i m worried.

#8
How are youdoing?i guess all is well?It is great relief for me that you got the payment.we can now be ready to meet in a few days which i am really longing for,i will be submiting my project today,i will be arriving on Friday…i only got to know now that there was a mistake with the amount of money sent to you by my Dad’s accountant (Miss comfort)instead of sending you the first and last month rent as the deposit,she went ahead to send you both the rent deposit and my flight ticket….hence this is where i ll need your help ..please i ll need you to kindly create time to kindly send back the flight fares on $2000 to the travelling agent handling my flight in London by western union,this is her information that you ll be using and you ll be taking $100 as well for the wastern union charges
NAME:-DYCZKOWSKA GABRIELA
ADDRESS:- 50 ARUNDEL CLOSE,STRATFORD LONDON.E15 1UH, UK
Do let me have the details(mtcn number and actual amount wire) as soon as its done..and by the way is there any chance you can pick me up at the airport as soon as i have the date and time for arrival..?…
thanks so much for everything and extend my greetings to everyone…
take care and God Bless as i expect to read from you.
Joan

#9
How are you and your family? I hope you are fine?Thanks for every thing you have done for Joan,i really appreciate all effort and love.I instructed the company accountant on phone to send you rent deposit since i m still in oversea working for my company branch and 2000 canadian dollars for Joan’s Ticket and Travelling Expenses.The accountant made a mistake sending all my wages.It is very unfortunate i dont have much on me now,i have just paid for my bills,accommodation and mortagages .So can’t get Joan’s flight bookings done, reason i have given her most money with me in form of money order (Cashable in US or Canada only)for the things she will be needing as soon as she comes over there,she will be paying you on the first day of every month in cash or paying you the whole rent depending on how you want it,you will also be helping her to open a bank account on arrival. You will need to send the travelling agent 2000 canadian dollars through western union to get Joan’s Tickect And 75 to 100 canadian dollars for the western union charges.The agent accept money order or western union but western union is prefer,it is fast,relaible and convenience I will be given you her flight details so that you or your flatmate can pick her from the Airport,if this wont be conveinent for both of you.She can take a taxi or cab to the house.This is the travelling agent information below.
NAME: DYCZKOWSKA GABRIELA
ADDRESS: 50 ARUNDEL CLOSE
CITY:STRATFORD
STATE:LONDON
ZIPCODE:E15 1UH
COUNTRY:ENGLAND
You can locate the nearest western union location near at
www.westernunion.com
Click on agent location,fill in your address and submit,it will give you all the location near you.
Email the mtcn/control number and the actual amount you send after the transaction at western union.Please take care of her when she is around,you can show her around the town,ok,you will enjoy every minute with her.She is lovely and caring,she even bought you a gift(wrist watch ) from London which you will appreciate.Wishing for more understanding in the future.God Bless.
Scott

In case you were wondering, Scott is her father…………

Well, overall a very convincing story. She did actually send me a counterfeit CIBC money order in the amount of $4750 CAD. The money order is counterfeit, but I didn’t know by looking at it. It wasn’t until it was brought into the bank that it’s lack of validity was certified. There were a number of details that didn’t match up so I had no intention of ever sending any money.

So, let’s do the math on this story.

Total Amount Owing: $1080
Total Amount of Money Order: $4750
Over Payment = $4750 – $1080 = $3670
Amount of Flight Ticket = $2000 How many flights are exactly $2000?
Excess Funds = $1670 What was this going to be used for?

Overall, the numbers don’t work and didn’t fool me. Unfortunately, many people have been fooled by this scam even though the numbers don’t work. Luckily they screwed up this part big time and it set off alarm bells for me.

Though I had no intention of sending any money, I was duped into taking her seriously as a potential tenant. For that, I definitely made a rookie mistake. After looking on craigslist there are clear warnings about this scam. On Bigger Pockets.com, a great site for networking and discussion of real estate topics, there are some great posts about this. The schemes vary from the god-loving accounting student to the PhD Chemist with a penchant for world salvation.

Here’s another interesting account of the scam:
http://forums.biggerpockets.com/viewtopic.php?t=15626

Many people have fallen for this scam and it is unfortunate. However, I believe that most landlords are savvy enough to smell this one from the beginning. Hopefully this story will educate you enough to avoid reserving a room for someone like I did.

Off to find a resident for Joan B’s room…………………….

I am always curious whether people really know what their strengths and weaknesses are.  I’m sure most people do, but there are a few that highlight the importance of knowing them.

The thought first occurred to me as I was watching an episode of Restaurant Makeover. The restaurant had been losing money since it opened despite a fabulous location, building, and an owner that thought he was the best in the world. Something was missing here. After a short time, the host figured out the problem, the food was awful!

The food was awful, but the owner hadn’t considered changing it because he “didn’t want to lose his current customers” that were not enough to run a profitable business in the first place. The show categorized this as the owner’s fear of failure because he didn’t want to lose what he had. Although this may be valid, I was interested in the idea that the owner was not a chef and didn’t know much about menu selection or design.  This was his big weakness.

A key point was that the owner knew how to renovate a building to make it look great. He knew how to go over to patrons and ask them how their meal was and how to walk, talk, and act like an owner.

Anything he didn’t know how to do (food) was done poorly because he didn’t relinquish control of the menu to the chef (who had a strength in that area).

Lesson: If you want to be a manager / leader / owner, you can’t avoid your weaknesses and have success. If you have weaknesses, team up or work with someone that has complementary strengths. For example, if you plan to start a company and know nothing about accounting or legal issues that affect your business you’re going to need a really good accountant and lawyer.

How can one ensure that they don’t turn out like Mr. Restaurant Makeover?  Try a reasonably objective method of comparing your skills to those required for success.  The method below has been useful to me.

Step 1: Assess the skills required to succeed in your chosen endeavour. List these skills with as much detail as possible.

Step 2: For each skill identified, write your level of competence from 1-5 with 5 being Sophisticated.

Step 3: Next to the numbers in step 2, record the competence rating required to achieve your goal. E.g Driving on an empty highway at 40 km/h requires a lower skill level to get to your destination than driving at 140 km/h in thick traffic.

Step 4: Calculate the following to obtain your skill gap:
Skill Gap = Skill Requirement Rating – Personal Skill Rating

Do this for each skill.

Step 5: For every skill gap greater than 0, clearly explain how you plan to address the gap. You can team up with someone else, educate yourself further, or be creative.

This is a useful, non-emotional way to evaluate what will be required to achieve your goal. Further steps will be involved in the execution of activities, but doing an assessment ahead of time will allow you to set realistic time targets.

It can assist in getting started or monitoring your progress every couple of months.I plan to complete a more detailed version for each area I want to achieve success.

I’ll let you know how it goes. Let me know if the skill gap helps you out!