Introducing The Financial Uproar Don’t Crap Where You Eat Rule

Introducing The Financial Uproar Don’t Crap Where You Eat Rule

That’s just gross, Nelson. What a terrible mental image. 

Welcome back, Italics Man. Have I ever mentioned nobody likes you?

Once or twice, yes.

Oh, you’re still here?

There’s no time to waste with more terrible Italics Man jokes, dammit. We have important personal finance issues to discuss, dammit. And then you’re all free to go for pizza, dammit. That last dammit was stretching things a little, but I just can’t help it, dammit. I love the word dammit so much.


I’m sure I’ve mentioned it before, but here’s the Financial Uproar Don’t Crap Where You Eat Rule in a nutshell. If you’re lucky, your employer will offer you the chance to invest in their stock, usually at a nice discount. See, your boss cares!

Many people take advantage of this perk and buy every spare share they can get their hands on. This is a bad strategy, especially if someone doesn’t have much in the way of other assets. Putting all of your eggs in one basket is a bad thing. If the stock falls, your entire net worth goes with it.

But it could get potentially worse. If the stock falls and you lose your job, you’re doubly screwed. Don’t listen to what porn has told you about getting doubly screwed. It sucks. She’s not enjoying herself, fellas.

That’s the Financial Uproar Don’t Crap Where You Eat Rule. Spread your bets, especially when you don’t have that much cash to begin with.

Exceptions to the rule

The rule is a little tricky because there are certain acceptable ways to get around it.

Only a maroon passes up the chance to get succulent guaranteed returns. Sure, buying stock at a 25% discount is hardly guaranteed to lead to riches, but in general you’re not going to screw up too badly by taking advantage of an employer match. Buying assets at firesale prices is a good thing.

So what’s an enterprising young person to do? It’s simple. Take the match and diversify out the stock over time. Cycle money out of the investment into a boring ol’ index fund periodically. You can either do so when the stock bumps against new highs, or create a set schedule to accomplish the same thing. If you pledge to sell some of your stock on each December 1st, for example, it’ll take the market timing aspect out of it. And lord know, y’all suck at market timing. Except me, of course.

Frankly, this part of the Don’t Crap Where You Eat Rule is child’s play. Most everybody with functioning grey matter knows this. Which is why we’re going to kick it up a notch.

Extending the rule

Let’s take this rule a step further. Here’s why you should avoid investing in the same sector as your job.

Often, a stock goes down because of management ineptitude. Some wannabe Steve Jobs bets the future on some new finangled gadget and the whole thing goes down the toilet. And then he gets fired and collects a massive payday while heading out the door. Isn’t capitalism fun, kids?

But perhaps more often a company’s stock price isn’t necessarily in their control. Your company might depend on debt to expand operations. Rates go up and the stock gets hit. Competitors also feel the pinch, so their stock reacts accordingly.

Knowing this, does it make sense to invest in the same sector? Probably not.

Then there’s my specific example. I work at a grocery store, which I will readily admit it a pretty crummy business. Competition is high, margins are low, and there’s a huge amount of operating leverage. It costs a lot of money to keep the lights on and the freezers working. I should avoid the retail sector when investing (which is my Kryptonite, but I am getting better) and focus on better quality companies.

So to wrap this up, embrace the favor your employer gives you and buy their stock at a discount. Just make sure you keep such a position on the small side and diversify greatly. The only thing that sucks more than losing your job and all your savings is that one man show I went to put on by Italics Man.

Pizza Pizza: What I Would Do Differently With My Largest Holding

Pizza Pizza: What I Would Do Differently With My Largest Holding

The year was 2015, and it was a simpler time. Donald Trump was only pondering a run for President, content in knowing he would never emerge victorious from such a quest. 96% of today’s stupid memes didn’t exist. The Chicago Cubs were still hapless losers.

And your trusted author was buying up Pizza Pizza (TSX:PZA) shares.

There were a number of things I liked about the stock. The company had big plans to expand into other provinces — particularly Quebec and Manitoba — building on its dominant market share in Ontario. Alberta’s economy was expected to recover, which would provide a nice boost to the company’s Pizza 73 chain there. The valuation was decent (I paid around 15x earnings) and the stock sported a succulent 6% dividend yield.

There’s a lot to like about the royalty trust business, too. Essentially, public investors own about 20% of Pizza Pizza, but in a separate company. The parent deals with all the expenses, the advertising, and so on. The royalty trust has virtually zero expenses (other than interest, taxes, and the ongoing cost of being a publicly-traded company), as well as a dependable source of revenue (a portion of top-line sales). This leads to terrific profit margins, dependable growth, and the ability to pay generous dividends.

So I loaded up, buying aggressively in the $13.50 range. The position eventually became about 10% of my portfolio.

At first, this looked like a terrific investment. Shares would eventually peak at $18 each in mid-2017 before falling. As I type this, Pizza Pizza shares trade hands for $14.25 each. Including dividends, this is a return of about 7% a year over 2.5 years. The TSX Composite Index rose about 4% a year during that time.

Although the result hasn’t been a disaster, I thought I’d revisit the decision. And I decided I’d do things a little differently. Here’s what I’d do.

Spread your bets, yo

Choosing between a diverse portfolio filled with many different stocks or having big positions in a few securities comes with a number of trade-offs.

Taking a big position in a stock works out if the thesis is correct. And what’s the point in researching if you’re not going to have confidence in your results?

But at the same time, diversification has obvious benefits, especially if you’re a bit of a wuss. If you happen to be wrong, you’ll protect more of your net worth. And if you’re buying a stock like Pizza Pizza primarily for the dividend income, then it’s easy to argue for diversification. More sources of income will protect you from a dividend cut.

Let’s look at how Pizza Pizza has performed versus some of its peers. This chart shows the share price performance of Pizza Pizza, A&W, Boston Pizza, and the Keg, since mid-2015 until today.

royalty trust performance

The correlation is interesting, but probably not that surprising. After all, these royalty trusts basically follow one of two factors — interest rates and same store sales. A&W had stellar results in 2016 and early 2017, which lead to it’s outsized performance. Results returned to normal lately, which is why the stock has fallen so much.

If I would have split my Pizza Pizza investment into four different stocks I would have given myself a comparable income stream while hedging my bets away from one company. I would have been free to sell A&W during its outperformance, or I could have just let it ride. But diversification would have given me more options.

The bottom line 

I don’t regret my Pizza Pizza decision, and I’m happy to hold the stock. The company has upped its payout three times since I bought it, bringing my yield on cost up to close to 7%. I know yield on cost isn’t the best metric, but dividend growth is always nice.

But in the future, I’ll be hedging my bets by putting some money to work in Canada’s other royalty trusts. These are good businesses, companies I plan to hold for a very long time. They have the potential to be the bedrock of a good income portfolio, something which appeals to me more and more as I get older.

Should I Convert My Garage Into an AirBnb Place?

Should I Convert My Garage Into an AirBnb Place?

Ah, AirBnb. Because apparently you kids are too good for hotel rooms now. God I hate you so much.

There are a number of advantages to staying in someone’s place. If you’re traveling with your annoying mother-in-law, at least she gets her own room in an apartment. In theory, having a kitchen will save you money versus eating out (but in reality you’ll just throw up your hands and go to Wendy’s because vacation). Somebody’s place will often be cheaper and quieter than a comparable hotel room, too.

Converting space into a short-term rental is also a fantastic way for the average Joe to make a few extra bucks. Some of us are quite willing to temporarily share our extra bedroom with a stranger in exchange for money. Others take it a step further and will rent out their whole place, temporarily relocating so nomads from Australia have a place to smoke a literal shit-ton of weed eat their Vegemite. And then that stuff gets stuck in the couch cushions.

The Australians are the worst people on the planet. You can quote me on that.

I’m probably not willing to go that far, even though I could easily rent out my place by the night and crash in my parents’ basement. But I have been tossing around the idea of converting an unused garage into an AirBnb rental.

The deets

So I’ve got this garage, which is approximately 15 feet by 15 feet. It has power but it’s unheated. It’s located on the back of my property, and it’s currently being used to house yard tools and some other miscellaneous crap. I don’t park in the garage because there’s no automatic garage door opener and I’m too lazy to get out of my car and open the thing, especially in the winter. So I park on the street like a hobo.

I have two conversion options. The first is to turn it into a big bedroom without a bathroom, allowing people to come inside the house to empty their bladder. This obviously isn’t ideal, but it’s definitely the cheaper option. The more permanent solution is to put a bathroom inside the new unit.

The cost difference between the two options is massive. To convert my garage into a big room could be done as cheaply as $5,000, assuming I did a bunch of the work myself. I’ve been told $10,000 is a more realistic number, but let’s be conservative and say it would set me back $15,000 to do the cosmetic changes needed.

Compare that to putting in a bathroom. No garage I’ve ever been in has built-in plumbing, which means you have to create it. This involves removing some of the concrete floor in the garage and putting in pipes. Then you need hook up the plumbing to the main water line.

I’m relatively lucky; the water and sewer lines to my house run in from the back alley. They’re about 10 feet away from the garage. This makes connecting to them much easier than if they came in from the main street in the front of the property.

Still, this won’t be cheap. By the time it’s all said and done, I’d probably be looking at an initial investment of $40,000. And that’s assuming I could get permission from the local government in the first place. That’s hardly a slam dunk.

Return potential

The good news is most of the costs would be borne up front. Additional utility costs would be $200 per month, maximum. Since short-term rentals are a labor-intensive business, we’re looking for a better return in exchange for our time.

My town does a brisk tourist business in the summer. Approximately half a million people visit annually, with the majority of those visits coming between the Victoria Day and Labor Day long weekends. Hotels have close to 100% occupancy during those months with the average room costing between $150 and $200.

Say I priced my rental on the low end of that range and got 80% occupancy during those 3.5 months. 110 days at 80% occupancy times $150 a night gives us revenue of $13,200 annually without doing any work at all during the winter months. If I could rent the place out a third of the time for the remaining 250 days a year and earn just $100 a night doing so, this would create an additional $8,250 in revenue.

All-in the unit would generate $21,450 in top line sales. I’m going to assume $5,000 a year in expenses, which I think is a little high, but whatevs. This leaves us with $16,450 in profit before taxes, a return on investment of 41.13%

Oh baby. I’m a little bit hard right now, guys.

Will I do it?

At this point, no. Both me and Vanessa have full-time jobs, and although cleaning up the unit wouldn’t be a terrible burden we’d still have to use some of our precious time to do so. I’m more interested in passive sources of income at this point.

But it’s a terrific idea for somebody who has a little more time on their hands. And the best part? You don’t even need $40,000 to get started. Tune in next week and I’ll show you how you can get your own AirBnb business up and going for a fraction of the cost.

Leverage Your Family and Get Rich in the Process

Leverage Your Family and Get Rich in the Process

I’m currently slogging my way through Anthony Bianco’s 700-plus page book on the Reichmann family titled Family, Faith, and Fortune, The Empire of Olympia and York. There’s no affiliate link there because while the book is hella interesting, I certainly could have done without the 200 pages detailing every detail about the family’s Jewish heritage. We get it, you’re through, and they’re Jewish. Holy hell, are they Jewish.

Essentially, the story of Olympia and York goes something like this. Jewish family displaced by World War 2 comes to Canada and starts to get involved in real estate. Within a few decades they’re the largest property developers in North America, building some of the most iconic office spaces in the world — including First Canadian Place in Toronto and Canary Wharf in London.

The Reichmann family was incredibly close-knit. Three of the five brothers lived within a five minute drive of their parents in Toronto. Most every night the Toronto side of the family would end up in Samuel Reichmann’s basement discussing religion or the latest real estate deal. And, naturally, many members of the family ended up working for the company.

The Reichmanns were wealthy before even stepping foot in Toronto, mostly thanks to Samuel’s successes in Hungary in the 1930s and Morocco in the 1940s. But there’s little doubt that the family’s ability to work together helped elevate the clan from a run of the mill success story to mega superstars.

And then it all came crashing down. But that’s another story for another day.

There’s an important lesson to learn from the Reichmann story. Your family could be an incredible resource that isn’t being exploited to the fullest. Here’s how you can use your kin to get ahead, and not just using by child labor, either.

Lessons from Asia

I was vaguely aware of this before spending a year in South Korea, but the concept still hit me like a ton of bricks. It makes so much sense.

Essentially, Asian family dynamics work like this. Instead of each generation splitting up and doing their own thing, the family pools their resources and everyone lives together in somewhat happy harmony. Grandma and grandpa take care of the kids while mom and dad go to work. Sometimes all of the middle generation live together, other times it’s just the eldest son’s family.

Compare this to my family. I have three grandparents still alive, who all live in some sort of assisted living facility. My parents are right around retirement age, but both still work. I live close by while my sister lives a couple of hours away. Between the nine adults — including my wife and brother-in-law — and my sister’s three kids, we maintain five separate residences. The older folks rent while the younger generations have nearly a million dollars invested in real estate.

If we pooled our resources and all lived together under one roof we could concievably have five incomes contributing to the household expenses. My mom could watch my sister’s kids and make sure grandpa didn’t break a hip. And the pensions earned by the eldest generation could be contributing towards household expenses rather than rent at the old folks home.

Say the five working adults pulled in an average of $40k each annually, while the three older folks each chipped in 20k from their pensions. That would generate a total family income of $260k. You’d have big expenses, obviously, since you’d need a place large enough for a dozen people. But the fact is it becomes cheaper to feed and clothe people if there’s more of them under one roof.

Practical ways you can do this

I’m the first to admit the last thing I want is grandma filling her Depends in my basement. That’s pretty much my definition of hell, actually.

But there are still plenty of ways to leverage your family to become richer.

I borrow money from my parents all the time. It’s a win-win scenario. They get better than GIC returns on their capital while I get a relatively cheap loan. You should consider doing the same thing, but only if your folks can afford it. 100% of anyone’s portfolio shouldn’t consist of loans to your lazy ass.

Another way is to join the family business. You’ll ensure the operation lives on for at least another generation, all while helping to keep the compounding machine rolling. Parents are usually pretty generous to their spawn in that kind of situation, too.

And so on. There are a million ways you improve your situation by leveraging your family. So what are you waiting for?

Oh, and one more thing. If you’re a single guy living with your parents, tell any prospective ladies that you don’t live with them. They live with you.

Remember How I Was Going to Buy That Storage Business?

Remember How I Was Going to Buy That Storage Business?

Back at the end of 2016, I was openly considering buying a storage business. I even wrote a bloggening asking you guys what you thought about it.

The business had the potential to generate $15,000 a year before any expenses, which consisted of eight different storage facilities (a garage, shed, and some older converted shipping containers), as well as spaces to store 15 RVs. The physical storage lockers were renting out at approximately $100 per month on average, while the RV spots cost $25 per month. There was potential to add more RV spots at least, which I planned to do.

The place wasn’t full when I was looking at it, with the property generating around $10,000 in annual income. It was for sale for $95,000, but word around town said it could be had for a much cheaper price.

I crunched the numbers and figured I’d like to pay a maximum of $70,000 or $75,000 for the place. So I did a little sniffing and made it known I’d be interested in the place at somewhere around $60,000. I was willing to pay a little more than $60k, of course, but I wanted to gauge interest.

It was nonexistent. The owner wasn’t interested in trying to make a deal.

In hindsight, this was the best possible outcome for me. I dodged a bullet.

What happened?

The summer of 2017 was not a good one for that particular storage lot.

One of the things I liked about the property was it is near a main road, but it was tucked in behind some buildings in a private location. I thought this would help insulate the place from unwanted attention.

Unfortunately, some thieves also thought the same way. One night while the rest of the world slept they cut the padlock off the gate and took their time stealing a $40,000 trailer. The owners of said trailer discovered the unit was missing a few days later right before a weekend getaway.

Naturally, they were pretty pissed. The incident got plenty of attention on local media, and the victims themselves didn’t have nice things to say about that particular storage facility. It didn’t even have a camera! What a two bit operation!

Nothing nice ever comes from italics.

Storage has also become a sexy business to enter. There are two new RV-only storage facilities located in my small town, which opened within a few months of each other in 2017. Both are less than a kilometer from the facility I was looking at. The local UHaul dealer has added a few Sea Cans on the back of their property. And town council recently squashed a self-storage business on a piece of land located near downtown that needed new zoning.

These people have discovered that storage is a great way to get paid while speculating on the general direction of real estate. The two storage lots that opened in 2017 are both on a main road. The land will get sold at some point to a business that wants a great location. But in the meantime they’re undoubtedly taking away revenue from my potential acquisition. They don’t even need to advertise. Both places are filled with RVs using nothing more than word-of-mouth advertising and a ginormous sign strapped on the fence.

Ultimately the biggest problem with storage is there’s no moat. Any moron with a little land can compete with you. I realized that when looking, and insisted on a huge margin of safety. I’m glad I did.