How Much is Your Time Worth? The Tasks You Need to Hire Out A.S.A.P.
As a real estate investor, you’re probably always trying to save a buck. I know, because I have done the same thing. The truth is…
It’s not always worth it to try to save money, because you could be wasting way too much time.
And time is money.
As an experienced investor (and employee at MyHouseDeals!) it took a period of trial and error to figure out what I should be doing for my real estate investing business and what I should contract out. Don’t waste a bunch of time like I did…
Keep reading to find out…
- How to figure out what your time is worth
- The parts of your business to STOP doing right now
- What parts of your business you should manage yourself
I first got the real estate investing bug in 2002 when I read Rich Dad, Poor Dad. That got me very excited about making money and I found two partners to work with.
We went and bought a whole lot of houses—about a million dollars worth—and ended up with about 25 rental properties. That was our initial plan, to do rentals.
When the recession hit, we started doing some owner-financing deals. We ran the company for 14 years and we just closed it down this year.
One of the biggest lessons I learned through that experience was figuring out my strengths and weaknesses—and then maximizing my strengths and minimizing my weaknesses by contracting out certain work.
When I first realized I couldn’t do it all… Trying to save a buck
When we first started our company, we were all looking to save money. We’re talking management, all the things that go into a real estate investing business, specifically rentals… We thought, we’ll just do it ourselves. One of the things I volunteered to do early on was bookkeeping.
It turns out you need to know a lot about accounting. I actually had to go buy a book about accounting and relearn what a balance sheet was and what accounts receivable was. I tried to do that, worked with my tax accountant to try and make sure I was recording everything in the right ledgers… And it turned out to be a huge pain. After a few years of doing that, I realized it was taking me literally months to do all the books myself.
We had about 200 to 300 transactions every month, so I would have to go through and try to organize everything. Sometimes, I’d skip a month and then it would take a long time to catch up.
I was spending an enormous amount of time trying to do books. And finally…
… I put a dollar amount on my time. It came out to be around $2,400 that I was spending on books. So, we found a bookkeeper to do it for $600. She was WAY faster then me, and more accurate!
If I learned that lesson early on instead of going four years trying to do it myself, I would have saved a lot of time and been able to put that time into my strengths… Finding more properties, and getting more deals.
It was a hard lesson learned and it was when I started to realize I needed to put a dollar amount on my time.
Putting a dollar amount to my time
So, how did I put a dollar amount to my time? This part is tricky. I did contract work in the past, and I learned what I could get people to pay for my time. That made it easier to do estimate my time’s worth.
Before I did contract work, I took whatever money I was making and divided it by how many hours I was working. That gave me a rough hourly rate.
If you’re trying to do real estate investment full time, look at your last couple of flips and see how much time you spent working on it, and then look at how much money you made.
Find some way to establish a dollar amount—whether it’s with your current salary, contracting work, or just the number of deals you’ve done—and divide that by the hours you put in. Your time is valuable!
Say I spent two months doing a flip, and I earned $30,000. I would add up the hours I spent during those two months. If you wanted to assume a standard 40-hour work week, you can. So, 8 weeks x 40 hours = 320 hours. Divide your $30,000 by those 320 hours and you get a nice little hourly rate of $93.75.
Can you hire someone to do accounting for far less than that per hour? Absolutely!
Another example of something we did that we shouldn’t have been doing?
A lot of people are great at property management. Property management costs about 8.5% of our rents and we’re like, “Shoot. We can save 8.5% by doing it ourselves.”
We were so, so wrong.
You have to be very hard and strict when you go collect money from people. About half of our renters would gladly send a check in every month on time. But the other half?…
We had to hassle the other half constantly—going to the door, knocking on their door, hearing their sob story, trying to weave through the stories to see if they’re real or not, hounding them to get money, or setting up payment plan. Then…starting the eviction process if they are not there.
Had we known that it would be so hard, we would’ve spent the first three years with a property management company instead of trying to do it ourselves.
We could have acquired more property instead of doing property management. It’s not just about collecting money, it’s about posting the property, filtering out the potential tenants, doing background checks, and making regular visits out to the house. It’s a very time consuming process and requires a lot of organization.
It’s almost a full time job, especially when you have 24 units like we did.
Should everyone get a property manager?
Whether or not you get a property management company really just depends on your skill set. If you’re great at accounting and you can do it efficiently, you don’t need to hire an accountant.
Even with just one house, you still have churn of maintenance, collections and filling vacant properties. That’s not my skill set. That’s not where I want to put my time.
I personally realized that I’m not great at property management. Even with one house, I’m going to get a company to manage it.
But I think it depends on your situation too. Christina, who did our Facebook Live event, has all of her properties in the same area so it’s not a big deal for her or her husband to go over there or send someone out. I think the situation determines what makes it easier or harder. If you live two hours from your properties and someone’s air-conditioner breaks, that is real pain.
Again, this is a hard lesson for some real estate investors to learn because everybody wants to save money.
Organization is incredibly important for anyone in business, not just real estate. I tend to be a very organized person—I consider that a strength of mine. One of our partners was NOT… His idea of filing papers was to stack the papers all along the wall in his office. Anytime he had to find something, like legal documents or a contract for a house, it would take him hours to find it.
I sat with him and finally told him, Man…you’ve got to hire somebody. He ended up paying for an admin because he realized organization is not his thing and he was wasting an enormous amount of time trying to find everything. We hired a dedicated secretary to organize his life.
With rentals, you are going to have legal issues at some point.
We split the management of our legal issues about 50/50—either us doing or hiring it out. We all had law classes in college so we could all read a contract and understand it on a basic level. Things like company information, setting up trusts, evictions, and small claims are all things we would manage.
Anything that’s bigger than a bread box, like selling a house, you definitely want to use an expert—don’t try and do that yourself. If you are bad at understanding legalese, you shouldn’t even be managing small claims.
Know what you are good at and do that
The bottom line in all this?
I thought, Surely I can do this job that people were paid a minimum wage for… A lot of people think they can be great at everything…but you can’t.
It was hard for me to realize I couldn’t do everything. Some people have skills that I don’t have. Don’t waste time and energy trying to be good at something that you are just inherently not. Set your ego aside and know what your time is worth.