I am telling you my experience to get you to thinking about how spending your time growing your business could increase your net worth faster than spending your time maintaining your properties.
Dave,
This is the part that I don’t understand. This implies that I don’t have enough time to “grow my business”, but when I’m only working 3-4 hours/day 4 days a week, I have a LOT of free time. Even when I own 100 units and work 5 hours per day, that’s only 20 hours per week. The point is that my growth is not limited in any way by spending 3-4 hours/day managing and maintaining my property. There are a lot of great deals out there that I’m not doing, but the reason isn’t lack of time. Growing too fast can be just as dangerous as paying too much for a property. I’m trying to be at least a little cautious. I added 12 units last month, along with $125,000 in equity. Of course, that’s not a typical month and I don’t intend to buy any more rentals for the next month or two (unless a deal comes along that I can’t refuse).
Here are my questions about this farming out of the management and maintenance:
How fast SHOULD you grow? Growing too fast can be a big mistake.
What would I do everyday if I didn’t work at all? I don’t want to sit around the house, or travel, or sit by the pool, or ride my motorcycle 24/365. Getting out of the house for a few hours each day to work is a good thing.
Farming out the management and maintenance each month cuts your spendable cash in half. Therefore, you need twice as many properties to make the same amount of money. Why should I buy twice as many rentals to make the same money, just so that I can sit around the house doing nothing - which would be very BORING for me?
I’m certainly not against anyone farming out the management and maintenance. Everyone should run their business in a way that is right for them. However, I think this idea that farming out the management and maintenance gives you more time to “grow your business” is simply guru nonsense. Even with dozens of rentals, I still have 152 hours each week that I can “grow my business”. I think that is enough.
Your blog tells me otherwise about the amount of time you are really spending on your rentals…
Double your amount of units for the next 3-5 years and then double the amount of time that your blog says you are spending on your rentals and it becomes an impossible number.
What would you do with your free time? Well you can start flipping 1 property every 2 months for 15-20K$ profit a piece. That takes far less time than 20 hours a week and pays you more than you would managing your properties. It would also pay for all the property managers plus some more money left over.
My blog over the last month may have left the wrong impression of the time I normally spend on my rentals. Over the last 6 months or so, I’ve averaged 12-16 hours per week. I bought 12 units this month (in 6 buildings) and have been working very hard to get them rehabbed and rented. As of today, I’ve had 8 lease-ups this month which is a record for me. I’m almost done with all the rehabs and things should certainly return to normal a little later this month.
That month of hard work will provide $1,200 per month in positive cash flow and at least another $1,200 per month in management and maintenance fees until the mortgages are paid off. In addition, I picked up another $173,000 in equity. I’ll take that anyday over $15-20K in profit from a flip every 2 months. I have absolutely no desire to flip any properties. I’m in the rental business.
in end, one has consider what they want to spend their time doing, how much their time is worth and what there objective is in investing in real estate. Personally, I don’t do property management becuase I have rental units scattered between two different areas (one very far away) coupled with the fact that I have a day job and healthy consulting business that both produce far more income (both per hour and in total) than I pay in property management. For me, REI is an asset and wealth building activity that will produce income in the future. All my current income produced from it is plowed back in the REI business in terms of debt service and operating cash. As it has been pointed out by Prop.Mgr and others, REI can also be an occupation that produces income one can use to live on as well.
I have to agree with Mike. The rental business is the tru way to create wealth. I would manage my own properties myself IF I lived near them but I invest in an area which I do not live because there are no money making cashflowing properties where I live. I would take care of the properties until it became too overwhelming and I had to breakdown and hire someone for help. Good luck.
Ok Mike, you have formally impressed the @#$#@% out of me with your knowledge. You are an asset to this message board. THANKS for sharing your information with everyone…
NOTE: My long term plans consist of an investment strategy very similar to yours.
I believe that there is a threshold. Kiyosaki suggests that real estate investors start out managing their own properties. Depending upon how far you want to take the whole operation, eventually, an investor can accomplish more by illiciting the help and support of as many people as possible. Examples of people who need this kind of support include: a local guy where I live, Buzz Oates, who is a developer, property manager, construction design and building, ect. or CB Richard Ellis which is a publicly traded company that manages commercial real estate, or Donald Trump. I believe that all investors should manage their own properties for at least the first year, and probably realistically the first four years. Eventually there are only so many hours in the day and only so much one person can do.
I agree with that statement too. However I think starting out it is ideal to be your own property manager so you know the ropes. Real estate, I’ve assessed, is not all easy money despite what all the gurus say - unless you get lucky - and that is rare. It sounds like any other business to me. It’s got it’s ups, and its got its downs. In the end intelligence, courage, motivation and education will help you succeed though. I know the existing business I’m in is not easy by any means, however if you explained to a novice he’d think it sounds super simplicid. But trust me, it has tons of headaches. LOL.
But yes, Funder, I think you’re right - especially if you get to a point where you say have a several 100-200+ large apartment complexes. There is no way one guy could manage all those units. But someone who gets to that level is probably beyond most people on this message board. I think Mike [Propertymanager] is undoubtedly on track to being that successful if he wants to go that route…and for someone like him [under 100 units, but still making a killing]…who has all his units in a single metro area…should do everything himself as much as possible.
Real estate, I've assessed, is not all easy money despite what all the gurus say - unless you get lucky - and that is rare. It sounds like any other business to me.
You got that right! It’s not easy money at all and the majority of those that try fail - just like any other business. In addition, it has all the daily frustrations; idiots to deal with; employee and contractor problems; and bills to pay that every other business has. It is portrayed by the gurus as an easy way to get rich quick without work. Nothing could be further from the truth.
On the other hand, with a lot of work, real estate does provide the opportunity to rapidly build wealth. That can come in handy for retirement and in my opinion is a lot safer than counting on a company pension, which can all but disappear when a company declares bankruptcy.
if you get to a point where you say have a several 100-200+ large apartment complexes. There is no way one guy could manage all those units.
That brings up the question “how much is enough”? I’d like to think that I’m going to stop at 100 units. If I really can successfully manage and maintain 100 units and work 20 hours per week, that seems about the perfect mix to me. By my latest calculation, 100 units will produce $20,000 per month in positive cash flow and about $2,500,000 in equity (before any appreciation or principal paydown). As the mortgages are paid off, the monthly income will grow to more than $40,000 per month and $5,000,000 in equity. Personally, I think that’s a lot of money and certainly enough to provide for a nice life. Do I need or want more than that or is it more important to have a modest work schedule and a lot of time off?
Right now, I’m thinking that 100 units would be the “sweet spot” for my rental business. I don’t want to be working hard to make money just for the sake of making money. Of course, I’m not immune to being greedy and things could change.
Yes this is true. In REI some people would rather spend almost no time and let mangers, etc handle their properties and take a smaller percentage of the pie. Some folks like to put some elbow grease in and get the whole pie. Sure they are getting a bigger cut of a smaller pie but for them that works. For me I wouldn’t feel at all bad about having 200000 units and someone else doing all the grunt work and me only getting 20% of the income. For me the less work I have to do the better. If it was guru world and the money flowed in with no effort that would be best, I could take my girlfriend to Europe for the next 6 months and I would enjoy the hell out of it. Don’t get me wrong I don’t mind doing work and I work very hard to get what I want but if there was a point that I could put the machine on autopilot and walk away I would…in a heartbeat. For people like Mike who enjoy working with their hands and enjoy what they do he is quite content to do the labor and keep all of the pie to himself. He also likes that it keeps him busy and out of trouble. :biggrin For some people that’s what works. Its all about what makes YOU happy and how YOU like to spend your time.
If it was guru world and the money flowed in with no effort that would be best,
IF being the operative word! Unfortunately, there is no autopilot - that’s just a guru myth intended to get newbies to part with their money. I also am amused by the guru that says the only trailer you need with mobile homes is the one to haul all the money to the bank. RIDICULOUS! Or how about “the less I do, the more I make”. Equally as ridiculous. Try doing nothing and see how much money pours in!!!
You can spend an hour saving a dollar or making 2.
Or you could aviod doing the work to make 2 and do twice the work trying to make that up.
Rich - Dont get me wrong, if you LIKE doing the work then it is worth the cost of doing it yourself! Life isn’t all about money. If you enjoy it then it is worth not making as much!
Note what I am saying though, for those that may not be getting it. It does COST you to do it yourself. It seems backwards since you are saving money (like 10% for PM plus repairs and whatnot) but once you figure in what else you could be making it is costing you.
But maybe not. Its not a finite rule and I am sure there are people out there who verge from the norm!