Announcement

Collapse
No announcement yet.

Why do people ignore their time input when calculating real estate returns?

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Why do people ignore their time input when calculating real estate returns?

    My question is pretty much the title.  I see people all the time talk about how they receive double digit returns on their rentals or wholesales, or flips, completely ignoring the hassle and large time and energy investment that they are putting in.  Real estate seems like an interesting investment vehicle, but this comparison doesn't make sense to me.  Anybody on here notice that as well?

  • #2
    I've never owned residential real estate, but for the commercial real estate I do take into account the time that I put in for maintenance.  I can't charge what my hourly physician rate would be, as it would be unfair to my tenants, but I can take the time and the total cost of materials of the maintenance and charge it back to tenants through their NNN.  I know some people will use management companies, and if they are eating 2% of the monthly rental, then I believe most people deduct that 2% from their gains, otherwise they are just lying to themselves about the returns.

    I think the perk most people see in real estate investing is the money in the bank.  Also being able to write off the depreciation and improvements you put into the property is a big perk.

    Comment


    • #3




      My question is pretty much the title.  I see people all the time talk about how they receive double digit returns on their rentals or wholesales, or flips, completely ignoring the hassle and large time and energy investment that they are putting in.  Real estate seems like an interesting investment vehicle, but this comparison doesn’t make sense to me.  Anybody on here notice that as well?
      Click to expand...


      It's because people prefer to focus on the positive when it comes to their ROR. It's "inconvenient" to take your time into account, although I occasionally see comments from some of the posters on this forum (including myself) and WCI has also addressed it.

      As to  Quan 's comment that (s)he cannot charge the tenants what (s)he would earn as a physician, that is actually part of the point. If you can make more per hour doing something else, then you should consider hiring someone to take your place in the lower paying endeavor and concentrating on the most profitable use of your time. Of course, this ignores other factors such as that the landlord may enjoy his/her work in rental properties, so that there is an element of fun for the lower-paying endeavor or that (s)he can work no more hours in the higher-paying activity.

      But your point is valid. This is also common with owners of small businesses who work for "free" or less than minimum wage in their businesses. In that case, they really have a hobby (startup years not included), not a business.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        That's why I hire property managers that take care of everything and pay them 7 to 8% of the rent to do so.  I spend very little time on double digit number of rentals, less than 10 to 20 hours a year.  After depreciation they show very little gain.  It's awesome.  Also cash on cash return is outstanding.  Key was timing and buying for cash flow.  If you get lucky appreciation may make it a home run.  On quite a few properties in Vegas I have managed a cash on cash ranging from 10 to 20% return annually on the rent minus expenses and taking off depreciation as an expense.  Add in appreciation and I have been getting approximately 100% annualized over the last 4 to 5 years.  It will not continue of course, but when those cycles allow you to buy an asset as such a low value it makes sense.  Even if I get no appreciation from this point on, the rental increases and cash flow from the rents make it a great investment.  That being said, not a great time at all to buy.  When houses were selling for what they go for in third world countries that was the time to buy.  Just wait, everything moves in cycles.

        Comment

        Working...
        X