How much is your time worth? The answer you should be looking for is not a simple "priceless" or "a lot," but an actual dollar figure.
Perhaps you work in a world where you have a clear hourly rate - particularly if you're a lawyer, counsellor or garage mechanic. But as a real estate investor, that's not always easy to define. Whether you're a beginning or veteran investor, full- or part-time, it's an important question that is well worth figuring out.
Some call it sweat equity, others a "simple time worth calculation."
It's a concept first introduced to me years ago by Don Campbell, president of the Real Estate Investment Network. Today, I use it in every facet of my business to ensure I become more productive.
Outlined in his bestselling book, 97 Tips for Canadian Real Estate Investors, Campbell's "sweat equity equation" says the first 100 hours you put into a moderately neglected property will increase its value by 10%, provided a) you know what you're doing, and b) you follow a proven system for renovations. Putting in time alone will not increase a property's value; putting in the right amount of time in the right areas can make a huge difference.
Like many investors, I have learned and practised and modified this system slightly over the years, and it hasn't always been easy.
Just take property management, for example. A common scenario for many investors in the early part of their real estate career is to manage their units themselves. This plan may work if you have enough time to commit to what is essentially a full-time job in itself, a 24/7 endeavor. You might be able to do this with one property, since you're basically at the beck and call of tenant requests and other issues.
But what happens if you own two or more properties, especially if they're located in different neighbourhoods or even cities? The short answer is you could easily spend all of your time - and stressful time at that - on such tasks.
Instead, what you really should be doing as an investor is investing - finding and buying other profitable properties.
Earlier in my own investing career, I had three properties that I was trying to manage myself. I was stuck, spending all my time on these three properties, with none leftover to buy more. My business was basically stagnant.
To regain my freedom, I committed to professional property management at a cost of about $350 per month. That may sound like a lot of money (and it is), but that move allowed me to grow as an investor.
Not everyone, however, might be able to afford professional property management at the outset, or perhaps not for all properties. But can you afford not to? The key is to figure out what the true cost is.
To get the rest of this article, pick up a copy of our April issue, on newsstands now.
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