The value of hustle
I've been investing in real estate for a little over three years now. Many of my family and friends say I'm crazy to be investing, especially with the time I spend working on my properties. I sub out some of my work, but keep most work 'in house' and utilize my own oatmeal power (ie: elbow grease or hustle).
Quantifying the value of my hustle can be difficult, but I'll give it a try.
I currently own seven units. Over the past three years, I estimate I have spent 2,500 hours in the field and an additional 1,000 hours behind the desk to build my business. I actually enjoy the time I spend in the field and behind the desk, so it's not a grind, but this time spent is why my friends think I'm crazy. They don't want to spend Friday nights sanding drywall - they prefer drinking around a camp fire. They don't want to spend Saturday afternoons painting or laying tile - they prefer to watch the Nittany lions.
At this point, I now cash flow $1,217 per month and pay myself $364/month to manage the properties, for a total net income of $1,681 per month. If we assume that I actually spend time each month managing tenants, then I 'earn' the $364 per month just as I would at a job, so that money shouldn't be counted in my hustle income.
The $1,217 is cash flow, or additional profit from my units after accounting and paying for OpEx, debt service, and reserves (vacancy and repairs/CapEx). I consider this $1,217 my 'hustle' money.
Now, at this point, only three years into my investing career, my hourly hustle rate isn't great, a total of about $1,217/month x 12 months x 1.5 (fudge factor for variable lengths of ownership) = $21,906 / 3,500 hours = $6.26/hr. Not great, less than minimum wage.
Let's consider five years hence. If I don't change my rent over the next five years and assuming any additional time I spend in my properties is paid through my management and repair reserves, then I will have earned $1,217/month x 12 months x 5 years = $73,020 / 3,500 hours = $20.86. This is a compound annual growth rate of 27%.
Real estate is about the long view. Today, my hourly rate isn't great, but compounded over time, the work I put in today is worth significantly more than the value of that beer around the camp fire or the ability to watch the game.
Kudos... people are lucky to find things they are passionate about in life, and they are really blessed when they can make money pursuing that passion.. Great work..
And as you note, keep in mind those hours can pencil out better and better long term as the property appreciates (more work up front than a few years down the road).. mail box money should start coming in with less effort once your rentals are on track (just turn arounds, screening, selection, maintenance/repairs).
Plus, if you have to pay people like contractors, those are after tax dollars (though deductible expenses)... and may eat up your valuable early capital.. So I think your DIY strategy is on track and a great use of your time.... especially while you are young energetic and can put in the hours.
@Liam Goble Congratulations on your achivements so far.
Some people choose their priorities, and some settle for what falls into their lap. It's great you've chosen your own path.
Great vision and persistence! I'm in the same boat as you (with 6 rentals). Thanks for sharing! Interesting reach to Norway!
Great post Liam, in the long run, your friends will be the ones who wish they were there with you. Thanks for sharing!
Keep it up! What is hard in the short term will turn out to be easy in the long run.
As you add more properties each year, your hustle rate will have a compounded increase
Sonny
Liam Goble great job! You are building up wealth while your friends are building a beer belly.
Just keep going! Your only going to grow and have a better "net". I worked for 5 years everyday... Did not collect profit just kept reinvesting... Now I have 5 buildings and flipping Realestate... Keep going!!
@Liam GobleKeep doing what you do! Your hustle will continue to pay off triple fold! I've read quite a few of your posts and I commend you on your tenacity. You appear to be an extremely level-headed young man, and I wish you nothing but continued success.
By the way, didn't you have a property where someone ran into it? Perhaps I'm mixing you up with someone else?!
@Chanté Owens I did have the building that a drunk driver drove into and you definitely helped to settle my nerves. The good/bad of that situation is the insurance covered 99% of the drunk driver's damage, but didn't cover the cost of one of the families moving out. However, I had not yet rehabbed their unit, was waiting for them to move out anyway, so this gave me a chance to rehab their unit. Rent on the newly rehabbed unit went from $435/month to $655/month. I also learned how quickly I am able to effect a rehab on my properties; one month for a moderate rehab (kitchen gut, new flooring, paint, bathroom updates and other minor odds and ends)
@Liam GobleGlad to see something positive ($200 increase rental income); come out of a definitely horrifying situation. Plus, you got the added bonus of attaining additional knowledge and skills around a substantial rehab project.
Now we'll wait to hear about your next purchase ;-) - cheers to an even more successful 2016!
Now I'll wait for a year to hear you post a rant about "All my friends are pissed that I'm so 'lucky' because I worked my butt off! Is it legal to punch people when they deserve it?"
It certainly is :) Great job and thanks for the post.
some one said "you have to live, right now like no one else, so that later in life, you can live like no one else." I this applies to you.
Glad to hear that someone else works their business through elbow grease. Allot of people on the BP forums will push that you should hire other people to perform the rehab/maintenance work and to manage the day to day tenants. The "investment" model pushes volume with the least amount of personal physical work and sacrifice. I don't say that the "investors" don't put in hard work, but the model that they choose is to build a much larger empire (which comes with different kind of headaches). Their focus is on speed to obtain the real estate to add to the portfolio while paying others to rehab, maintain, and manage the properties. What they hire others to do is the cost to build the bigger empire. Eventually we may hire someone to manage our properties - but for now, we choose to use elbow grease.
What I have seen with our properties is that they are managed better, have less vacancies, demand higher rents, and overall are in better repair. Absentee landlords don't seem to understand this difference. No one will take care of your investment like you will. This is the benefit of elbow grease. This is the disadvantage of the hired property managed portfolio - owners are blind to what is actually going on.
I, like you, enjoy performing the work on the properties. There are times when I have to work day and night. They are just seasons in our business. But the majority of the time, I just collect the rent. Most tenants stay in our properties for multiple years.
Stick with your strategy. Eventually our portfolios will get too big to self-manage but for now, we choose to keep the profit from our "hustle"
Thanks for your post and encouragement.
Great post. It's a lesson about delayed gratification that I try to teach my son all the time. All the hard work put in now is a seed that will bear wonderful fruit later.
@Dan Perrott I agree with you. @Brandon Turner has obviously done the work with his 24-unit property, but there is a ton of cash floating around out there.
The goal for my next rehab deal is to reach out to a few very close contractor friends of mine (brother, brother-in-law and two really good friends (HVAC and GC)) to ask if they would be interested in partnering on a rehab. We would all get paid something, but not very much, in exchange we would be equal partners on the backside of the deal. I know there would be some headache and cash management issues, but I feel that I can bring some of my skills to help others who may not be able to skillfully manage their cash.
Plus, I get to do work I enjoy with people I enjoy.
Great post sir... I am definitely a true believer in the daily grind and hustle. I also believe in building a business that will be able to scale. I think you are on your way for sure. Keep up the great work!