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return on investment

Return on Time

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Return on Time Is there a Deal here?Last week we had the pleasure of sitting down with BP, one of our12 Months to $1 Million members who lives just a little north of where we are doing most of our investing right now. We held a rent to own information session for prospective tenant buyers and we invited him to sit in on it – on the condition that he pretended to be a prospective tenant!

After the information session we reviewed a deal BP had found through some ads he ran on Craigslist. The deal was complicated. A couple had gotten in over their heads with a second mortgage on their property and now owe more than the property is worth today. And, now they are falling behind on the payments. BP was trying to figure out how he could help them. He wanted to put together a deal that would get them out of their mess, and obviously, make him a few dollars too.

When we broke down the deal, looked up comparables, and ran through the options I said simply to BP:

 “There might be a deal here but best case scenario is you can get the property with about $10,000 in equity AND that is after you do a lot of work convincing the first and second mortgage holders of what you want to do. Then you’re still going to have to do some work to make the property rentable. It’s not worth your time and effort.“

It wasn’t what BP wanted to hear but it was the bottom line.

I know there are courses out there that say they will teach you how to make money off properties that are underwater … and it can be done … but the reality is that the techniques that allow you to do this only work in a few specific situations. In all the other cases you’ll end up spending an enormous amount of your time for very little return. And that is what I want to talk about today.

What is your time worth?What is your ROT – Return on Time?

Return on Time ClockAs real estate investors we talk a lot about return on equity or return on investment but we rarely talk about return on time. Yet the absolute most scarce resource we are all dealing with is time.

You can make more money. You can build more equity. You can’t make more time.

When you spend time you have literally spent it. You will NEVER GET IT BACK!

When you spend a dollar the reality is you can make another dollar.

So how are you spending your time?? Are you running around chasing a bunch of different deals or are you laser focused on one area to find the best deal for the least amount of time and effort?

A mistake we made in our early days was investing in a couple of properties here and there. We bought a property in Nanaimo, then we bought a couple of properties in Toronto, a couple in Niagara Falls, a few more in Nanaimo, then a few more in Toronto. We were not focused on any one market or even any one property type. We bought single family homes, a six-plex, a four-plex, new construction condos, condos, duplexes and so on … basically if it looked like it had cash flow we bought it. And for the most part we did ok… but when we decided to get really serious about real estate investing the first thing we did was focus.

The thing we have realized is that you can invest half the time and accomplish twice the amount when you have laser-like focus. And you can put systems in place and a team in place that enables you to do less and less work with each and every deal.

So with every deal we do this year we’re going to be turning more and more of the things we don’t add value to, over to someone that is going to do as good or a better job than we would and bit by bit we’re going to be able to buy more and more properties with less and less effort. Where we once would do the painting ourselves we have now found a great team of painters to do that work for us. Where we hauled away the renovation garbage on the latest property, we’re hiring a disposal company for the next one. Each of these things will cost us a little more money, but they will save us hours and hours of time. And that time, we have realized, will get us further if we spend it on other areas in our investment business like deal finding and deal making.

The big things you can do to improve your return on time are:

  • Figure out what important things you do that could be better done by someone else. For example, we were handling the bookkeeping for all our properties. Dave is actually pretty meticulous at bookkeeping but he doesn’t add any value to the process. And he spends dozens of hours on it that would be much better spent working with our joint venture partners and finding private lenders for our deals. So this year we’ve hired an accountant and a bookkeeper that specializes in doing the books for real estate investors with joint venture partners. Now someone else is preparing our books and our statements for our partners.
  • Allocate time every day to focus on the one thing that is most important to accomplish. Thanks to Tim Ferriss’s book the 4 Hour Work Week ,I became a little obsessed with controlling my email usage. I used to be totally addicted to email. After reading that book I realized what a waste of time it was. Today, I only respond to emails at set times every day. I don’t get into email conversations. If something can’t be answered in a simple email I address it over the phone or in a meeting. And the biggest thing is that I always start my day off doing the most important thing I have to do that day … and that important thing is almost never writing email.
  • Treat your time like the scarce resource that it is. If you always remember that your time is being spent and can’t be made back you’re going to be less likely to waste 3 hours in front of the t.v. watching stupid show after stupid show. I am not saying I avoid t.v. totally. I actually have a handful of shows I really love. My week isn’t complete until I have seen Jack Bauer save the world again. And I am always charmed by the spy action of Chuck. Entourage always makes me laugh and feel pretty happy about my own life, and of course I also get swept up in the latest vampire craze with an affection for True Blood and Vampire Diaries. But here’s the thing … I derive an enormous amount of pleasure and relaxation from these shows and I only watch them on my own time, when I want R&R time. I don’t watch anything else. I never mindlessly channel surf.I know that a minute spent surfing stupid t.v. shows is a minute I will never get back. And I respect that.

So … quit wasting time. Figure out what’s important to you and go do it. Right now! Time is passing you by!! And the only way to increase your return on your time is to maximize the value of what you spend each minute doing.

And if you have questions you know where to find us! We always write back … it just takes us some time!

Published on May 10th, 2010

 

The Advantages of Real Estate

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Rev N You with Real Estate
One Year Anniversary!

One year ago this week we launched our first edition of the Rev N You newsletter. Thank you to those who have been there from day one, and a big welcome to our new subscribers. To begin this edition, let’s look back at how we began our first newsletter last year:

Real estate is a great place to put your money (and one of the advantages of real estate is that you can make money while you sleep), but it is not without the pitfalls. In five short years and eleven purchases we have dealt with a property manager on trial for murder, tenants with knives, fire code inspections going all wrong and so much more.

It hasn’t been easy money for us, but we really didn’t know what we were in for when we started. Knowing what your goals are, your risk tolerance and what the pitfalls can be will help you prepare for the adventures in real estate investment. We hope to help you along the way.

Make Money while you Sleep:
The Advantages of Real Estate

It’s not all roses and rainbows, but there are many advantages to owning investment properties. It’s what the big stories are made of, and why we stick with it despite the many challenges we have told you about over the last year. Let’s look at several of the perks to being in the revenue property market.

 

  • The leveraging advantage;
  • Powerful Return on Investment (ROI);
  • Tax write-offs;
  • Tangible asset class;
  • Residual income/equity building; and
  • Limited land supply.

Real Estate Advantage: Leverage.

In a nutshell, this refers to the idea of using OPM (other people’s money) to help purchase property. In most cases, we obtain a mortgage from a bank for upwards of 85% of the value of the property. This allows us to use less of our own money to build wealth thru appreciation, positive cash flow, and rent covering principal and interest repayment. There are not too many investment options that allow us to invest in only 15-25% of the asset while obtaining 100% of the return.

Real Estate Advantage: ROI.

If you put down $25,000 on a $100,000 rental property, with 5% annual appreciation, approx. 2% principal payback, and 1% positive cashflow from your rent collected, that will earn you $5,000 + $2,000 + $1,000 = $8,000 in your first year. Divide this into your original down payment of $25,000, your annual ROI is 32%! Just imagine what your ROI would be if the property appreciated 10% in a year (if you guessed 52% you’d be right)!

Real Estate Advantage: Tax write-offs.

Of course, you should speak with your accountant before determining exactly what you can and can’t write-off, but there are plenty of expenses that you can write off when you own real estate. A few of these items include: interest paid on the mortgage, operating costs such as heat, hydro, insurance, property management, even some of your closing costs can be written off. In addition, your accountant may even advise you to depreciate your building which helps at tax time too!

Real Estate Advantage:Tangible asset class.

Owning a rental property is owning something tangible. You can kick it, smell it, touch it, and I suppose even taste it (not advisable but you could)! Buying 100 shares in a company is really just a paper-based asset. Financial trouble or internal turmoil are not immediately apparent to the shareholders. Did the CEO just sell all his shares? You don’t know until you read about it in the paper. Now, I am not saying not to put your money in the stock market. I proudly own shares in many different companies. I am simply saying that if you are wondering how your property is doing, go do a drive-by or ask a friend to. Order an appraisal to check it’s current market value. I love the idea that at any given time, I know what is going on in my property.

Real Estate Advantage: Making Money while you Sleep.

As the title of this article suggests, real estate allows you to build equity, and if you have positive monthly cashflow,make money even while you sleep! You don’t have to work at real estate everyday like a regular job. If you buy well and manage (or hire a property manager to manage) the property well, you will make money on it without working on it very often. Even if the market is depressed a property where the rent covers the costs still makes money even if the value has depreciated.

Real Estate Advantage: Limited land supply.

The amount of land we have on Earth is limited. It’s even more limited in all the world’s major cities. Yes, urban sprawl tends to push out cities boundaries, however, there is a limit to how far people want to live away from a city’s downtown core (or wherever the majority of workplaces are located). Because of this, land value will always increase over the long run. Supply and demand is a powerful theory especially when it comes to real estate. My parents used to live not far from where Julie and I live now. Thirty-five years ago, houses in this area were selling for a meager $20,000. Now, houses are selling for $500,000 to over $1 million! Imagine if you bought 3 houses putting $5,000 down on each 35 years ago. Your $15,000 would now be valued around $2,000,000!. How’s that for ROI!

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