August 11, 2009

How Precious Is Your Time?

How precious and important is your time? If you had 20 to 30 hours of extra time, what would you do? Would you spend more time with family; how about skiing, hiking, biking, fishing, knitting or even earning more money? How much would you be willing to pay per year for an extra 20 to 30 hours? I want to spend some time speaking to self-managing real estate investors and how they can recapture 20 to 30 hours of their lives.

Before doing so, let’s make some assumptions and form a foundation on which to build our discussion. Let’s assume you own a small duplex that has gross rents of $1,000 per month. Your property is a good property, but there are the normal wear and tear issues you attend to. Although your vacancy rates are low, you still advertise your property two or three times per year because of expired leases, skip outs or evictions. When vacancies occur, you do spend time doing extra cleaning so that the property is ready to show to interested parties. You also take calls from potential renters, review applications, and perform credit and background checks. You typically have no problem collecting rent, but you do need to call tenants from time-to-time to remind them they are past due. Occasionally you post Pay or Quit Notices for residents who still don’t pay after your reminder call. In short, you do quite a bit of work maintaining and operating your property; possibly more than you assume.

Throughout your ownership of the property you have probably wished that there weren’t so many issues. You haven’t taken any extended vacations for fear that something would go wrong with no one there to handle the problem. If you have taken a vacation, you may have received a call from your resident about a dishwasher not working or a plumbing leak. There have been times when you have an important deadline at work and are interrupted by an issue at the property that needs your immediate attention. Isn’t it wonderful to be an investor/property owner?

Now let’s discover how you can relieve yourself of those responsibilities and let the property generate income. You can typically hire a property manager or management company for 7% to 10% of the gross monthly collections. The services these companies provide can include the following:

Advertise your property with “For Rent” or “For Lease” signs. They also will advertise the property on websites and/or do virtual tours giving more exposure.
Screen and select prospective tenants. Note: make sure management company will abide by all fair housing laws.
Negotiate lease agreements and ensure all paperwork is filed properly
Collect rents, security deposits and other funds in the operation of the property
Serve termination, pay or quit and/or other notices as necessary
Employ legal counsel to enforce and protect your interests as a property owner
Dispatch facility management personnel on service requests
Work with service and supply vendors for the operation and maintenance of your property
Perform repair services in the absence of the owner. Note: these repairs should only be completed after written notice is previously sent.
Perform and complete emergency repairs related to “water,” “blood,” or “fire” so that the property is protected and owner liability is reduced

Again, assuming that, as we did in the beginning, you collect $1,000/month for rent you would spend $70 to $100 per month for management services. But where are you recapturing the 20 to 30 hours? Well, at a going labor rate of $40/hour if you divide that into your monthly management fee, you will have 1.75 to 2.5 hours per month to attend to other pursuits. Over the course of the year, that will be 20 to 30 hours. How many times have we caught ourselves asking for a little bit more time in our lives? Many people can generate one, two or three thousand more dollars in 20 to 30 hours, which definitely offsets any management fees with a little extra to spare.

Again, How precious and important is your time?

Posted By: Brian Morris