How much is your time worth? Let’s say that at your office job, you made $80,000 per year working 40 hours per week with two weeks of paid vacation. In one year, you would work 2,000 hours and make $40 per hour. As you start to grow your real estate investing business, you can think of that $40 per hour as your minimum wage per hour of work, with the intent of increasing it significantly as you get more deals and start to do more simultaneous rehabs and sales.
Let’s say that you found a house at $80,000 that needed $30,000 of rehab work. The ARV (after-repair value) on the house is $160,000, netting you $50,000. Now, let’s say that it took you three months to find the house, make the deal, finish rehabs, and sell the property. In the first month, you worked 40 hours per week finding leads and researching properties and local markets. Once the deal was made, though, your work time dropped to about 20 hours per week, as your contractors took over work on your rehab.
So, as a result, in those three months, you worked 360 hours for $50,000, which comes out to about $139 per hour. Of course, you would still be working on generating leads, but that time would be paid for by your next flip house, not this one. As a result, your hourly “wage” wouldn’t decrease, even if you were working toward your next deal.
The Time-Money Trade-Off
At first, as you build your real estate business, you’re going to have more time than money. That’s why it makes sense to do your own lead generation and to do some of the smaller rehab projects that won’t take up much of your time. But once you’re up and running, take a look at whether you are losing money by focusing on low-level work.
For example, let’s say that instead of focusing your attention on the next deal and making more money, you focus on being your own general contractor to save a little bit of money on this deal. By doing this, you might save a few thousand dollars on your rehab costs, bringing your profits on the sale up to around $55,000–60,000 (if I’m being generous).
At the same time, you increased your work hours. Because you’re the general contractor, you have to be on site 40 hours per week during rehabs. That takes the time you worked up to about 540 hours. Suddenly, your time is worth $101–111 per hour. Sure, it’s still a better deal than you were getting working in an office, but you can see how you just undercut yourself by trying to save money on your house flip.
The Power of Delegation
Think about how much more money your time would be worth if you paid someone a 5% commission to go bird dog (find leads) for you. You would only pay them whenever you bought one of their leads, so they would have an incentive to find really great house flip deals.
Let’s say that your bird dog found that $80,000 house for you, and you paid them $4,000. With rehabs, your total cost would be $114,000. This time, though, you only worked 15 hours per week the first month while you negotiated the deal leading up to closing. Thus, your total work time for the project would be about 248 hours. So, even though you made $46,000 instead of $50,000 on this deal, you actually averaged about $185 per hour of work. And you had a lot more free time to go after even more deals to make even more money.
See how important it is to understand how much your time is worth and how much you can start making once you begin delegating?