Hassle factor of a property?

Question

how do you determine the time cost or hassle a potential property will take? All of our spreadsheets analyze the financial portion but how do you choose what is the better option from a time standpoint?

For example one property in an A neighborhood and one in a B neighborhood. Or my current situation is I could purchase a duplex with around $400 cash flow (A area) or a 6 unit in a college campus area (B area) that would cash flow about $800 per month. To me the cash flow of more units is appealing but is it going to be a time suck? What would the ROI difference have to be for it to be worth your additional time, not money?

How do you factor this into your analysis?

Hattie Dizmond · Answer

The point I was making is that self managed hassles are part of the bargain.  Form a separate company to manage your properties, then pay yourself. That way you can write off the management expenses, which you have paid yourself. It's essentially moving money from one pocket to another.

If you absolutely want to calculate the time value...

My suggestion is to construct a matrix to calculate the likely time commitment, the same way you would calculate risk in project management.

If I were doing it, I would grade a property in several areas, 0 to 4...(0 is best, 4 is worst)

Assign a factor to each of them based upon the time commitment relative to the category, then multiple each score by the factor, add all the scores together, and now you have an objective number to allow you to compare apples to apples.

• neighborhood quality
• school quality
• likely tenant quality
• age of property
• Likelihood of required maintenance 
• distance from your house/office or the bulk of the other properties
• anything else you can think of

Hattie Dizmond · Answer

The answer is different for everyone. If you're a full-time investor doing your own PM, it's likely a lot less of an issue than someone who has a 9 to 5. It's also largely dependent on your goals. Is your primary objective cash flow or net worth?  If it's cash flow, then you simply need to be realistic and understand the best cash flowing properties are not going to be in A neighborhoods.  Most of them aren't evengoing to be in B areas.  C-neighborhoods are going to produce your best cash flow, most of the time.  Another reality check is that college rentals will likely always come with more management requirements. They are college kids. There will probably be beer stains on the carpets, at least 1 hole in the drywall and various other issues, when they move out.

Of course, you can avoid these concerns altogether by simply hiring a management company, because it doesn't sound like you want the "hassles" of being a landlord.

Hattie Dizmond · Answer

@Randy E.

You're spot on, which was the point of my initial post.  However, if you want to make it an objective factor in your analysis, you have to find a way to score each property.  We use a similar approach with our Flips to determine where our risk vs. reward break point is on Net Profit.  I apply the same approach and logic in my day job - IT Program Management.  Every project is evaluated and scored in a number of risk categories.  The higher the risk score, the more controls and governance that is applied.

Your only real hope is that by applying the the same factors consistently, the results will normalize.

Randy E. · Answer

@Jedd Braunwarth, I realized I didn't answer part of your question.

"how do you determine the time cost or hassle a potential property will take?"

I don't really think about how much time/hassle a potential purchase might be.  I'm speaking of post rehab of course, because during rehab there will certainly be a certain amount of time expended.

But my hope is that after rehab, as long as I have made all necessary repairs/updates and conducted proper tenant screening, all my properties should be relatively hassle free.  Any substantial hassles are more likely to come from tenants rather than a property renovated rental.

While I would love a 100% hassle free investment experience, that's not my goal.  My goal is to replace (and exceed) my non-investment income with income produced from my investments.  I'd much rather spend one eighth the time I spend working now, and earn the same (or more) money -- and to be in more complete control of my weekly schedule.  That's why I invest.  Not to have a hassle-free investment, but to have a better overall life experience.  As long as ALL I'm doing is real estate related, that's enough of a hassle-free life for me.

Randy E. · Answer

@Hattie Dizmond made some great points.

I would add that no landlord can precisely predict the time factor of a property.  We can get generalizations and approximations based on the factors mentioned, but sometimes surprises appear.

For instance, I have two houses on the same block.  Both are very similar.  In one, I have the perfect tenant and the time factor for me is extremely low.  The other tenant takes up more of my time.

Ultimately, I think all investors would like the perfect property that requires almost no personal attention and that we don't have to pay a property manager to get to that point.  I don't think that exists for investors with more than a couple of properties.  The more properties you own, the more likely that at least a couple will end up with tenants that consume more of your time than usual.

I guess the best option for an investor who wants to avoid the hassle factor altogether would be to buy large apartment complexes and use PMs and maintenance crews.  Then again, I don't own such investments, so maybe there are hidden time sucks in those investments too that I don't know about.

Jedd Braunwarth · Answer

@Hattie Dizmond your matrix concept is spot on with what I was grasping for. Love that idea! Why do you believe that this isn't as common or as takes about in investing? We hear all of the time about how much someone made on a flip or cash flow on their properties but never factor in time into the equation. To me this is a huge metric in determining the value of a property.

Jane A. thank you for the response! I agree completely. I think my struggle is that my second duplex was a flip and rent in which is in an A neighborhood, purchased way below market and then doubled the rent from the fix. It has huge cash flow and it made me somewhat greedy in analyzing other deals as I cannot find any properties that meet this one. The more units will generate the cash flow I'm after but I worry about the additional time required for those additional units. I love duplexes so maybe I stick with that!

Hattie Dizmond · Answer

Jedd...I would guess there are several factors involved...

1.  People compensate themselves for their time, so it is simply part of the equation.

2...Others try to control the time factor up front through preventative maintenance and careful tenant screening.

3...a lot of folks outsource the PM side, so it's a non-issue.

4...The rest simply consider it a cost of doing business.

More than anything else, I think your final statement captures the real issue. TO YOU it's a huge factor.

Kevin Siedlecki · Answer

I agree with @Hattie Dizmond that since everyone values their time differently, it's very hard to put time and hassle into an investment calculator.  The only way to do it is to decide what your time is worth, and plug that in.  If your time is worth $50 an hour, then pay yourself that $50 for mowing the lawn or fixing the sink, and subtract it from your ROI calculation.

Jedd Braunwarth · Answer

@Hattie Dizmond thanks for the response. I guess I didn't word my question clearly as I am more looking for individual reasons on how you factor in potential time spent. I agree with all of your points and already have a handful of properties myself. I self manage and buy in A and B neighborhoods doing fix and rent strategies. This gives me great cash flow and equity in great areas. I'm in the Midwest so that helps with cash flow as well.

My question comes as I constantly want to value my own time commitments but find it difficult to be consistent with factoring that in. As mentioned how many hours will I spend managing 2 units vs. 10 unit property and at what ROI or CoC is that difference worthwhile.

I understand that everyone is different and there are many factors that go into this but that is primarily the reason for the question. All our spreadsheets have cut and dry financial numbers to base off but time value is not one of them.

Hassle factor of a property?

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