What is the best RE strategy for people with a "full-time" day job?

Question

Hello everyone,

If a person has cash that they would like to put to work in RE but can only devote less then 10 hours a week to RE work (because of requirements from their regular job)...what strategy would you suggest to maximize returns?  Tax liens, rehabbing, buying notes, income properties, etc...

Thanks

James H. · Answer

10 hours a week is plenty to run some rentals. You will probably put in more time during the acquisition and make ready/rehab phase (if you're doing it right), but even when placing tenants, I spend less than 10 hours per week, maybe 5 or 6 because I only show a couple times a week. I have heard once you manage 3 rentals you can manage 10 in about the same time using the same system you develop for 3. I'm on number one and will find out in the future - maybe. My rental is rehabbed and I found some good tenants. I have spent about 1 hour a month for the past 6 months, and that's only because I spend about 30 minutes driving round trip to pick up the rent and another 15 minutes at the property to inspect it and converse with the tenant. I have spent a couple hours doing some small tasks that takes the average up to an hour.

Yeah, the day will come when I spend more time due to a plumbing problem, tenant turnover or whatever. But if you do it right, you can really maximize your time. I was worried about risking such a big sum of money (for me) and am really glad I did it after all.

The key is to pay cash or to be able to easily handle the debt service even if you don't rent the unit. Then you can take your time on the front end setting the place up right and finding good tenants. Having a good cash reserve can facilitate either.

I couldn't tell you about other strategies. They mostly appear to have more demand on your time. If you can buy property to hold long term with cash, you can control when you do stuff. But the longer you take to get anything done, the less you are maximizing your returns.

Bill Worsley · Answer

With cash available to invest and limited time, trust deed investing either directly to a borrower or through a local hard money/private money lender, who will facilitate the loan process from origination to underwriting to closing to servicing is a great way to go.  Your time will be invested in completing your own due diligence prior to making your investment.  And your yield will typically be north of 10%, secured at an LTV that puts you in best position to protect your investment.

Let the borrower, or if you are working with one, the hard money loan broker, do the heavy lifting.  Let your money work for you.

Larry K. · Answer

I thought about buy/hold or rehab.  I work full time and cannot get there during the day.  I sort of did both in that I rehabbed then held it.

My pleasant surprise was how many contractors are willing to meet you before work.

These were probably the most time consuming of the options you mentioned so I'd say from a time perspective you can do any.  So pick the one that pleases you the most.

Jeff S. · Answer

First, Joe A, I think you have to decide whether it’s important to you to own the physical real estate or the paper. As you can see above, each direction has its pros and cons.

If you have the money for it, private/hard money lending is a very efficient use of time.  From the initial phone call to the final payoff months later, I estimate we spend about 8 hours total per loan. We can’t advertise, but market ourselves by attending a handful of the local REI clubs each month and spend time socializing and getting to know our borrowers who, in our case, are local house flippers.  All of this can get done on nights and weekends and frankly, it’s really more fun than work.

We create our own deals but you could invest in notes secured by TD’s by purchasing thru a local hard money lender.  Many/most of these get their cash thru investors, perhaps like you, and will do the initial vetting of the borrower and the property as well as the loan origination.  You won’t earn as much, but the time savings and learning process might be worth it to you.

Jeff

Jon Holdman · Answer

We're wandering a bit off track, but screens drive me nuts.  At least some have to be replaced during EVERY make ready.  What is with people and screens?  This house in question is about 20 years old and has the oddest screen channels I've ever seen.   I really wish I'd have just bitten the bullet when I first bought it and updated the windows.  Wouldn't keep people from tearing them up, but it would make them easier to replace.

Ryan M. · Answer

Jon Holdman

I share your screen pain, I freaking hate screens when people destroy them and throw everything away to hide the evidence. It's not the process just how time consuming it is when starting from scratch.

Jon Holdman · Answer

Yes, Anthony Palmiotto, Steve Babiak is exactly right.  That was my point in working through my estimate of the time.  For spending 20 hours (roughly) per year per property, I earn $1700 (roughly).

Further, I consider it a contribution toward my long term wealth.  If I get to the point of having 10 properties, and spend 200 hours a year (4 hours a week, on average), that extra $17K goes a long way towards either paying off one of those properties or adding another.  20 properties, 8 hours/week, would produce a lot more income than almost any other part time job.

I won't kid you.  It gets tiresome sometimes.  Those screens I mentioned above turned into a huge hassle.  Three trips to Ace before I finally got five of the seven screens I ordered.  I ended up rebuilding all of them, plus the other two.  Some twice to get them to fit these old and odd aluminum windows.  Between the trips to Ace and to the property and the time messing with them, I easily spent 10 hours.

OTOH, I installed an amp and new speakers in my relatively new (to me, its a 2008) car.  That was an all-day extravaganza of fighting with connectors.  The Car-Toys folks quoted by about $400 to do it.  So, I only "earned" $33 an hour fighting that battle.  Should have paid to have that done!  My point is I tend to look at a lot of choices like this.  Especially when a lot of the alternatives are to spend my time in some leisure activity.  My day job is software/hardware engineering.  And while that does result in real products you can put your hands on, its still nice to accomplish something tangible.  Whether that's getting that amp in or replacing a faucet.

Steve Babiak · Answer

Jon Holdman DID give you a price for his time - he earns that $85  per hour that the PM otherwise would have gotten.

Anthony Palmiotto · Answer

Jon, how can you not justify putting a price on your own labor? Surly your time has some sort of value to you? I would think that if you subtract the value of your time (say maybe $15/hr) from the cost of a management company...that's how I would figure the real cost of hiring a PM.

Nathan Emmert · Answer

Paying bills and doing the accounting is the majority of my time.  I have a tenant that cleans apartments when I have vacancies.  Answering the the phone and getting maintenance lined up takes minutes.  I outsource placing of tenants for 1/2 a months rent.  Sure, it will cost me a bit more but I spent 2 - 5 hrs a week managing my rentals.  I spend more time than that browsing for new deals on the MLS and working with my realtor.

What is the best RE strategy for people with a "full-time" day job?

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