Does anybody literally pay themselves for work

Question

I'm bad at hiring contractors.

I'm working on fixing that.

Often I tell myself "I could save X number of dollars by doing work myself".

My dayjob translates into about 40/hr, so I figure if I hire someone at $50/hr I'm m breaking even (20% tax savings)

I'm thinking about literally moving $50 from the my business to personal account every time I do an hour of hammer swinging.

Im frugal,  so this might entice me to stop doing too much work myself.

Does anybody else do this?

Michael Seeker · Answer

The easy answer is that if you can afford to pay somebody else to do it then you should.  You're far ahead of most people that do their own work in that you put a value on your time already.  One flaw is that you're working the math backwards.

Let's say you've got a $1K project:

-You can do it yourself and "save" the $1000 and it takes you 50 hours...you're earning $40/hour.  Great!  But you just worked 50 hours of overtime for the same amount as your regular pay.  I would value my "free" time much higher than company time, but that's just me.

-You can pay a contractor $1K to do it (you've now got 50 hours of your life back) and you can deduct this $1K against income or basis (depending on type of investment).  At the 25% bracket, that's $250 less of taxes you'll have to pay next year (or $250 extra return...however you want to look at it).  So you're effectively paying the contractor $750, $1K now minus the $250 of future tax savings.

Benefits of paying somebody else:

-Things get done much more quickly, after all you're already working 40 hours a week on your day job

-Job gets done professionally.  I can do plumbing work, but it's not the same quality as a licensed plumber

If you want to trade your day job for contracting work, then doing the work yourself might make sense.  If you want to trade your day job for income/wealth generation, then let the contractors do the contracting work and stick to the day job until you can afford to give it up!

Matt Devincenzo · Answer

@Michael Herr What I understand is you're really trying to "reality check" yourself into understanding that property A took more of your personal time for that higher profit. I think what you'd find easier in this scenario is instead of the extra accounting ect with paying yourself, just keep a little notebook in the car and jot down the time spent working on each property. At the end of the year you can look back and say property A made me 10K and I invested 100 hrs into it, and property B made me 6K but I only invested 20 hrs into it.

Michael Herr · Answer

I reinvest all profits,  just was thinking this could help make decisions more black and white.

Paying a handyman $30/hr for 20hrs($600) hurts,  compared to doing it myself for free, but If I had to pay myself $1,000,  the numbers (my business bank account) would show that the correct choice is to hire it out.

Siye Baker · Answer

well said

Michael Herr · Answer

Thanks for the suggestion. I think that is exactly what I'm going to do. Just keep a spreadsheet log of my time.

I can then reflect  on how many hours I traded for dollars and make a dollars adjustment (in my mind)  when making decisions/comparisons .

That also might help me look at what I'm spending the most time on and get that stuff outsourced too.

Andrew Kerr · Answer

If I go to pickup trash or do a simple repair I don't say I did 2 hours of work at X per hour and then cut a check to myself.

I manage most of my properties myself. When I look at buying a new property I factor a 10% management fee into the budget; partly in case I do want to pay myself or in case if down the road I put in a property manager.

Last year I didn't take any money out of my business. I left all the net profits in the business to build my reserves and put towards a new property. I also added some other properties last year with investors.

This year I started paying myself a draw out of the two properties I own solely by myself. It doesn't equate to any per hour figure. I just said I want $500 a month income. So one property pays me $150 a month and the other pays me $350 a month.

One of my investors on a recent deal wants consist payouts as he is retired, so we will have a minimum payout every month to both of us. Everything on top of that we will leave to build a healthy reserve account. Then after the reserve is built we will up the payout. But again here, there is no hourly rate I pay myself.

Michael Seeker · Answer

I would say it depends on why you care.  If it's to try and alter your tax bill, then absolutely not.  You can pay yourself, but then you have to pay taxes on the payment.  Just creates a lot of additional work for you.

If you're worried about loans in the future (assuming rental property) then doing work yourself and not paying yourself will look much better on your tax return and to lenders.

If you're marketing to private money investors and saying "hey, I'm making X%, invest your money with me at Y%", then you probably want to explain to them that if you had to start paying contractors for services the X% would really be Z% and here's how it would affect the Y% I'm promising you.

Ultimately, your profits are not artificially high when you do your own work.  They are actually that high, you just traded a lot of your time for dollars and are paying yourself with appreciation instead of an hourly or per-job wage.  I don't see any upside to trying to pay yourself for work unless you are partnering with other folks and don't receive 100% of the proceeds of that work.

Michael Herr · Answer

The replys are missing my point.

I was probably unclear in my original question.

For this discussion the pros and cons of doing work yourself and paying someone else is irrelevant.

My question is:

When I choose to do work myself,  when I look at the numbers my profits are artificially high.

Should I literally pay myself to make the numbers reflect reality?

For example.

House A is along my commute home from work,  so I generally do quick repairs myself. It is an older house and has alot of them.

House B is 20min a way,  so it's quicker for me to call someone and hire it out,  so I do.

At the end of the year,  House A looks like it made more money,  but house B is the winner based on my "gut" feel.

I'd prefer to have numbers match reality,  and not ignore the numbers or my gut.

Note: I'm taxed as a pass through entity (single-member LLC) ,  so paying myself doesn't have tax consequences.

Shawn M. · Answer

Amen!, and spend your free time looking for new deals.

Does anybody literally pay themselves for work

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