The Failure To Account For Time During Rehabs

We have been busy bees lately chasing rehabs and new builds in Austin and CRE deals across the country.  One of the constants I have started to see is that experienced investors CONSISTENTLY fail to account for both their own time and time in general when evaluating how to deploy capital to projects.  I thought a short post would serve to clear up some things that I now see weekly so that others may benefit from it.

Time becomes more and more valuable as quality real estate deals start to chase you instead of the other way around.  One of my investing groups regularly sees 5-10 quality projects at a time now and we only have the capital to do some of them.  Some of the members of the syndicate are laser focused on minimizing the cost of construction on projects at the expense of the time impact of this.  Time is ultimately the most precious resource available when the annualized return on investment (AROI) of your projects starts to get really high. 

In project management there are three major elements that one can seek to optimize.  Time, cost, and quality can each be optimized, but it is impossible to get all three at once.  A quicker turn on rehab projects requires more cost in overhead, a more expensive cost per square foot on the build, or shoddy workmanship to cut corners and get the product ready.  A cheaper rehab generally takes longer because you have to wait for the cheapest trade workers to be available and you often sacrifice quality as well.  A pristine rehab requires more money and time.  The theme is that nothing in life is free.  You have to manage the tradeoff in a manner that maximizes the profits for your business.

Many investors fail to account for time properly.  If you are managing a rehab project with in excess of 100% AROI your time costs you around 1%ish every three days or so.  A full month slip in a project can cost you 10% on your equity.  Wow!  That is expensive! 

Several hundred dollars may be something that shows up very easily on the spreadsheet you are keeping to track expenses.  Time only shows up when you do a calculation to see how hard your money is working for you though.  It amazes me how few investors think about this when they are evaluating projects to spend their valuable time and equity on.  Make sure you do the mental math for this the next time you are analyzing opportunities!