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Everybody wants to make a profit, and real estate investors are no different. Although in order to really make a profit, you have to know all the true costs and benefits that impact your bottom line - and time is money, right?
Money is easy to calculate as a cost, but time is one of the many intangible costs that we often forget in our decision-making process. So, what about all the other intangibles you don’t consider when making a decision, like your happiness?
Tangibles, intangibles, or both?
The problem I see is that many people only make decisions based on tangible costs or benefits, like money – they don’t consider intangibles, like time. Making decisions after analyzing all tangible and intangible costs and benefits will lead to the best decisions. You need to train yourself to consider all costs and benefits as you analyze different opportunities, investments, and goals in your life. The key lies not in one or the other respectively, but in properly integrating the weight of the tangible and intangible costs into your process.
A simple process for making decisions
Here’s a very simple process I’m teaching myself to use in decision making:
- Calculate all costs and benefits.
- Analyze and review the results for maximum value.
- Execute that decision.
- Then, after a reasonable period of time evaluate your decision.
- Pivot, if necessary.
This process will look slightly different for everyone as we go through different seasons of life. Some individuals may have more time than money, or more money than time. One question to ask yourself is, “am I in a season where I want more time or money?”
In The Millionaire Real Estate Investor, Gary Keller says, “Time and money often are strongly connected, in that time can be used to earn money and money can be spent to buy time.” Are you willing to spend money for time, or willing to use your time for money?
This will likely change over the course of your life. When we’re young most of us have a lot of time, but as we get older time seems to speed up as we take on more responsibilities. Calculating your time is an essential piece of everyday decision making, no matter your age or season of life.
A resource that was very valuable to me as I was reevaluating how I calculate, value and spend my time was Brandon Hall’s article he wrote specifically about calculating time. I found the article really beneficial in my own life– you can read it here.
Airbnb or full-time renter?
I recently had to make a decision with my co-owner in real estate to either rent out the master bedroom in one of our properties using Airbnb or, to get a full-time renter. We researched the pros and cons, and the marginal benefit and marginal cost of each option. Ultimately we decided to rent through Airbnb. We knew Airbnb would take more time – getting an account setup, choosing furniture and decorations for the room, cleaning before each reservation, etc., but after analyzing all our costs and benefits we believed that the Airbnb process was ultimately going to be more valuable in the long-run. In this season of life, we decided the tangible and intangible marginal costs and benefits were worth it.
I know I am stating the obvious here, but just because we’ve made a decision to do something after our first analysis, doesn’t mean we have to stick with it forever. We are constantly learning and always evaluating our decision to try to make the most of our investment. Honestly, there are a few intangibles we didn’t predict: the feelings of getting a frustrated message from a guest about the power going out; the toilet clogging at midnight; or a contractor waking guests up at 7 a.m. to hammer on new shingles.
The elevated stress from dealing with these situations has been an unexpected intangible cost for our rental. But we’ve also gained a lot of knowledge about the short-term rental market – one of our many intangible benefits. We’ve discussed pivoting to a full-time renter and other strategies to continue to make this profitable. Never look at the letdown of one decision as an ultimate failure but rather, a way to course correct, pivot your strategy to get you to the final destination: success.
Hire a CPA or do it yourself?
One simple way to pivot, that I’m familiar with, is to outsource bookkeeping. I consistently hear non-accountants say how much they absolutely hate doing their bookkeeping, and even the thought of it stresses them out. I bet investors who have analyzed their time (intangible cost) and happiness (intangible benefit) find hiring a great CPA to do their bookkeeping well worth the money (tangible cost).
Get trustworthy advisors
Even the best investors need to find the right team to help them get to the next level. I recommend finding a financial advisor, a CPA (of course), and another investor you respect for their acumen and decision-making prowess. Each of your advisors should be savvy, and already have the results to show they know how to make data driven, effective decisions.
Throughout our life we will make small and large decisions. We will make decisions for the short-term and long-term. We will make good decisions, and unfortunately some bad decisions. But the best decisions in life will be made when we consider all tangible and intangible costs and benefits to maximize the value in our lives.