Great post. I take into account the obvious - purchase price, taxes, insurance, estimated materials and labor (that I choose not to do on my own), but I never calculate my own labor expense. Generally, an investor should calculate their labor. I don't for two reasons: 1. My father taught me how to do it and turn large profits (invest in what you know theory). Basically, I know I have to bust my butt, but in the end, I enjoy a high level of certainty that I will make a profit. I'm willing to trade my time for guaranteed profitability (nothing is guaranteed, but my father has never taken a loss on a property. Hope I keep the streak alive). 2. I love it. Don't get me wrong, sometimes I daydream about my father being a stock broker - life would certainly be easier. But overall, I enjoy what I do. I'm fortunate enough to make enough at my job to live comfortably. I do the real estate stuff by choice, not necessity.
My employer would never allow me to work for someone else. I respect his policy, in fact, I agree with it. It's not an option for me.
I wonder about the scaleability myself. It's all fact sensitive. Right now, I don't have a wife or kids so I have more time on my hands. That may change in the future. It also depends upon the condition of the rentals and the quality of tenants. I believe I could handle between 15-20 occupied units without much trouble now (assumes no rehab work, just repairs and routine maintenance). That would probably change in the future as my responsibilities at home will change.
I respectfully disagree with your "live poor - die rich" theory. My plan was not to get rich quick. I was realistic when I started. The plan was to buy 10 units within 10 years. Make sure I had positive cash flow from each unit and never finance more than 50% of the value of any given property (the real estate crash really scared the sh!t out of me). I've tweaked the plan here and there but for the most part, I'm on track - maybe even ahead of schedule. Let's assume I finish the four unit, rent it out and stop buying properties. My gross rents per month will be around $5,000. My taxes, insurance and routine maintenance would be roughly $1,000 per month - leaving a net income of $4,000 per month. Essentially, I created a pension for myself after four years of work. I'm 31 and should, with relative ease, collect rent from these homes for the next 30 years. If I continue with the plan and enjoy the same success, I'll come close to doubling that monthly income. It's hard work and I'm not living rich, but I'm certainly not living poor either.
Again, great post. You certainly have a point. I enjoy a larger profit on my investments b/c I was able to secure a very low (relative to the market) purchase price and saved on labor expenses. Below are the figures to one property:
I purchased the second home for $53,500. I invested $35,000 in materials/labor. It was a real disaster and took me about 14 months to complete. I'd say a fair estimate would be 1,500 hours. It's appraised value is now $190,000. I rent it out for $1,400 per month. My taxes and insurance are $200 per month. So, in that 14 months, I picked up about $100,000 of equity and net about $1,200 per month after fixed expenses (does not account for maintenance and routine repair for wear and tear). Not bad for fourteen months of work.
Now we'll let it drop over the next few months and then maybe buy some to hold.
