Why Measuring Return on Time Could Be a Game-Changer for Your Portfolio

Maximizing Return on Time in Real Estate Investing

When you first venture into real estate investing, the allure of substantial financial gains and high returns is often the primary motivator. In the beginning, the excitement of acquiring and managing properties can be exhilarating. However, as your portfolio expands, you might find yourself trapped in an endless loop of transactions, troubleshooting, and property management, turning what once seemed like an investment into another full-time job—resulting in burnout and frustration.

If you’ve ever felt overwhelmed by the demands of real estate investing, you're not alone. This is a frequent challenge among investors who have yet to strike a balance between their time and their investments.

Incorporating Return on Time (ROT) Calculations

Achieving a more manageable and fulfilling investment journey requires understanding how you wish to spend your time and quantifying its value. Through my coaching experience, I have found that integrating Return on Time (ROT) calculations into your investment strategy is an invaluable tool. It enables you to measure the efficiency of your time usage, evaluate your investment strategy, optimize operations, and scale your efforts effectively. By consistently monitoring your ROT as your portfolio grows, you can assess whether your investments are truly serving you or if you are merely serving them.

Steps to Aligning Investments with Your Desired ROT

Step 1: Building Capital for Investment

Most new real estate investors start without significant capital, so they exchange time for money. Common methods include:

Working a Traditional Job: Salary raises, commissions, and bonuses can provide the capital needed to invest in real estate.

Starting a Side Business: Generating additional income through a side hustle can help kick-start investment activities.

Engaging in Real Estate Ventures: Strategies like wholesaling, flipping, or small syndications are popular ways for investors to build their net worth.

Step 2: Allocating Your Time as an Investor

Once you have accumulated sufficient capital, the next step is to decide how to allocate your time. Do you want to remain actively involved in all aspects of your investments, or are you ready to shift toward more passive strategies?

Here are four ways to allocate your time in real estate investing:

Ongoing Active Investments: This approach involves continuous engagement, including fix-and-flips, wholesaling, house hacking, and self-managing rentals (short-term, mid-term, or long-term), hotels, RV parks, or residential assisted living centers. While these strategies can yield higher returns, they require significant ongoing time and effort.

One-Off Active Investments: These investments involve initial active involvement but can be handed over to property management for long-term holding. Examples include the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy and joint-venture partnerships. Although lucrative, these strategies require upfront time investment before transitioning to a management team.

Semi-Passive Investments: With the right team and systems, many assets can become relatively hands-off investments. If you purchase the asset directly or enter into a JV partnership, you retain operational control. While this is advantageous when things run smoothly, it can be challenging when issues arise. These investments require periodic oversight but generally demand less involvement than active strategies.

Passive Investments: True passive investments involve investing your capital while a professional team manages the entire process. Examples include raw land, performing note funds, private real estate syndications, and crowdfunding platforms. These investments allow for minimal ongoing effort, enabling you to enjoy steady returns with limited active involvement.

Early in your real estate journey, a more active role may be necessary. If you're uncertain about your desired level of involvement, ask yourself: Do you have a passion for real estate?

If real estate excites you and you thrive on hands-on involvement, remaining actively engaged might be the right path. However, most investors aim to gradually move toward more passive strategies that offer solid returns without the constant demands of daily management. This transition can help achieve a better work-life balance and provide time for other priorities.

Step 3: Monitor Your Time and Calculate ROT

After choosing your investment approach, meticulously track the time spent on each deal (documentation is also crucial if you intend to claim real estate professional status for tax purposes). Recording your time will help you understand your ROT, enabling you to make informed decisions to optimize your holdings throughout your investment journey.

Here are examples from my own investing experience:

Fix-and-Flip ROT: Many fix-and-flippers who handle manual labor spend 120 to 240+ hours over six months. By outsourcing cosmetic flips on C- and B-class properties, I reduced my time to about 45 hours per project, earning $25,000+ per flip.

ROT = $25,000 / 45 hours = $555 per hour

While fix-and-flip projects are excellent for capital building, they can be inconsistent, making it challenging to rely on them for steady income.

Buy-and-Hold Rentals ROT: Transitioning to buy-and-hold rentals required just 5 to 10 hours per month for acquisition, management, and maintenance, thanks to property management systems. A property yielding $4,000 annually for three years, plus a $40,000 profit on sale, resulted in:

ROT = ((4,000 × 3) + $40,000) / 160 hours = $325 per hour

Although the ROT was lower than flipping, the reduced time involvement allowed me to scale my portfolio while balancing my day job, family, and investments.

Passive Investments: My passive investments usually require 1 to 5 hours per quarter. For a $50,000 investment that doubles my equity (earning $50,000 profit) over five years, with 15 to 20 hours of involvement:

ROT = $50,000 / 15 hours = $3,333.33 per hour

Although capital is necessary for passive investments, many investors aim to transition their more active holdings into this model. This shift offers rapid scaling, diversification, the potential to leave a day job, and flexibility to focus on meaningful activities and personal growth.

Final Thoughts

Maximizing your ROT to thousands of dollars per hour might be the ultimate goal, but it's important to view this as a progression. Whether through fix-and-flip, buy-and-hold, or passive investments, with the right strategies, teams, and systems in place, you can enhance your ROT over time.

For most investors, calculating ROT helps align their investment activities with their passions, time commitments, and financial goals. By optimizing ROT, you can build a real estate investment business that truly works for you—enabling you to focus on what matters most.

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