Expert Advice with Jeremy Sheppard. 20/10/2015
Years ago I was frustrated at how long it took me to iron my shirts each week. I did some quick calculations in my head at the ironing table to see if it would be more efficient to have my shirts dry cleaned.
I estimated the time it took for me to iron my shirts each week e.g. 5 shirts at 5 minutes per shirt = 25 minutes ironing per week. Plus there is the time spent dropping clothes in the washing machine and hanging them out to dry. Then I multiplied that time by my hourly rate. That was the cost of DIY.
Then I got a quote for the cost of having my clothes dry cleaned each week instead. I also considered the time it took to deliver my clothes to the laundromat and then to pick them up again. I multiplied that time by my hourly rate and added it to the cost of dry cleaning.
Amazingly, there was no significant difference. But this was not because of the cost of dry cleaning – that was ridiculously cheap. The problem was the time I had to spend travelling to the laundromat to firstly deliver my clothes and then the time to go back again and pick them up once they were clean.
It didn’t work out, so I kept ironing – dang!
Why the hat?
That calculation was done quite a few years ago. Now I’m a lot wiser (with practise). Now I realise it would have been more efficient to dry clean, even back then, because:
- I could make a trip every 2nd week reducing time spent travelling
- The dry cleaner charges more cost-effectively for bulk orders
- I could drop off a dirty load while picking up a clean load
- The quality of workmanship was better
- The clothes are already hung on coat-hangers
How is this related to property investing?
Investors need to treat their portfolio like a business. We need to keep making unemotional, numerical, well researched, financial decisions. Sometimes the question pops up: should I do it myself, or get someone else to?
The decision often comes down to what your time is worth. Calculating your hourly rate will help you make a more informed decision.
Small business owners already get this concept. In fact, for them it is usually a case of “delegate or drown”. But property investors often don’t think that way.
A significant portion of Warren Buffet’s billion dollar success has come down to placing a more accurate value on a certain share price than the market can. Estimating value, cost or time are important skills property investors need to rehearse regularly to get Buffet-like at calculating.
So let’s get some practise right now with a simple calculation…
What's your time worth?
If you’re a contractor paid on an hourly rate, then it’s a pretty simple question to answer. But if you’re paid a salary you need to consider the time spent on holidays; sick leave; compassionate leave; etc. And for business owners it’s even more complicated. Try thinking it through though since the practise is worth it.
If you’re no good with numbers, quit property investing right now or brush up on your maths. There’s no getting around this numbers game.
Since practise makes perfect, figure out what your hourly rate is right now. I’ll wait here till you’ve finished…
Now you know what your hourly rate is, you’re in a better position to make decisions about…
DIY vs hire
Is it more cost-effective to hire someone else to do something for you? Is it worthwhile having a cleaner pop in once a fortnight for example?
I come from a computer programming background. Yet most of the DSRdata.com.au website was built by other programmers. Apart from my skills being limited, more importantly, my time is. My time was better spent designing the website than building it.
In most cases it is more efficient to hire a service or buy a product instead of DIY because of the following:
- Education - will you try to save on legal fees and DIY your next property trust?
- Certification – will you invalidate your insurance policy if you wire the lights yourself?
- Experience – have you ever done a development project before?
- Equipment – do you have a drill that can punch through a 10cm concrete slab?
“Dost thou love life? Then do not squander time, for that is the stuff life is made of”
When I finished researching an interstate purchase in 2008, I realised how much vital information was available online. That was my 16th purchase and I was becoming acutely aware of what I needed to know to pick good locations.
Although I made a flight to visit the location, some questions were triggered:
- Do I really need to fly up here and sticky-beak around?
- Can I buy completely sight-unseen?
- Is there enough information online to automate this research process?
One of my favourite books is, “The 4-Hour Workweek” by Timothy Ferriss. A bullet point summary I remember from that book is:
- Eliminate – get rid of the unnecessary from your process
- Automate – automate as much of what is left after step 1
- Delegate – assign as many tasks left after step 2 for someone else to complete
Practice makes perfect
Perhaps you have a simple case you can practise calculations with. For example, is it worthwhile hiring a nanny? Is it more cost effective to actually pay a toll and save 5 minutes or save a few bucks instead and drive the long way? Should I catch the bus/train or should I drive?
Once you’re skilled with small calcs like these, scaling up to more expensive topics is easier: should I rent and buy an investment property; should I hire a buyer’s agent; should I ask someone else to do my property research for me; do I need a bookkeeper; will a $50/mth subscription save me thousands; should I take that course, read that book, buy that report…
Some of these will be no-brainers. Others will require more thinking. Practise makes perfect. So let’s get calculating.
Jeremy Sheppard is head of research at DSRdata.com.au.
DSR data can be found on the YIP Top suburbs page.
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Disclaimer: while due care is taken, the viewpoints expressed by contributors do not necessarily reflect the opinions of Your Investment Property.