At SAO we have two pretty lengthy lists of 1) real estate properties owned (single-family homes, office buildings, investment properties), and 2) lending opportunities (investments, syndications, private placements). There are multiple pages of spreadsheets with various numbers and metrics that we keep a close eye on. Not to mention being part of owning a storage unit business.
These spreadsheets keep us organized and are color-coded in three general categories: green (going well), yellow (take caution) and red (uh-oh!). Looking over these lists, I couldn’t help but think, ‘why do we need all of these metrics?’
Why Put in So Much Effort?
Investors spend endless amounts of time calculating their cash-on-cash return, leverage return, internal rate of return, return on investment, equity multiple, and on and on…
We can go around and around with these figures because they can certainly bring valuable insight and information. But recently I’ve come to the belated conclusion (read: when will I learn???) that the most important figure to me is return on effort , or ROE.
Some properties and opportunities just aren’t worth the effort — and I am starting to act on this realization. Single-family homes, for example are a huge headache for me and I’ve started selling them off to reduce that burden. Even with my amazing team who takes care of paying property taxes, insurance and all the ends and odds of paperwork, I don’t think single-family homes are worth it. For me.
And yet, I’m heavily invested in a series of double-wide mobile homes on acreage in Texas and Oklahoma. After telling you how much I dislike this asset class, why would I keep buying? Simply put: the operator makes it easy. Luckily, I spend less time worrying about these investments than I do others because they do cash flow well, are managed well and the return on effort is nearly effortless. I tell my team now that if I am starting to get involved with something that seems like a lot of work, I should avoid it. I never shy away from working hard, but there has to be a balance of effort and return.
Finding Your Own ROE- It’s Always Worth It
As always, with investment properties what works for me may not work for you. Find your niche and the level of involvement that makes your return on effort worthwhile. If you’re already invested in opportunities, get rid of those “nightmare” properties that are not worth the effort.
In the hunt for return on effort, here is what I’ve learned:
- Avoid promises that seem unlikely to be kept
- Enquire about the property management
- Don’t put more than 10% of your eggs in one basket
- Be willing to sacrifice some ROI to keep effort lower
- Involve yourself with opportunities that align with your values
- Finally, be VERY careful with whom you do business
When You’re Ready, We’re Here
And as always, if you are retiring from a medical practice, or any field, and are interested in passive and consistent income, reach out to us here. When you’re ready, we’re here.