How to calculate the value of hiring an investment property manager
In one of his recent one-a-day videos, our General Manager Mike Scase Hollamby discussed how time is money when it comes to void periods. Every day your property is empty, it is costing you money. As a quick recap, in the video Mike talks about the three strategies that Ezytrac execute to make sure properties are let as quickly as possible, therefore reducing the cost of void periods. These strategies are:
- Using multiple agencies to ensure maximum exposure and competition between agencies to get your property let
- Providing access to our online application process to tenants, reducing the time it takes for tenants to complete application forms and allowing our agents to work on applications in real time
- Utilising our online platform to complete referencing – this provides tenants with 24/7 access to provide us with referencing details – and to do the tenancy agreements and tenants’ contents and liability insurances, as well as arranging deposits and rental payments
What these strategies mean is that the time it takes to locate and sign up good tenants for a property is compressed because of our use of technology. Therefore, void periods are kept to a minimum and rental income is maximised.
Of course, it is not only by reducing void periods that we help buy-to-let landlords take advantage of the value of time.
Do you value your time?
Why have you invested in property? Whether it is for long-term capital gain or to create a passive income stream or both, it’s probable that your time is important to you. More so than you might think:
- At the end of a long day at work, do you really want to field calls from irate tenants who want a dripping tap fixed immediately?
- Are you happy to give up your lunch break to chase a late rental payment?
- What would you rather be doing at the weekend – spending quality downtime with the family or conducting property inspections?
How much is your time worth?
As your age increases, you begin to realise just how valuable your time is. You can’t get back the time you spend away from your family, your children, or your grandchildren. Once an hour has passed, it is lost forever. When you consider time in this way, there is no value that can be placed on it.
However, this is only one way to look at how much your time is worth. A more conventional way is to measure the actual cost of your time, were you to be doing something other than managing your property.
As an example, let’s say that you have to turn down the opportunity of overtime on a weekend because you have to conduct a property inspection. Once you factor in travel time and the hour you spend in the property, a whole morning has been and gone. Three or four hours. How much would you have earned at work?
Then there are those maintenance jobs that need doing. For example, consider the need to decorate your property during a void period. Let’s say that decorating the living room takes you two days. You will have to make time to do this work – perhaps you’ve taken some of your annual holiday allowance from work. That’s the time you won’t get back; time that you could have spent with friends or family, or time you could have spent earning money.
That room that will take you two days to decorate? If you work instead and earn, say, £20 per hour, you will have missed out on around £320 earnings. A professional decorator is likely to take less time and do a better job. If the quote for labour is £200, doing the job yourself has actually cost you a net £120. You’ve sweated to do a worse job, and it has cost you money to do it!
Do you know how much your time is worth?
Let’s figure out how much your time is worth. It’s easy to do. Simply divide your gross salary by 2,080 (52 weeks in a year, and 40 hours of work per week). If you earn, say, £40,000 per year, an hour of your time is worth:
£40,000/2080 = £19.23
Is investment property management value for money?
Let’s say that your rental income is £2,000 per month and that your expenses (mortgage interest, maintenance, etc.) are £1,500 per month. You are making £500 each month. If you spend, say, just two hours per week self-managing your property (a total of nine hours per month), you’re making around £55 per hour. That’s pretty good. So why do so many buy-to-let landlords pay property managers to manage their properties?
Let’s say that investment property management services cost £200 per month on your property. They do all the work for you, and you need to spend only one hour per month liaising with the property manager and checking your bank account. Your net profit has reduced by £200 – you’ve now only earned £300. But you only spent an hour doing so – your earnings are now £300 per hour!
Plus, you freed up eight hours of your time to spend doing what you really want to do – now that is real value for money.
Live with Passion,