R.O.T. Return on Time
Finance books are full of acronyms. C.O.C. is Cash on Cash. I.R.R. is Internal Rate of Return. One I’ve never read, but I’m sure someone else beat me to, is R.O.T. or Return on Time—as in return on our time invested.
While I write about the BRRRR technique a lot, it’s not perfect. I’ve said that you can obtain an infinite return using this technique. If you have zero dollars invested, and you get any return, it is infinite ROI. This is still true in regards to monetary investment but it certainly isn’t true in regards to time and effort invested. BRRRR investing allows you to substitute work and creativity for capital. That’s what we love about it and why we were able to grow quickly on a firefighter’s salary and still have a life of travel and experiences—not one of austerity.
Creating good deals is always necessary to be an investor; otherwise you’re just buying properties. However, you might have capital to invest and not have much time. This is when you can passively invest with others by investing in their deals by being a lender or partnering with them or even investing in a syndication deal; which is a deal that a sponsor puts together and investors fund for a targeted rate of return from a larger project such as an apartment complex or a commercial property. A Chick-fil-A near me is for sale right now, who’s in?
This investment of time is what my amazing wife has poured into our business for the last two years since she went full time. She created so much equity through her vision and creativity that we haven’t invested a penny from my salary in the last four or five years. This has allowed us to live on my paychecks and reinvest profits back into the business.
The southern manners I was raised with don’t allow for discussion of money with friends. Forgive me grandparents, but these healthy discussions about money are needed now. To be clear, I may brag about my kids but you’ll never hear me brag about money. As some of you know, I drive a pretty flashy eleven year-old Honda CRV. I’m not a mom and my kids don’t even play soccer, but I pull it off like a champ. All this to preface these frank discussions about money that are “bad manners” and to ask for your forgiveness in being open and honest about this sometimes taboo subject.
This lady I married quit her job and took a gigantic leap of faith. And she flew. We learned as we grew and we are constantly learning from our experiences. We want to share these lessons as we’re learning them so that you may avoid the same ones. You can learn other ones on your own and share them with all of us. The latest lesson is that the cash flow isn’t quite what we had hoped. We add up maintenance and vacancy and then the overhead of bookkeeping software, Callrail, website management, and other random subscriptions and what is left is not quite what we’d hoped for.
We were advised to always buy for cash flow. We did. But we’re feeling a little unimpressed about the amount of money left at the end of the month. So what do we do? We are beginning to dabble in selling with owner financing, lending money, and next is likely multifamily properties—as in apartment buildings. What has changed? We still have chosen to live on a firefighter’s salary but we now have a new form of capital to invest. It’s equity. We see equity largely as lazy money. So while the cash flow from these rentals isn’t quite what we had expected in regards to cash flow, while we weren’t paying attention to it, we had amassed quite a bit of equity. Each property has no less than 25 percent equity due to common loan-to-value limits by lenders.
So while we are far from wealthy, we have something other than time and creativity to invest now, for the first time, and we’re exploring other options to supplement the BRRRR technique. I write this not to discourage anyone from BRRRR investing. On the contrary, it is this technique that we owe most of our growth to. However, it takes Time. And the cash flow or R.O.T. isn’t always going to knock your socks off. But remember, you also are creating equity out of thin air with each deal. You now have something to work with other than, or in combination with, sweat.
I pictured amassing a big portfolio, never selling anything, and eventually living off of our cash flow but this model is a slow one. We’d probably need to double our portfolio size to reach a modest income level if we wanted to live on the cash flow in our retirement years. Each of these properties is a large investment of TIME. Time is precious. We all have to prioritize all of our assets and budget them, and time is one of them. I suggest you try to measure your return on money AND time in every investment. Don’t underestimate the value of your time.
If I started all over I’d do more BRRRRing earlier. I’d have used private money sooner. I’d have started this whole journey about ten years earlier but I couldn’t because I had to wait 13 years for my high school sweetheart to come to her senses and track me down. I sold her on real estate as an investment and she bought in. You see, she’s good at everything she puts her mind to. She’s not afraid to work or sweat. She’s my secret weapon. But her time is being consumed at a greater rate than the return is worth to us. Our R.O.T. is declining. Now we may give up some yield and settle for an I.R.R. of 15 percent instead of infinity but we can keep more of our time. Time to ride horses. Time to fish. Time to play with kids. Time to be still. Time to cook home-cooked meals. So as you learn all of the metrics with which to measure investments, don’t forget Time in your models. If you can afford the time, BRRRR is a great method. If you can’t afford the time, you may want to find other techniques and you’ll need capital.
We pride ourselves on being driven and being hard workers. We’ve both worked from well before the legal age of paid labor and we love to work. But you may have heard that we believe in this concept of “keeping the main thing the main thing”, a time or two. This is a concept that is open to interpretation but here’s a hint to my interpretation: money isn’t the main thing. We have to hold ourselves to this set of values and know when to pump the brakes or adjust our direction. Time is precious. Spend it wisely. And as always, keep the main thing the main thing!