Hello everyone and Welcome once again to
another episode of Selling Greenville
your favorite real estate podcast here
in Greenville South Carolina I am your
host as always Stan McCune and as you guys
know I am a realtor here in Greenville
happy to help you guys with any of your
real estate needs anything at all that
you would have in the Greenville or the
the surrounding greater Greenville area
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we are going to be doing part two of
seeing time from a value standpoint
seeing time as money assigning it a
certain amount of value in our house
flips in particular but just in real
estate in general and I think that again
to reintroduce it I think that this is
really important because there are so
many different formulas out there for
determining whether a property is worth
it to purchase just based on how much
you're buying it for what the repairs
are what the after repair value of the
house will be etc etc there's the very
famous 70% rule that says that if you
take the after repair value of a house
let's say that's
300,000 you should be paying 70% of
that minus any repairs that you have to
do to give yourself a
30% margin to sell the house and make
a profit that can be a useful rule
thumb but I like to to think as well and
I think it is very important to think as
well and if you listen to my last
podcast you already know this to
consider time into this equation somehow
we have to factor for time in the
equation and this is where sometimes
I have to decide whether when I purchase
a property and sometimes I I purchase
properties off
market and I might purchase a property
off Market or maybe maybe I have a
rental property that that you know
that I purchased originally to rent it
out and then I decide you know what
I'm just going to just sell this
property I have to determine whether I'm
going to go the quick route of just
selling as is doing what some might call
a wholetail or whether I'm going to go
the retail route of doing a full flip in
order to get the full value now going
the retail route almost always will get
you more money but you also have to take
into account and I also very strongly
believe you have to take into account
the time element of it because you know
what time is money and time is more
valuable in a lot of ways than the money
it can be you have to determine that for
yourself how much time is worth how much
money to you but there are sometimes
where I have done some what I might call
a quick flip that's not not even
really a flip more of a wholetail type
of deal where I take a property and
that I purchase you know from someone
that just wants to dump it off and just
doesn't want to have to deal with it and
I can offer them very quick terms all
cash etc etc buy it from them there's
enough margin in it that I can just turn
around and just sell it to someone else
and make a little bit of money is it
worth it to do that what is the the best
way to assess that whether that is a
good route or whether the better route
is to go ahead and just flip the house
and go through the process of actually
doing all the work so I determined a
I I devised I should say a formula
for assessing all of this this is a
Formula if someone else came up with
this I'm sorry I came up with this
all on my own so hopefully it doesn't
overlap with something else that's out
there it may who knows but this is my
formula and it's very simple to be
completely honest I twe tweaked around
tinkered with it to try to get it to
be as accurate as possible but you
take the net profit of a house your
anticipated net profit for a house and
you divide it by the number of hours
that you will be
spending doing anything with regard to
the house the the total number of hours
that you will be spending with regard to
that house okay you get that
number now you're going to take the
number of days that you will own that
property the total number of days from
the time that you purchase it until the
time you sell it and multiply that
number times three and by the way I'll
put this formula in in the show notes
multiply that number times three and
then subtract that from the number
number of hours all right your head is
probably spinning so let me give an
example here let's say that you well I
I'll give a a personal example this this
one actually this is one that
actually happened to me there was
someone that was out of state that
had a burned out duplex that was just
it was awful it was 7ft ceilings half of
it was burned out it had all sorts of
all sorts of
issues and they they just wanted to
get rid of it it was the kind of thing
where they didn't want to mess with
it anymore they they were out of state
they didn't want to list it you know
because of the condition that it was in
they had all sorts of other issues
that they were dealing with they just
wanted a quick transaction they sold it
to me this is years ago they sold it to
me for six ,000 roughly speaking I
turned around and I was just like you
know what the dirt that this thing is on
is worth more than
$6,000 I just put it on the market
for 20 nowadays I would have put on the
market for even obviously more than that
again at that time in place
$20,000 was for a half burned out duplex
was actually a a pretty high number
relatively speaking but I I knew I could
could get that or something pretty close
to it I had someone that bought that
property for that full amount within
about 10 days 10 days was the full time
that I held that property so when it was
all said and done I made Let's just call
it
$133,000 in 10 days the amount of
hours that I spent doing things with
regard to that property was like nothing
I spent like almost no hours over there
I I had to drive there a few times I had
to go there a few times I had to deal
with a few different things let's just
call it 5
hours
so 5 hours that's really all you need to
look at you need to look at your hours
and your days the hours spent at the
property and the number of days that you
hold the property total so and then of
course the profit so I made it roughly $
13,000 $113,000 profit and I spent
roughly 5 hours doing things you
know going to the property taking some
pictures dealing with people that were
interested in it and then I held it for
it was again roughly 10 days so I take
13,000 and divide it by five and then
subtract from that 3 time 10 10 days
times three and the number that I get is
2570 and so you're like well what does
that mean it doesn't mean anything if
if just on its own basically this
formula I want anything for anything
that is a good from a Time Value
standpoint is going to be over a th it's
going to score over a th according to my
formula and so that takes into account
both the number of hours that I'm
putting into it if I put a tremendous
amount of hours into a project or if I
hold onto a project if I if I hold onto
a house if I just have it for a really
long time it's going to score really low
on this metric and so there might be a
really low margin opportunity that's out
there or maybe a mid margin
opportunity if a low margin or a
midar margin opportunity if I plug in
these numbers and it scores over a th000
it's worth it for me it's worth it for
me I don't need to hit this 70% rule I
don't need to hit this rule or that rule
I don't need to have this this much
margin or this much profit because the
amount of time that I'm spending and the
amount of time that I have the property
it is worth it now you have to obviously
I'm factoring a lot into that because
I'm I'm reverse engineering what the net
profit will be I have to know what my
net profit number is going to be at the
end so there's a lot of leg work that
goes in prior to me being able to just
come up with that score of a thousand or
more but that that is what I come up
with now what you find is that a lot of
the higher margin types of properties
ones that hit the 70% rule might score
very poorly on this metric and so you
have to understand that doesn't mean
that those are bad deals that just means
you're sacrificing a lot more time for a
lot more money and that might be a
worthwhile sacrifice we talked about
this before there is a Time currency and
then there is actual currency someone
once said it like this time is money but
money was money first and so we need to
think about it that way too just because
something scores low on here doesn't
mean it's a bad deal here's another
scenario let's say you have a house that
a house flip a house project that you
think you can make $50,000 on you end
up spending roughly 120 hours of your
time at that house maybe you're doing a
lot of the work yourself and so you
end up spending 120 hours that's roughly
you know three work weeks three work
weeks of of your time and let's say
that in the end you have that
property for let's just call it seven
months plugging this into my into my
calculator here
so you spend three weeks of your time
doing doing work at this property you
hold the property for S
months and you make $50,000 guess
what you scored really low on this
metric because you spent a lot of time
working on that property and you had it
for seven months so I have 50,000
divided by 120 which is the number of of
hours spent working on the project
minus in parentheses if you're using
Excel 3 * basically 200 200 210 which
is roughly 7 months that comes up
with a score of minus
21333 so not only are we not near a th
we're like in the minuses well that's
irrelevant all that that means is that
you're having to spend a lot of time in
order to get that 50,000 but you know
what $50,000 is isn't you know that's
not a bad haul for some people that's
like well more than their entire year
salary you did that with three months
worth sorry three weeks worth of work
and just having the the property on
hand for the equivalent of 7 months like
okay I can see how that could make sense
there was a house that I flipped last
year that based on these metrics I
just we just barely didn't make it to
that 1,000 point mark but that was
because we had some delays that caused
us to hold the property for about a
month longer than we should have a
month longer than I had originally
budgeted and really a month longer than
it needed to be and that was for a
variety of reasons and because of that
we just barely missed hitting that
hitting that number that was a very
important number for me to hit I was
really aiming to hit that that time
value number of hitting a th000 on it we
just missed it because of a few
things that didn't go our way but you
know what it wasn't that big of a deal I
wasn't that that's not something that
I'm I'm worried
about that those types of things will
happen it's probably better to miss out
on that as long as you're not super
stressed and super you know having your
lifestyle completely dis Ed it's
probably better to miss that than like
Miss on money goals right so because
that's where people really get in
trouble is when they miscalculate the
money part of it and then they end up
losing tons and tons of money and it
becomes a really big deal but this is
basically a just another way this isn't
a replacement for the other ways that
you assess deals but this is another way
to look at it and to say okay am I
spending a lot of time relative to the
amount that I'm getting for the
property
or am I not spending a whole lot of time
and I'm
getting a decent return this a I feel
like this is a good formula for lower
margin types of projects to determine
okay is this lower margin type of
project going to actually be worth it
for me I'm only going to be making 10 15
$20,000 okay okay where we don't want
to be only making 10 15 $20,000 if we're
spending a lot of time on the project so
let's plug it in here how much time am I
spending in terms of my personal hours
how much time are we spending in terms
of total days that we have this property
and then if it comes out to being over a
th000 is the score great that sounds
like a good opportunity if it's well
over a th like that one that I just
mentioned before that that I made 13
Grand on in in 10 days you know that one
scored
2570 well that's a no-brainer now when I
bought it I didn't know it was going to
it was going to do that well to be
completely honest I was in my mind I was
budgeting for something closer to let
me plug in the number here I was
budgeting for something closer to a
score well it's still pretty good of
like
2420 2,420
so again using a formula like this
can can help you to quickly make a
determination okay even though this
isn't a big money maker it's not costing
me a lot in
time that is an important part of the
equation now maybe it is going to cost
you a lot in time you want to make sure
that you're justifying that by the money
that you're making in return you want to
make sure that okay at that point all
right yeah this is going to be a timec
consuming project but it will be worth
it and so you want to take both of those
things into consideration I think way
far too often way too much we find
everyone is just focused on the money I
know you we've talked about this already
in this podcast and last one we need to
also account for time that's a really
important part of the equation and
that's it very simple like I said I'll
try to remember to put that formula in
the show notes if you want to look at it
if you guys have any questions please
reach out to me I can help you with any
of your real estate needs in the greater
Greenville area my contact information
is also in the show notes and I hope to
hear from you guys I hope to see your
ratings and reviews as you plug those in
and I hope you guys stay safe and have a
great rest of the week
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