Everyone loves to save money, but sometimes mindset can get in the way of doing what’s most efficient. While it’s common knowledge that doing certain things yourself saves money, that isn’t necessarily always true.
People think outsourcing is a luxury only available to large operations that can easily afford it. But the truth is that outsourcing early makes you money because it buys you time. For instance, you might imagine the money you’d save if you:
But are you really going to do all that by yourself? It’s unlikely that you will save any money doing this stuff yourself. Your life is going to be harder, and your time is going to be spent inefficiently. Here are a few reasons why.
This is important to reconcile in your head. Say you want to replace the flooring in a house. You get a quote for $3,000 to do the job. Problem is that you’re a new investor, and that’s a lot of money. You just don’t want to spend it, so you attempt to do the work yourself. Is the job suddenly worth less because youdecide to it rather than someone else? Of course not. The job is still worth $3,000.
It’s important to be clear that this is a function of economics and should be applied to everything, not just DIY home projects, though that will be the focus of this article. The same concept works for anything on the above list as well. If you self-manage your rental houses, the job still pays 10% whether you’re paying yourself or someone else. You didn’t save any money; you just got a part-time job.
We outsource so much already—I’m just talking about going the extra mile. Do you hunt for your own food? Build your own house, computer, or car? Ever use Uber? Do you pay a water bill or just drop your waste “down river”? These are all things we outsource, and everyone would agree they are efficient and cheaper than doing these things ourselves. It’s not so crazy to outsource the majority of your business as well. In fact, this is how all businesses run. Everyone who has a “regular job” working for someone else is an outsourced asset to produce more than they consume.
Some people will say, “I don’t mind doing it myself; I have plenty of free time,” but this is self-defeating statement and simply not true. We all have the same amount of time (not much) and none of it is free, so don’t make this mistake of fixing toilets or chasing tenants to save a few bucks. This excuse is more or less admitting your time isn’t that valuable, but your time is incredibly valuable! No one would cut down their total time because they had extra, right?
As an investor, you should be looking at and chasing the upside and simply protecting the downside. This means stop worrying about saving $300 when your time could be spent making exponentially higher returns.
I used to sell cars, and every morning, someone would volunteer to go grab all the salespeople breakfast. Everyone who wanted something pitched in, and the guy who drove ate for free. The lousy salespeople were the ones who always volunteered—first, because they were lazy, and second, because they got a free meal almost every day. That may sound good at first, but if you go to McDonalds to save $4 on a breakfast sandwich and you miss a sale on the floor to someone who paid you to go, you miss out on a LOT more than $4. Outsourcing my breakfast was an expense I was happy to pay for because it allowed me to buy someone else’s time for a fraction of what it was worth. I used to say sending someone for a breakfast run was “going for a $500 biscuit.”
Do you know how to change the oil in your car? It’s easy, and yet most people outsource it. Why? Because we don’t have a lift, jack stands, or the time (and some of us don’t like to get dirty). I can take it down the street and have someone else change the oil for a reasonable premium, and it has other benefits, too:
Imagine if you had to learn how to build a car before you could drive one. What if you’re really good at real estate, but you can’t get over to see a property because you have to build this stupid car first? This is a horribly inefficient use of your time. This extreme example supports my overall point: Leverage what you’re good at and lean hard on that. Don’t get caught up with ancillary stuff.
Say you want to own 100 rental houses. The skills and talents needed for this are totally different than the skills needed to be a property manager. So, how much time and money are you really going to save by learning how to be a property manager first? What about fixing toilets? Is it really worth learning that skill set to save $150 now, when your long-term plan has you nowhere near plumbing? Focus on what’s important and spend your time honing skills that will be most valuable to your goals.
Now, if you’re a great plumber, by all means do as much of it as you can. If you’re great with people and you can create systems, then maybe you want to be a property manager. Whatever your goal is, go for it and delegate everything else to those who are proficient at their specific function.
Nothing is more valuable than people and the economic output they produce over time. This is why it’s most valuable to invest in people and managing people. Learning to effectively manage human capital allows you to scale bigger, create time, and compound your earnings. You don’t get big and then outsource; you outsource to get big!
Flippers who do all the work themselves are my favorite example of poor outsourcing. Back to my original point: The market value of the work stays the same regardless of who does it. So if you’re a flipper who does all his own labor, how much are you saving? Now, certainly if you’re new and literally can’t afford to outsource, that’s a bit different, but as soon as you can afford to outsource, do it. Rehabbing a house is not investing; that’s just day-job labor. How many houses can you rehab at one time anyway? Can you do five at a time all by yourself? No, you’re capped by your available time to spend. You can’t possibly have more than 24 hours, and you can’t be in more than one place at a time. You need a crew (a couple crews, in fact), and you need to manage them to be where you can’t be and multiply your productivity. If you flip five houses in a year that all need $30k of work, you didn’t save $150,000. Instead, you just paid yourself that amount. That may seem abstract, but it’s a very different thing. The error here is assuming your time is only worth $150,000 per year. The truth is, it’s worth far more.
There is one reason not to outsource: You absolutely should get your hands involved and grind out some labor for experience.
I’ve built houses from the ground up (a couple, actually) when I was a young fella with my uncle. I’ve rebuilt transmissions, clutches, honed cylinder heads, and all sorts of car stuff. I’ve self-managed tenants, and I’ve fixed toilets. Contrary to how it sounds, I do believe understanding these skills are valuable, and having real world experience is a good thing. But as soon as you know how to do them, stop. You can’t lead and inspire a team of people to follow you if they don’t think you’re willing to do their job, so do it. Learn it, then outsource it forever!