Speed - The crack of investing

Discussion in 'Investment Strategy' started by NHG, 18th Dec, 2019.

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  1. NHG

    NHG Well-Known Member

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    Speed - The crack of investing

    I recently took on 3 renovation projects within a 2 week period.
    Complete gutting of the property, new kitchen, flooring, gyp-rocking, the works.
    I hired some help, and the two week mini-projects, has turned into a month long affair.

    This was a sub-leasing exercise, however the impact would still resonate with any project, eg. renovation, development.
    It highlighted a few lessons on the impact of speed.

    A number crunching exercise brought to you by NHG.

    1. Delay cost

    Note: I had 2 week early access to the property, if run effectively, it should have completed within 10-12 days. However it will finish at about day 22.

    a. I had 2 skilled labour, and 2 un-skilled labour.
    b. $350 + $300 + $250 + $250 = $1,150
    c. Holding cost was $200/day
    d. (b)+(c) = $1,350
    e. (d)*10 days in the week = $13,500

    Total = $13,500

    2. Un-rentable

    Note: Home is not ready for rent, a risky position the week before Christmas, could leave me empty until February.

    a. Total cash in at point of full tenancy = $9,600
    b. Loss of rent for the week = $800 (keep this number in mind for later)

    Total = $9,600

    3. Opportunity cost

    a. (1)+(2) = $23,100
    b. A deal came up that would cost approximately $15,800, profit of $700/week
    c. $700*52 weeks = $36,400

    Total = $36,400

    4. The pain of compounding

    Note: This is where it really hurts

    a. Opportunity losses = (1) + $800 (lost rent for a week from example 2) + (3) = $50,700

    5. Discussion

    One could continue down the rabbit hole of how the $50,700 could be reinvested.
    However it is not a healthy way to live.

    This is only a thought exercise, though it highlights why a handful of friends have been able to grow so rapidly whilst many around me have not.

    I can generally turn a house around in 3-5 days, with decent profit per property.
    However if you're taking 10 days, for half the profit, within a handful of years, the gap between net-worth is astronomical.

    I'm seeing this now.

    This is also not to say to rush, we each have our own pace we work at, nor does it mean there are always such an abundance of deals, where you are continuously missing out.

    What if each project made less money, but your turn around was quicker, would the compound effect leave you better off?
     
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  2. Scott No Mates

    Scott No Mates Well-Known Member

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    An efficient builder runs a tight site. A foreman standing around doing zip costs money. A tradie no-show costs money, miscordinated trades cost time and money.

    Make a construction programme, book the trades and drive the project. It takes a little more input but saves in efficiency.
     
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  3. KinG3o0o

    KinG3o0o Well-Known Member

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    stock market, no need to rent!
     
  4. Mill

    Mill Well-Known Member

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    @NHG Are you the owner of these properties or a builder working for a client?
     
  5. datto

    datto Well-Known Member

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    A joint venture has it's benefits.
     
  6. NHG

    NHG Well-Known Member

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    Neither.
    I lease resi and commercial buildings that are renting below market, then take them to market rent.
     
  7. Morgs

    Morgs Well-Known Member Business Member

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    Agree on a concept level there is a tipping point where the efficiency of speed vs. cost is optimized... however I think the biggest challenge is the speed of which you can re-deploy your capital.

    If there are that many opportunities that can be deployed then you should probably be looking to scale resource and funding to capitalize on the additional opportunities?

    Gives you additional scale to apportion your resource cost too ultimately. This not unlike how reasonably sized builders will manage their overall margin based on fixed cost of having their staff on the books.

    PS: I'm impressed you managed to put speed and crack in the same sentence :D
     
  8. NHG

    NHG Well-Known Member

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    Haha, I spend more time conjuring the title than the content.

    100% with you, the point was about redeploying capital. I've heard dozens of stories of huge development profits.

    Yet the time it took to actualize the returns, they were better off at the bank.

    As for scaling, give me money!

    Jokes. I'm finding money is really easy to get in the current market. It's building up the management that's my current pain point.