As an investor, my role is to infuse money into a project or a company. Then I kick back and wait for the returns.
As the general manager, my role is to oversee the daily grind. I send emails, make phone calls, conduct research, source supplies, and do a hundred other tasks that amount to the nuts-and-bolts of the daily drudgery.
In many entrepreneurial ventures, it’s common to wear many hats — to be both the investor and the employee. In doing so, it’s easy to confuse “profit” with “paycheck.”
You Don’t Work For the Stocks You Own
If I bought stock in Coca-Cola, I wouldn’t be expected to renovate the Coke bottling factory, drive to the delivery warehouse when an order gets shipped, or design the next Coke commercial. As an investor, that’s not my job. My job is to raise the capital, accept the risk, and collect the return.
If I designed the next Coke commercial or drove to the warehouse to oversee shipping, I’d demand to be paid for my work, regardless of whether or not I also invest in the company.
Running your own business is no different. Recently, I’ve come to realize that as a real estate investor, I’ve been confusing my role as an investor with my job as the project manager.
Too many real estate investors – including me – think we can make a “bigger return” by doing the work ourselves. Newsflash: that’s not “making a return.” That’s taking on a second job (often a poorly-paying one).
As a business owner, my role is to say, “I need to hire someone at $X/hr, and their tasks will be …”
If I’m strapped for cash, I’ll hire myself. If I can find an equally-qualified candidate who will do the job for less, I’ll hire that person. If I’ve got money to invest, I’ll hire a more-qualified candidate.
But I shouldn’t perform a series of tasks myself, value that labor at $0, and then proclaim, “Hey look, I just made a 10 percent return!”
I’ve been making that mistake within my real estate investing projects. My recent decision to start delegating work, rather than doing everything myself, brought that reality to light. When you HAVE to put a monetary value on labor costs, the true profit margins come into sharp focus.
Profit vs. Paycheck
About a year ago, I wrote a blog