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Still reading, but is that factoring in the labor and opportunity cost of managing a rental property?
by bcherny 7y ago
Still reading, but is that factoring in the labor and opportunity cost of managing a rental property?
- phkahler 7y agoI'm pretty sure you dont try to factor opportunity costs into an investment. You only compare returns of different investments. Labor is a legit expense weather you pay someone or maintain your own rental property. Maybe that's what you meant, you own opportunity to do higher paying work?
- bcherny 7y agoI mean, I can: 1. Invest in an index fund, which I deposit into automatically every month, at X% return and Y% risk. 2. Invest in a rental property, which I then have to spend time to manage (or pay someone to manage), at the same X% return and Y% risk. I wondering how you're supposed to account for the difference between the two. Even if I don't hire someone to manage my property, I still have to spend time managing it, which can have a significant opportunity cost.
- chii 7y agoYou simply take out the cost from the returns. If it's true that both increments have X% return (at Y % risk), then the index fund which don't require the extra maintenance cost is higher yield. The real issue is you won't know Y until afterwards.
- phkahler 7y ago>> Even if I don't hire someone to manage my property, I still have to spend time managing it, which can have a significant opportunity cost. I am not a finance person, but it seems you're talking about two possible investments. One in a rental property and one with your time. If you manage the rental yourself then there is an opportunity cost where your time may have been better spent somewhere else. If you pay to have it maintained/managed then you are free to invest your time in whatever you like. You need to figure out the value of your time to make sense of it.