When I purchased my first commercial building, I was a property manager. Therefore, it was natural for me to accept the same role for our investing group. It dove-tailed nicely into my day-to-day routine. I could field calls throughout the day for my own property as well as from the portfolio I managed. Everything rolled together well. It was a comfortable fit.
I didn’t know it was called a side hustle then, but I was creating a new stream of income (albeit small) and having fun while doing it.
Fast forward eight years and I’ve found myself in an uncomfortable situation. I’ve grown my portfolio to fifteen properties with more on the way. I’m now overwhelmed by the level of work I’ve created with the management duties. The income created from this side hustle is nice, but it’s nowhere near the level I earn as a commercial real estate broker. It’s not even an amount that I could subside on if I decided to solely do my side hustle.
Therefore, I was faced with a choice – continue to drown or seek immediate help.
A Frog in a Boiling Pot of Water
Have you heard the story of the frog in the pot of water on a stove?
Supposedly, if the stove is turned immediately to high, the frog will notice the sudden change in temperature and leap out. However, if the temperature is slowly increased, the frog will not notice the change and will soon be boiled to death. It’s a gruesome analogy, but it’s appropriate for my scenario.
The first property was a wonderful feeling. “I’m managing my own building!” I would often think.
Adding the second, third, and fourth properties didn’t overwhelm my capacity.
However, there were diminishing returns on my management enthusiasm with each subsequent purchase. Please realize I said ‘management enthusiasm’ as I was always stoked to buy a new building. The management side of my brain realized there were problems that came with the purchase of a new building.
There were always new administrative tasks to accomplish. Setting up bank accounts, creating vendor accounts, and the initial communicating with partners is always more demanding in the first thirty days than at any other time.
The temperature is turned up on the pot of water, but its so minimal you don’t realize it.
Then there’s the physical aspect of the property. Even though you may have done the best due diligence possible, there are always things you discover once you’re really operating the building. It sucks that it is this way, but that’s life. I’ve learned that the first six months of a new property are going to suck more time and energy out of you than at any other period. This will be when everyone truly discovers HVAC (heating/ventilation/air-condition) complications, roof issues, sprinkler problems, etc. Everyone hopes they have found them all when they do their initial inspection but, invariably, they won’t.
Take for example the office building we purchased in December (a follow-up post will come soon). We had the HVAC units inspected. We got the report, knew what we were dealing with and felt pretty good about it. However, we hadn’t had the HVAC company go above the drop ceiling to look at the runs of ducting. They were run poorly and overly long. It was a ridiculous scenario and one of the reasons why a couple of tenants were complaining about not having enough heat. Shouldn’t we have known about those complaints? You bet, we should have. However, when we met with the tenants prior to the purchase, neither tenant made it an issue. Sometimes during a due diligence phase, tenants either don’t complain or don’t remember. Once it’s your property, though, they’ll remember and contact you everyday until you do something about it.
Soon the temperature rises on that pot of water. Can you feel it yet? I sure was.
I mentioned a couple tenants complaining above. Multiple that by fifteen properties, now carry your phone around 24/7/365. That’s the life of a property manager. I did that job previously. Some people are wired for it and are really good at it. I was okay at it. I’m much better at being a broker and a real estate investor.
Getting a Sunday phone call that a parking lot had not been snow plowed has to be dealt with before you can enjoy your day. A tenant in your duplex who complains about a problem with their toilet must best addressed before you can go to bed. These are the realities of property management.
The temperature gets turned up just a bit further.
By now, everything seemed normal – my daily activity intermixed with the increasing anxiety of the property management side hustle. I continued to add more properties into my portfolio always adding the management responsibility to my side of the ledger. Before I knew it, I was up to fifteen properties. I would start my day writing down a task list. When I realized that more than half my daily tasks/goals were related to just managing my own properties, I knew I had a problem.
Hey, how did this water get to boiling?
It’s About Brain Space
Tim Ferriss talks about batching in his book The 4-Hour Workweek. It’s the concept of doing similar tasks together so that your brain can remained focused. The concept of multi-tasking is a silly myth. Humans are not efficient that way.
Do one task and one task only.
It’s like mowing your lawn, but you stop after just a single strip before coming inside to wash a dirty dish. After washing the dish, you iron a shirt. Then you return outside to mow another strip of lawn, return to wash another dish, and iron another shirt. As you can see, time is wasted, your brain never remains focused and the resulting product (washed dishes, mowed lawn, and ironed shirts) is probably going to be substandard and delivered slower than expected.
That’s the problem with overlaying my side hustle on top of my day gig.
For example, I’d be in the middle of a lease review and my phone would ring. I would see it was from a tenant of mine. I’d answer it and immediately be faced with a problem. This issue might need to be dealt with immediately or it might not. Regardless, I had to stop and talk with the tenant. When done, I had to make the decision to either address the problem or not. After I made my decision, I would return to the lease review, struggle to remember where I was before, then resume my previous task.
My brain, and yours, is not wired for constant interruption.
And those interruptions, especially for my property management, duties would take up valuable brain space – space that could be used for either making new money or chasing more creative pursuits.
Here is a list of property management interruptions I’d received just in the last month
- A light was out in an office suit;
- Common area restroom ran out of toilet paper;
- Complaint about janitorial efficiency in a restroom;
- Where to send rent payment since tenant lost the piece of paper they’d written my address on. They’d been a tenant for years;
- Could the tenant change the locks in their suite;
- Space is too hot;
- Space is too cold;
- Neighboring tenant is not nice;
- A roof leak that was new;
- A tenant was merging with a larger national company and they needed me to approve the appropriate paperwork related to the lease;
- An employee locked herself out of the office while her boss was out of town – leaving her purse and keys sitting on her desk.
And those are just the ones I’m remembering off the top of my head.
Beyond the interruptions, here are the monthly reoccurring tasks related to my property management side-hustle.
- Processing mail;
- Processing rent payments;
- Processing/paying invoices;
- Tracking late rent;
- Renewing leases;
- Site visits/inspections;
- Booking keeping;
- Monthly partnership reports;
Then there are the annual tasks
- Tax preparation/working with accountant;
- Annual LLC reporting;
- Year-end expense reconciliation to national tenants;
- Year-end budgeting/reporting to partners.
My side-hustle had grown into a property manager job – a J-O-B!
I didn’t want a job. I may not have had to report in every day to an office, but I was definitely on the clock. I tried to calculate the hours recently and figured I was about thirty (30) hours a month currently working on management-related activities. That may not sound like a lot, but when you overlay that on your career it takes a toll – a big toll, both physically and mentally.
The Golden Handcuffs
When I bought my first property, I didn’t have any money. I sold a bunch of stuff to build capital so I could jump in with a group. I’ve already told that story here.
The next time we bought a property, I had set a couple of commissions aside so I could participate in that deal. I would repeat that behavior several times.
It wasn’t until I read The Richest Man in Babylon by George S. Clayson that I realized I needed to start setting aside money for an investment account. I began putting 10% of everything I made into a separate account. I would later roll the management fees I collected into this account. In my mind, my property management side hustle was now funding new investments.
This was when I slipped on “The Golden Handcuffs” on without realizing it.
The golden handcuffs are a phrase that refers to benefits given to employees to remain with a company. These can be something like a great health plan or stock options. In my mind, the management fees added immediate value to my life and my investing plan.
I’ve lived years now with the idea that my side hustle – the property management – was furthering my investments into real estate. It wasn’t until recently that I remembered an important fact – I didn’t buy my first properties with any of the management fees I collected. First, I didn’t have any of those fees for my initial purchase. Second, I used those fees to live on for several years until reading The Richest Man in Babylon and decided to set them aside.
When I changed my saving strategy was when I slipped on the golden handcuffs. I made the management something I had to keep getting, otherwise I wouldn’t be able to buy more properties.
Why did I do that?
I really don’t know, but I’m guessing fear. I think I was afraid that I wasn’t going to be save enough money without it or create enough new money when the time came. I had done it in the past when I had zero experience. Why did I suddenly think I could not do it when I had proven for sure that I could?
Somehow, I created a fear based upon a scarcity mindset and let my side hustle become a security blanket. I willingly put the golden handcuffs on and began making my world smaller.
Stepping Back to Move Forward
When I realized that I had let fear push me into a corner was when things really became clear. I didn’t need the income from the side hustle. It was nice, but when the work load (negative) overwhelmed the return (positive), I should have immediately examined what I was doing. However, I didn’t.
My goals with purchasing real estate are simple:
1. Create cash flow;
2. Create equity growth.
Nowhere in those two goals did I want to create a property manager job. Somehow, that’s exactly what I did, though. So where was I to go?
I needed to outsource the work to an actual property management company. That’s what I’ve done. April 2018 will be my last month of acting as a property manager for my investing group. Moving forward, we will use a third-party management company to handle our assets.
Am I going to miss the income from doing the management? Yes.
However, I’m going to enjoy the thirty hours or more of recovered time.
I’m not against side hustles. I believe they are important for us to achieve things in life. I still have this blog and my writing projects. Plus, the new real estate investments which I’m chasing will be my biggest side hustles of all.
It became clear to me over the past couple of months that I could not get to where I want to go by doing everything myself. I need additional help with various tasks to help me get to the next level.
Has your side hustle taken over your life?
Are there things you should step back on,
re-examine, and seek outside help?