I've previously estimated that it takes about 1 hour a week to handle a single rental. That adds up to 52 hours a year. If I were to handle 40 rental units then it would amount to a full time job. I'd certainly want my return per hour to amount to a decent wage.
One property we bought in 2006 and jointly own with my father. If I add up all the rent we've made on that unit and the current market value of the property I've seen a 100% return on my initial investment over the 9 year period.
If I had simply bought the Vanguard REIT index (VNQ) then the cumulative dividends and current REIT value would be about 44% increase.
I can figure the amount I've made per hour worked on the rental versus just buying a REIT by subtracting the gain on the REIT from the gain on the rental and then dividing by the hours worked. Doing this I come out with about $33 per hour worked before taxes. Thats a pretty good wage.
There is however more risk in owning the individual property versus the REIT.
In this case the rental has been worth it as far as $33 /hr being a decent return on my labor. But if I can find better things to do with my time to net $33/hr then I'd probably be better of just buying a REIT and putting my time elsewhere.
What if I'd instead hired a property manager to do all the work? That would have cut the hours I spent considerably but also reduced the profitability of the rental. I figure that if I'd had a property manager running the rental then my return would be about 85% on my initial investment but my return per hour of my personal time would be more like $200/hr.
Here is how the options compare :
REIT : 4.6% return and no work
Rental ran personally : 8% return or $33/hr of work
Rental handled by a property manager : 7% return or $200/hr worked
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