Stop pretending that opportunity cost doesn't exist... | #5

...it's costing you millions.

While this sounds stupid on its face, it all depends on how you look at it.

I’m hard-pressed to accept that people operating real estate like it when their team members spend time at Home Depot or Lowes shopping. In fact, it was my job to help my customers keep their people out of the stores because it was in their best interests.

Why? Opportunity cost. Every single minute an employee is driving, talking, or shopping is a minute that they aren’t completing the tasks they need to complete in order to make the business more money, and to do what you actually pay them to do.

For maintenance staff and rehab crews, this means fewer projects get completed in a day, or it takes a longer time to turn a unit. It also means you’re paying them to spend unproductive time - but you’re legally required to pay them, even if you think what they’re doing is a time-waster.

Return On Investment needs to matter

On a broader scale, there’s an argument that every minute of every day has an ROI - Return On Investment - tied to it, and if you aren’t getting the highest return for the business with every minute, you’re actually LOSING the difference between the highest value and the value of where the time is being spent.

Sometimes, that includes things that aren’t always the easiest to calculate the return on, or that you don’t even realize are costing you money. In fact, what you don’t know will kill you, and it could be slowly - the death of 1,000 cuts - or it could be faster, but no less deadly to your business.

A couple of weeks ago on LinkedIn, I wrote about not understanding the obsession with coin operated laundry and how backwards it is that people are still installing it. This week, we got another shot across the bow towards the end of physical currency when the US Mint stopped production of the penny…forever.

The argument? The ROI is not there to use coin-op when the technology exists to install card-op and eliminate the opportunity cost associated with humans in the process. Again, this seems like it should be common sense, right? It’s not, or perhaps common sense is truly dead.

Think about the risk of theft, the damage from the vandalism committed during the theft, the time wasted dealing with police reports (just to have that person released within 12 hours to do it again), the insurance rate bump if you report it, the headache calling the appliance company to get repairs done, the opportunity cost from having machines down - and not just the laundry machine coin boxes, the ATM and the coin-changer you might have on-site as well.

Lost time with your loved ones has a cost. If you aren’t using that time for loved ones, but for business, what if you missed that call, replied to an email too slowly, or didn’t meet someone for lunch, and they sold what you thought you were going to be buying as your next cash-cow investment?

It’s not just about the ACTUAL costs of the damages, stolen coins, and insurance…it’s about the time you could have spent doing smarter things.

Also, there’s friction in 2025 in demanding cash for a product or service. Even vending machine operators have it figured out that you need to be using a card to buy soda and snacks from them, yet here we are with 50-year-old technology, and we’re surprised when people go elsewhere to do their laundry because we still want cash?

Have we learned nothing from the success of Amazon? Take the friction away, make it easier to spend money, and - shocker - people will spend more, more often. Add friction with coins and physical cash, and people will find other places to do what they need to do.

Why? It’s a part of the human condition, and the sooner you accept that and start working around it, the more you’re going to make in your business. What is valuable to you, as a business owner or operator, may not be valuable to your customers, ie, your residents.

Vacancy Loss

We accept, in this business, that vacancy loss is one of the fastest ways to erode cashflow and go upside-down for the entire year with just one or two delays in turning units around.

While this number is deadly because you’re no longer offsetting fixed expenses - property taxes, labor, overhead, debt service and the rest - it’s also loaded with opportunity cost because you’re going to spend money to turn the unit.

At the very least, you’re going to have to clean, touch-up paint, and inspect everything before putting a new tenant in that unit…and all of that costs money.

The opportunity cost is the delta between renewing that tenant and everything you now incur in expenses and lost income, and it could take a year or two to actually recoup the cashflow if that unit is damaged.

If you’re raising rents $50 and you get a move-out, is it better to negotiate with that tenant to get them to stay - assuming they aren’t a problem you want gone - or do you just let them move?

Napkin math, this tenant is going to leave you with a month of vacancy, probably more in the late fall and holiday season. You’re going to spend at least a few hundred dollars in turn costs, and then placement costs of getting a new tenant in, and you don’t know if that tenant will be a problem tenant.

So now that unit just burned all your free cashflow it generated for a year…or two, or three. If you’re not a cashflow investor (I think you’re nuts if you aren’t, but that’s another story) then you’re literally subsidizing your bank and your tenants at your expense for the hope that MAYBE someday you’ll get what you think the property is worth at sale (newsflash - it’s unlikely at best).

The real cost of not knowing what you don’t know

Simple math question:

a) How much money do you take home per year?

b) How much do you want to take home?

Now, subtract the answer to a from the answer to b.

This is your ignorance cost - the opportunity cost from not knowing how to make the money you want to make.

So, you should be willing to spend whatever time and money it takes to get from point a to point b, provided the delta between ignorance and knowledge is large enough to create a return on investment for whatever you spend to get there.

For many, they choose time and the school of hard knocks. Here’s the problem…you can make more money, but you can’t make more time.

Compound interest becomes a snowball that creates wealth, but that takes time…so the sooner you start rolling the snowball down the hill, the larger that snowball will get before you die (assuming the hill is infinitely long, of course).

Knowledge works the same way, because the more you learn and the faster you learn it, the sooner you get the snowball rolling down the hill towards your goals.

So why, as an industry, are we constantly obsessing over the COST of a product or service, but blind to the opportunity costs of delays, deferral, and doing things half-way?

Is it ego? Is there some need to prove that we can do it better than the next guy, but we have to go through all the same pains they did first?

How, then, do you deal with the cost avoidance part of opportunity cost? If it doesn’t happen because you avoided it, you just put money back in your pocket…it’s the basis of risk management, and yet we avoid it to the extent that we’re cutting off our noses to spite our faces, rather than asking for help.

I see this all the time when people downplay the value of coaches, mentors, consultants, and the rest of the “knowledge industry”.

Stepping over dollars to pick up pennies

Sometimes the easiest answer is the wrong one.

Just because it’s cheaper doesn’t mean it’s going to save you money. Think about the low-bid contractor who did a terrible job, and you spent two or three times more to fix the damage they caused and complete the job with a better company, not including the cost of your time (or the opportunity cost of you spending time fixing it instead of doing what moves the needle).

Or maybe that off-brand TV you saw on sale at Walmart that you bought and it died less than a year later with no warranty?

What about the tenant that you placed - without doing a good job of vetting income, employment, criminal history, or whatever else - that lived in your unit for free for a year and damaged it so badly it cost you five figures just to get it rentable again?

I won’t even get into the compliance side of the horror stories I’ve seen and heard from landlords who just didn’t bother to learn what they didn’t know until it cost them tens of thousands in fines because they were violating the law.

You need a team that knows what you don’t know and spends their time focusing on informing you of those things so you can avoid them.

If you try to learn everything yourself and think you’ve already mastered it all, then I guess you’re the unicorn and I’m happy you’re able to fart glitter and pixies and get everything perfect so this advice isn’t for you.

For everyone else, you need a team to help you improve and do things better, or you’ll keep getting the same results that you’ve always gotten.

If that means you need to open your wallet, run the numbers, and see what’s more expensive in the long run…ignorance, or the bill you get from someone who's already done it.

Jack of all trades, master of none.

Don’t be Jack.

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