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Understanding the difference between ROI & ROTI

Enhanced Transcribe:

Hey folks it’s Dr Ro.

I wanted to do a live video on return on time invested versus return on investment, it’s a conversation piece that I have quite often, certainly when I have the three-day property training, I do. 

Or any conversation with people about money is I usually ask questions about what’s the ROI you’re getting on money but also what’s the return on time invested you’re getting? 

Even in what you’re doing. 

Let me explain the difference between the two. When you think differently to other people you will find there’s a thrust against that you’ve got to decide, are you going to do what you’re doing? I.e. going in the same direction as other people or are you going in the opposite direction because as Warren Buffet says observe the mass and do the opposite. 

Meaning that most people herd in one direction, they work long hours, chuck their money in the bank and save up and spend a little bit or spend a lot and have very little left at the end of the month. 

That’s basically what masses do. Return on investment when you put your money in the bank £100,000 in the bank right now. Let’s put inflation aside from it as that becomes crazy. In simple terms, they offer you 1% on your money that’s a 1% return on investment. £100,000 yields you £1,000 back at the end of the year. Now if you want to add inflation to that very quickly if inflation is eroding the value of that by 2.5%, we’re talking about £100,000 worth of money only worth £97,500, but you’ve made £1,000, so it’s really worth £98,500. 

You’re down one and half grand that year. That’s scary. Return on investment from a monetary perspective is getting your money to work harder than where it is right now, and if there is an opportunity for that to happen of course you’ve got to make a decision. I can’t give you financial advice as that is not the intention. Look at what am I making here versus what I’m making here. 

If you work with a property investor and they are offering you a return of 6% and you’re making 1% in the bank you’re going to net that 5% up. If you’re working with somebody offering 1% and you’re making 1% there is no difference. Someone offers you 2% and you’re making 1% in the bank, then you might argue still low but there will be a point where you feel comfortable about money. 

What is it worth to you? 

Do I want to leave it there, losing money or do I want to make three grand a year? Equally, if you’re looking at a property investment where you do the deal you put the money, buy a property and refurbish it in the future, that allows you to add value. That value allows a refinance and when the refinance takes place it allows you to pull equity out of the house and some of the funds you put into the house. 

Let’s say you go into a deal with 20K in and after refinance you pull 10 out but you leave 10 in. that property after refinance is renting with a net cash flow per year of £5,000 a year. At the end of the year you’ve made £5,000 and you’ve left £10,000 in that deal. The 10,000, we know is going to make very little but the £10,000 in the property forget capital growth, the cash flow is going to make you £5,000 profit which is a 50% return on investment. 

In that case, would I rather leave the money in there and make 50% on investment or take it out and stick it in the bank where it’s only making 1% or 2%? That is return on investment. You’ve got to start to think differently about what most people do with their money. 

ROTI is a return on time invested. 

If you go into a job for example, the average income ranges between 33 and 110 K on average, more about 30 to 40. We took a 50 K salary. We worked out that someone spends eight hours at work and two hours to travel. That’s 10 hours a day times, five days a week is 50 hours a week. 50 hours a week 52 weeks minus four weeks holiday is 48 weeks a year, that is 2,400 hours. Take a 50,000-salary divided by 2,400 that is £20 an hour, or £30,000 £12an hour, £100,000 you’re on £40 an hour. I then said okay, well £12-£40 an hour that is return on time invested in those jobs and if you’re on a £100,000 job you’re probably working more hours than that. 

An HMO makes a thousand a month if you call a letting agent and spend an hour on the phone, one hour talking to the letting agent about your HMO you’ve made £1,000 an hour that month. If you spend 10 minutes or longer you may have made £6,000 an hour a month from that one property. 

What’s my point? 

My point is that there are some asset vehicles where you put money in and your return on time invested is magnified massively and you get enough properties coming in you get £1,000 a month or more. Most people are on the phone every hour, every single month about one of their properties. Your return on investment goes through the roof, if you buy, give, six, seven properties your hourly rate goes through the roof as well. Why would you be in a job? 

You weigh up the return on time invested. Imagine getting your money to work harder for you and on top of that you get your time working harder for you as well. 

I hope that makes sense. 

The whole point here is I want you to think differently to go against what the masses are thinking, behave differently, act differently, invest with money differently, invest your time differently and it will make a dramatic difference to your life.

I shall see you in my live.

Disclaimer: This video or written publication does not offer investment or financial advice and nothing in them should be construed as investment or financial advice. Our publications provide information and education only. The information contained in our publications is not, and should not be seen as a recommendation to use any particular investment strategy. Always seek financial advice from an independent financial adviser around your own personal financial situation.

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