njrookie's random thoughts

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Capital vs. Labor in Real Estate Investing

(2014-11-03 07:15:07) 下一个
There are two main factors of inputs in a production function. You make money from capital or labor. No matter how valuable your skill set is and how hard you can work, you are constrained to 24 hours a day as dream sister said. The expansion ?limit gets reached very soon if you are a W2 earner/handyman/labor supplier. Of course, if you are a genius / inventor, this can be different, but that takes a special talent and lots of luck.
 
To make unlimited income, you need to make money with capital at some stage. You can grow and compound to a much higher ceiling.

RE business is a classical combination of labor and capital. Small / entry level landlord makes much higher return on capital since they are also providing lots of labor. At small landlords turn into big landlords, capital starts to play a bigger and bigger role and return on capital inevitably gets lower as many labor work is out-sourced and leverage gets harder to get.
 
Just my 2c. 
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