Saturday, July 01, 2006

John Burley's Opportunity Cost

In my previous John Burley post, I touched briefly on the value of Burley’s time. I’d like to revisit this topic here, exploring its implications in more detail.

Recall that John Burley moved from Northern California to Phoenix in late 1990, leaving behind, apparently, a lucrative financial planning business, in which Burley claims he was grossing $140K per year. Recall also that Burley says the typical spread for his wraps is between $200 and $400 per month, which he splits, along with the buyer’s deposit, 50-50 with his investors. For the sake of argument, lets assume Burley’s average monthly net for his houses is $150. From this it’s a simple matter to figure out that, not counting the buyer’s deposit money, Burley needs to own/manage (hereinafter I’ll just say “own”) at least 78 houses to match the yearly income he has given up.

Of course the number 78 makes the obviously dubious assumption that the homes are never vacant, and that Burley has zero business expenses. Say he leases a small office for $500/month, pays an additional $200/month in utilities, and hires a salaried office assistant for $18,000/year. That brings us to 93 houses. Add in a modest 4% vacancy rate, and we’re up to 97.

Burley claimed in 1997 that he owned 133 homes. I personally think it was probably somewhere between 90 and 100, but it’s difficult to be definitive, and combing the public record is tedious, so I’m willing to tentatively take him at his word. Nonetheless, Burley didn’t suddenly own 133 income-producing properties on January 1st, 1991. He had to build up a portfolio over time. Below is a count of homes I could confirm he owned by the end of each year listed:

1990 5 (monthly income: $750)
1991 13 (monthly income: $1950)
1992 23 (monthly income: $3450)
1993 25 (monthly income: $3750)
1994 47 (monthly income: $7050)
1995 57 (monthly income: $8550)

If we assume that I’ve missed, say, 20 properties along the way, that brings us to 77 houses—just under the bare minimum needed to bring Burley back to his 1990 financial planner’s income (I shouldn’t have to point out again that I’m assuming no business expenses, here).

Is it any wonder, then, that Burley sought, in the meantime, to build a cult of personality and become the “real estate guru” that he is today, thereby supplementing what can only be construed as a meager business income with a comparatively more lucrative take selling $5,000 seats at seminars, $100 “wealth manuals,” and $300 tape sets?

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