Are you paying rent on your time?
I often fantasize about being an entrepreneur.
There’s an air about entrepreneurship these days that is very, very, exciting – almost celebrity-like. Build something disruptive, develop a product that converts prospects to cult-customers, and you could be the next Emily Weiss or Jamie Kern Lima. While the celebrities of Boomers and Gen Xers were actors, musicians, and maybe for some, investors (Warren Buffet), Millennials and Gen Zers have added creators, and entrepreneurs to the category line up.
Recently I was sharing with Ronnie that there is this craving in me to become an entrepreneur (perhaps it's because I am the daughter of entrepreneurs) and for the first time, I expressed it in such a way that made my longing make sense – I long to be an entrepreneur because I value my time, it is the one resource in life I cannot get back, and working for someone else (at least in the private sector), is kind of like paying rent... but paying that rent on your time.
Every month the bill comes (160 hours of my life or more), and while the bill always gets paid, and in exchange I have a wonderful place to live – amenities (like healthcare, 401k match, PTO) and all! At the end of the day, I don’t own this place, and should I ever leave it, I don’t get to sell it and cash out on any of the value I’ve put into it.
Now, I know what a lot of you Millennials are thinking – what about the companies where I have equity in the company? Relevant, sure, but I have personally been part of multiple organizations where I had equity, and when the company was acquired, that equity was worth zilch. I’ve of course heard stories of friends who were one of the first handful of employees, who’s equity was worth something, but I think we can agree in the fundraising environment many of us have operated in since the market came back after the 2008 crisis, many companies have been over-funded and have under-delivered against investor expectations, and as such, upon acquisition (as sexy as it sounds) only investors, founders, and key execs got payouts, leaving other employees with either a new salary and equity conversion package (in the best cases), or a severance package (in many other cases).
So where does this net out?
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I think it’s this exact topic that I’ve toiled with in my head since tasting entrepreneurship when I was building my first business, ManifestHer, which my co-founder and I wound down when the pandemic eliminated our business model and revenue overnight, and we made the decision for ourselves and families to wind things down instead of white-knuckling and pivoting. So if you’ve toiled with it too, you’re not alone.
For me it always helps to analogize situations so I can gain different perspectives. So to analogize this, let’s pretend for a minute we’re not talking about paying rent on our time, but instead paying rent for a place to live, versus a mortgage on a place we own, or own-to-rent (like an investment property).
Ronnie and I were renters for many years before we bought our first home and second home. The first home is an investment property, the second home is a home where we live.
As I said, we rented for many years, so I feel that I can pro / con what I love about renting versus owning AND share how ownership is different when you own-to-live versus when you own-to-rent.
Let’s get into a few things that come to mind:
I’m just scratching the surface here in terms of the Pros and Cons, but as you can tell from the above that there are definitely reasons why RENTING is actually great and OWNING-to-live or OWNING-to-rent are great too.
So is there a right answer? No. There’s actually not. Here’s the deal, there’s just YOUR answer.
And guess what? Because it’s YOUR answer, you can change your mind at any point. To make this point more clear:
How many people do you know who owned their home, and then they/their spouse took a big new job that required them to move cross-country? Following their cross-country move, they rented for a bit before buying a new place because they wanted to try out a few new neighborhoods before they settled into their new community. You know this family right? Yeah, me too.
How many people do you know who were renters in the city before they moved to the ‘burbs and bought a place?
How many people do you know who bought their first place in the city, and then ultimately moved to the burbs, but decided to keep their spot downtown to rent out because they could easily cash flow it and keep the asset around?
Isn’t it funny, how when we are talking about real estate there’s no right answer. It’s a simple equation, preference, and need for a place to live that removes the emotion and replaces it with logic: Where do we want to live? Do we want to rent, or own, or own-to-rent or possibly do all three? How much money are we willing to part with for this place?
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So let’s circle back now to the conundrum of “Should I become an entrepreneur?” Is there a right answer? No. There’s actually not. Here’s the deal, there’s just YOUR answer. And guess what? Because it’s YOUR answer, you can change your mind at any point.
I think so much of deciding if you want to become an entrepreneur is a question of income and industry. If you are making no income right now, the only way your income can go is UP! So what complicates things?
Well, if you’re making substantial income right now and you have obligations for that income then you have a more complicated equation, but it’s still just an equation.
How long can you (or are you willing to) fund yourself on your terms (bootstrapping or raising/borrowing capital), such that you have the ability to meet your obligations, while investing in this asset that one day you will be able to sell?
Admittedly, one of the unknowns for me around business owning versus real estate owning is how the transactions work – what happens when I build something and want to sell it?
So, let’s lean on what’s fundamentally true and make some assumptions…
Assumption 1 – In any market there’s buyers and sellers, therefore if you have a cash flowing asset, in a big enough market, there will be potential buyers for it, and the bigger, more expensive the asset, the lower the number of potential buyers (e.g. there are more buyers of a $250K property, than $2.5M property).
Assumption 2 – Even though I’ve never personally been at the “closing” of a business (like I have been at the “closing” of a real estate transaction), I imagine there are some straightforward terms and conditions around how a business is valued and sold, as well as some custom terms too (e.g. like in a real estate transaction, a buyer may request some cash for work that needs to be done on the home).
Assumption 3 – As in real estate, there are people that help this process and take their cut – appraisers (the people who value the asset), lawyers (the people building the contracts), brokers (the people connecting the buyers and sellers and helping with the negotiations), insurers (the people responsible for insuring the assets), bankers (the people who make sure the dollars go the right directions) and the buyers and sellers themselves (plus their ‘families’ ahem, employees, investors, etc) who are impacted by the transaction.
So where are we netting out here?
I think I wanted to write and share this as it’s been on my mind. Despite the fact that these ideas are “rough draft stage” at best.
I think I wanted to write and share it because I find myself constantly asking: Am I doing the right thing with my time? And, I think that for where I am right now in life, paying rent on my time is actually exactly what I am supposed to be doing.
I don’t know that this is what I will do for the rest of my career, but there are a lot of pros for it for me right now, and so I very much appreciate the “building that I pay rent to” and all the amenities and community members I get to interact with as a result.
I’ll leave you with this last thought:
If you are going to pay rent on your time, perhaps ask yourself this… “If I am going to be paying rent on my time, am I at least in a/the neighborhood I want to live in?”
Neighborhood matters – it’s what determines many of the people you meet and interact with daily, it can be the difference between ‘paying rent on your time’ to have a meaningful launchpad for a business you ultimately see yourself building, or not.
I hope this is helpful to whoever reads this. I know it has helped me to think about things this way right now.
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