The concept of “highest and best use” is crucial to living our lives to their fullest. All of us live our lives with constraints of time, money, skills, capabilities and other resources. Our quality of life depends on how efficiently we leverage our constrained resources. We MUST get it right because if we don’t, we waste significant portions of our lives, work too hard, work too much and don’t get to do the things we really want to do while we still have the temporary gift of life on earth.
In fact, if you think hard about highest and best use of each your available resources, even for just a few minutes, you are much more likely to live the life you want and even achieve dreams you might not have thought were possible. If you think that statement is hype, you are probably right because of your limited belief. But if you analyze highest and best use of resources, like I do, you can turn dreams into reality, like I have.
The best way to introduce the concept of highest and beat use is to illustrate with examples. Since most of you reading this article are real estate investors, let’s start with examples from the world of real estate.
An example of highest and best use of real estate is when someone buys a piece of raw land that is a corner lot. Should the owner build a house, a bar, a pharmacy, a gas station, a house of ill repute, a hot dog stand, an urgent care facility, a daycare center, a Seattle-based coffee shop, something else? The answer is ‘it depends’ and the decision of highest and best use should be evaluated specifically for that location, demographics, economics, environmental, goals of the owner and other situational factors.
Let’s say that you want to open a convenience store on a main thoroughfare in the suburbs of a large city. Do you think it makes a difference which side of the street you site your store? One factor in the highest and best use analysis shows that more people will stop to buy milk and similar small items on their way home, not on their way to work. Since it is time consuming and a hassle to make a left turn on a main thoroughfare, the right side of the street in the direction away from the city is often a better choice. In contrast, a doughnut and coffee shop will see more business in the direction toward the city if the concentration of jobs is higher in the city than in that suburb. Highest and best use analysis for real estate can take seconds in some cases or can take years in other cases including multiple complex analyses.
Examples of highest and best use of money in real estate include deciding whether to do mortgage acceleration, Roth conversions and the BRRRR strategy. There are many more, but these three examples will get the point across.
Mortgage acceleration is almost always a highest and best use decision since the maximum monetary ROI for accelerating a mortgage is the interest rate of the mortgage loan. Do the math and you'll see this is true. If you can’t achieve a higher return than the interest rate on that loan, then mortgage acceleration might make sense. Most real estate investors can easily outperform the interest rate on a mortgage loan by investing in higher and better use real estate investments.
Don’t forget the time value of money when considering mortgage acceleration. Remember that the payments you avoid 10-20 years from now (which is when you save the most), are of money that has much less value than today. On the other hand, if you are in “consolidation mode” to simplify your investments (e.g., increase $ per tenant to minimize management) instead of “accumulation mode” (building your empire), then mortgage acceleration might serve you better so you can achieve higher cash flow with fewer rental properties when the mortgage loans are fully paid off.
Roth Conversion: If you are 60 years old, skilled in real estate investing and avoid doing Roth conversions because of the pain of shoveling money into the IRS coal box, you really need to do the arithmetic to understand highest and best of use of your money. You will usually find that the decision is a slam-dunk if you have cash that you can allocate for Roth conversion. Most real estate investors in this situation do not do Roth conversions and it’s because they simply don’t invest the minutes required to do highest and best use analysis. That's a real shame and I see it all the time.
For example, in one of my lectures in the Smarter Investing home study course, I show how a 2-deal sequence that started with a $75,000 Roth conversion (plus $7,000 in previous Roth funds) created in less than a year a whopping $176,000 of tax free equity in a single family home rental that generates more than $1,000 per month of tax free passive income! The returns are not only outstanding in the short term, the ongoing tax-free passive income in my retirement plan from this rental and other similar rentals in my Roth, is a cornerstone of my financial plan and financial freedom. When people see the actual numbers and how standard these deals are, especially for baby boomers who “find ‘em and fund ‘em” with others doing the work, it becomes painfully obvious that people who do not do Roth conversions from their significant pre-tax IRA or 401(k), are wasting precious dollars. It amazes me that others do not invest the time or minimal investment in training to understand this crucial highest and best use of money to achieve financial freedom in a highly efficient manner.
The Buy-Renovate-Rent-Refinance-Repeat (BRRRR) strategy is one of the key strategies used to build a small or large empire of rentals. The basis of BRRRR is highest and best use of cash and OPM. On the other hand, if the rentals have relatively low cash flow, then the cash flow per month per door after vacancy, repairs and admin costs, might result in less than highest and best use of your time as a landlord who has a life to live. In some of these cases, one must balance highest and best use of time with highest ad best use of money.
An example of the opposite of highest and best use of money is when real estate investors avoid investing $997 in training that would improve their annual profits by thousands or tens of thousands per year for decades and also save them hundreds of hours of work, not to mention aggravation by avoiding making mistakes they would learn to avoid from the training. This is why you should buy the Smarter Investing home study course that has excellent training on highest and best use decisions to choose real estate investment strategy, achieve profitable flips, maximize cash flow from rentals, smarter funding leveraging OPM, Roth funds and private lending, smarter optimizing and a happiness and prosperity module to improve performance in all aspects of life. If you are interested in investing in this valuable training with high ROI, contact us and request a discount promo code.
In three of my lectures, I analyzed the many practices and activities that landlords perform and I found more than two dozen common inefficiencies that result in higher costs and wasted time, THAT CAN BE CORRECTED. The primary categories of waste are related to [1] rent collection (including late payment management, economic vacancy, evictions and more) and [2] repairs and maintenance (including taking calls, resolving repairs and maintenance issues and more). I included these three lectures in my Smarter Investing home study course that describe best practices for improving ROI for both time and money to achieve highest and best use in landlording. The smarter landlords among you will invest the nominal cost, time and effort to learn these highest and best use practices described for:
An example of highest and best use of time is whether to attend the Atlantic County subgroup next week (March 5, 2019) at which we will discuss highest and best of resources or stay home and watch TV!
The most important highest and best use of time is investing time in activities that you enjoy instead of activities you do not enjoy. We are in the testing phase of a new app “Now Be Happier” that measures how much time you engage in activities that:
you enjoy (“Invest Time”)
do not enjoy but would cause harm if you didn’t do them (“Spend Time”) or
cause you harm (“Waste Time”).
The app covers ALL your daily activities (plus Sleep) including your time at work, your time at home, your time at the gym, your time engaging in hobbies, your time going out and everything else. Once you know your metrics for Invest Time, Spend Time, Waste Time and Sleep, you can then make changes in your daily life to assure that you are leveraging your time for highest and best use!
An example of highest and best use of skills is to engage in activities that one is uniquely qualified to do that generate more profit instead of wasting time on "minimum wage activities" that can be outsourced. An example is to use your skills in real estate investing to search MLS for opportunities or evaluate wholesale opportunities instead of mowing the lawn that can be outsourced. Most real estate investors have the skills to perform both deal evaluation and mowing the lawn, but only one of these activities leverages highest and best use of your skills.
An example of the opposite of highest and best use of tax money is government spending on the federal, state and local levels. If we could force our elected officials to talk about “government investing” instead of “government spending,” maybe our tax dollars would be put to highest and best use. Yeah, right!
The point of this article is that highest and best use of time, money, skills and other resources can be achieved with amazing results to improve our finite lifetimes. It is a shame that most people do not do even the simplest analysis of highest and best use. One reason that I have achieved simultaneous happiness and prosperity is that I have analyzed highest and best use of my resources. What are you going to do?
If you too want to achieve simultaneous happiness and prosperity every day for the rest of life, as I have, you can sign up for my coaching program.
What are you going to do? Are you going to cruise along in life in an inefficient manner or are you going to now take control of your life and do a thorough analysis of highest and best use of all aspects of your happiness and prosperity?
Now Take Control!
