Quitting Your 9-5? Stop! That's a Bad Idea for New Investors

Week in and week out, thousands and thousands of would-be real estate investors flock to BiggerPockets with a singular vision:

“I want enough passive income from real estate investing to quit my job!”

And week in and week out, we see the inevitable follow-up:

“I just quit my job! I’m so excited to go full time into real estate investing.”

Really?

Let’s take a moment and think about this for a second. Please keep in mind that the audience I’m trying to write for here is the white collar folks out there who are interested in aggressively pursuing financial freedom to escape their decently paying 9-5 jobs.

Now, if your job is providing you with a low income or is a nightmare and you desperately want out, then get out. You are rotting internally with every day you spend in a situation you desperately want to leave.

But if your job is pretty decent and earns you $40,000+ per year, then by all means pursue financial freedom, but I’d suggest that you don’t quit your job just yet.

If you are interested in real estate investing and you work a full-time job currently, then that full-time job is your best asset, not your biggest liability, in getting started!

I’ll let you in on a little secret — buying real estate is not a difficult task. Perhaps it is fair to say that buying great investments and managing them well may be difficult, but buying single family or even small multi-family properties is not a terribly difficult challenge. If this were difficult, then there wouldn’t be 75 million American homeowners today.

Well, on second thought, that may not be entirely true. Buying property is actually extremely difficult, and it is only really easy if you have this important advantage:

A decent job.

With that, we’ll get into the three biggest reasons why new white collar investors should NOT quit their jobs in an effort to speed up their first real estate investment.

3 Reasons to NOT Quit Your Job to Invest as a Newbie

1. Access to Financing for Your First Properties

Here on BiggerPockets there’s a lot of talk about “creative financing,” including “no or low money down” and the like. It’s fine to look into those strategies and to be creative in scaling your real estate business, but the fact of the matter is that the vast majority of real estate investors will finance their first few investment properties through more traditional lenders and conventional financing.

Most newbie investors simply won’t put in the necessary work to make creative finance happen. That’s totally fine, and guess what? If you’ve got a decent job, then putting in the work to learn creative financing for your first or second deal might be a waste of effort when cheaper, easier conventional financing is readily available to you!

For the vast majority of folks, traditional and conventional financing is likely the best way to go in financing the first few properties. It’s usually cheaper, easier, and simply more standard and unlikely to pose obstacles to closing. When I use the words “traditional and conventional financing,” I am specifically talking about personally guaranteed mortgage financing — the type that your average homeowner would get when buying their personal residence. This type of financing often works well for those first few rentals, too.

To qualify for a conventional loan, you need to convince the bank of just a few things:

You have enough stable income to make the mortgage payments.
You have a history of paying your bills and debts (credit score).
There is nothing weird going on with your finances.

Folks, doing these few things correctly is really easy for anyone who is considering buying property, at least over the long term. In fact, I’ve met people who have literally gone from heavily indebted homelessness and addiction to being homeowners in just a few years of applied effort and consistency. I would argue that if you are on BiggerPockets and can NOT do these things currently, then real estate investing is not something that you should be considering in your immediate future. If you haven’t proven to yourself and loan-happy bankers that you are financially capable of buying a property, then I believe that you should take a long, hard look at your personal finances and life circumstances before you take interest in real estate.

Pay your debts on time, collect your paycheck, save monthly, do this for a year or so, and voila! Someone will give you a couple hundred grand to buy property. Investment or personal. It’s pretty fantastic. And pretty easy.

That is, it is easy unless you make things hard on yourself by doing something foolish — like quitting your job or changing from a corporate job to a totally unrelated real estate career right before attempting to qualify for a loan. That whole “stable income” side of the equation is immediately eliminated, making it exponentially more difficult to finance that next purchase.

It quite simply doesn’t make any sense to quit your job and then try to buy property. I’m not going to lend to Johnny Changes-His-Mind right after he embarks on a new career in real estate as a total novice; why would I? Jane Boring-Corporate-Job is way more likely to pay me back than Johnny! If your goal is to buy a quality small rental property as soon as you can, then quitting your job will almost certainly slow you down, barring a huge increase in income or some other factor that makes changing jobs or becoming an entrepreneur an obviously correct career choice for you.

Oh, and for the record, nowhere on my loan application did they ask me if I planned on quitting my job right after I used the loan to buy real estate.

2. Opportunity to Scale

One of the great things about real estate, why investors on BiggerPockets and around the world love it so much, is its stability. Real estate produces predictable, regular cash flows, and assuming that you can cover the occasional irregular capital expenditure (read: replace the roof, kitchen, plumbing, etc.), you should have an income-producing asset for the long term.

That income is fantastic for a couple of reasons:

You can live off of it.
You can reinvest it.
You can use it to collateralize debt.

It’s that third option that really helps those of us who are employed to scale our real estate businesses. Remember how I mentioned in my first point that lenders want to see stable income when you apply for a loan? Well, after a year or so of steady rent collecting, the rental income from my duplex will be at least partially available to me to use in qualifying for financing on the next rental — I’ll have proven that it’s stable. That means that I can basically qualify for financing that wouldn’t normally be available to me, unless I made $25,000 per year more than I do currently. Even if I never get a raise at my job, my ability to finance properties increases over time as I progress with my investing.

So, even if you are already investing in real estate but want to expand your investments, keeping your job is still a great idea. This is because, unless you are a very advanced investor, you are likely making enough money from your job that it is material to your ability to finance that second, third or fourth rental property.

3. Safety net

One of the great things about real estate investing comes in the form of capital expenditures. Now, capital expenditures are referred to as such by businesspeople here on BiggerPockets. However, your typical property owner or newbie investor doesn’t understand or use the term “capital expenditures.” Instead, the term they have for these irregular large expenses is “disaster.” As investors, we like it when “disasters” occur (disasters mean that a great deal and motivated seller are not too far away). Close to 100 percent of the time, disasters are preventable or common — and can and should be planned for.

You will have to replace the roof, and hopefully it’s later rather than sooner. You will spring a leak, be forced to evict, have a property vandalized/broken into, see water damage, have the HVAC break down, and bear witness to everything else that goes with owning a property. Some unlucky investors will have this happen to them all at once.

You have to make the choice — today — to make these into planned-for capital expenditures instead of disasters. This can be done very easily by making two simple choices:

Set aside at least a five-figure cash reserve for unexpected capital expenditures.
Comfortably bring in a large, positive monthly cash-flow.

Together, these two things should ensure that you have the ability to comfortably cover most minor capital expenditures, and in extreme cases put a sizable chunk down towards that new $30,000 repair the insurance didn’t cover and finance the rest with your cash flow.

It’s my belief that for the majority of new investors starting from zero or close to it, the best way to get to the position described above is by sticking with their current profession in the first 3-5 years of investing.

The cash flow from the job and a high savings rate can be a great way to insure against unexpected expenses that are larger than your emergency reserve as you begin to manage your first few properties.

Conclusion

It is my hope that the conclusions in this article are fairly obvious to most tolerably employed aspiring real estate investors out there. A job providing stable, long-term income is an incredible blessing to most beginning investors, even though many on BiggerPockets aspire to use real estate to supplant their W2 income.

No one is saying that early retirement from your job is a bad goal, and real estate has time and again proven its ability to get people out of dull jobs and into the life of their dreams. All I’m trying to say in this article is that the job that you are trying to retire from may just be the best asset you currently have in launching your successful real estate business.

And for heaven’s sake, don’t quit right before applying for that next property mortgage!

Looking to set yourself up for life as early as possible and enjoy time on your terms? Scott Trench’s new book Set for Life, slated for release April 23, 2017, is now available for pre-sale! Whether you’d like to “retire” from wage-paying work, become less dependent on your demanding nine-to-five, or simply spend time doing what you love, Set for Life will give you a plan to get there. This isn’t about saving up a nest egg. It’s not about setting aside money for a “rainy day.” Set for Life is an actionable guide that helps readers build the accessible wealth they need to achieve early financial freedom.

Investors: What’s YOUR story — have you quit your job to invest full-time or do you plan to do so? What has your experience been?

Let me know with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.