Quitting the day job to do REI full time

Goals, Business Plans & Entities
14yFollow

Quitting the day job to do REI full time

Jeremy D.
Investor · Grand Rapids, MI · Member since 2012 · 74 posts · 8 votes

I know this subject has been discussed numerous times in various threads on BP, but I'm going to bring it up again.

I am looking for feedback from anyone that has gone from investing and managing their own properties as an after-work activity to doing it full time. I currently have a full time job which I really do not enjoy at all. The problem is that I'm wayyy overpaid for the area where I live and the job itself, so if I do quit, I'd likely be looking at a 25% cut if I decide to re-enter the field. I've been taking advantage of this situation by investing all of my extra disposable income into REI over the past 4 years. But now i'm thinking it's time to jump ship and invest/manage full time. I have come to the point where I know that money is really not everything and I would love the idea of waking up and looking forward to the day or week of work!

I am confident that at this point I can pull about $3,000/mo off of the properties as a "management fee". I self manage, and I factor in this cost when I purchase using the 2%/50% rule anyway, so the only effect it would have would be that I would not be paying down RE debt as quickly as I am now. So, I'd be looking at about $36k/yr as a salary from managing my own properties.

The alternative is keeping a six figure day job which I do not enjoy at all, and I'm overpaid by about 25% I would guess... The upside of the property management salary is that I already have the financing and capital lined up to continue growing over the next 18 months even if i quit the day job. By the end of the 18 month growing period I should be at a point where I can pull off enough to maintain the lifestyle i currently have with the day job. At that point the RE portfolio should be able to continue growing organically without the need for additional contributions.

Has anyone out there gone through the same thought process or situation? I am 30 years old, single, have no dependants, and my monthly base expenses are pretty minimal...I'll even live in one of my own units if/when I pull the plug on the day job to focus on REI to save even more.. I appreciates any thoughts or advice!!

0Reply
57 views

Most Popular Reply

David Beard
Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
14y

Yes, make the jump. Who gives a ^&*% if you have to re-enter your field later at reduced pay, you have one go round in this life. But before you jump:

* Shore up your work relationships and contacts. You might need them for work in the future, position you for contract/consulting work should you want to do some of this, and middle age-to-older executives could be a deep well of potential private money for you. As a self employed person, a private lending network will allow you to grow your REI business much faster. Revamp your Linked In profile, so they can all see you're a successful REI investor these days, as well as other social media.

* Increase your LOCs as much as possible. Go to numerous banks and ask for unsecured LOCs, at least 25k each. Don't count on credit cards. As soon as you start tapping that promotional cash, they have a hair trigger on cutting your lines down. This just happened to me. Plus the credit cards limit cash advances to just a fraction of the line, commonly, as you probably know.

* Go ahead and get your agent's license and prepare to hang your shingle with an investor-friendly transaction fee-based agency. This will give you more options to make money when you leave your employment, and will give you a leg up in finding the best deals. Justin S., J Scott, Steve L. and others have all written very persuasively about this.

* You are already a two-year landlord, which is great, so your net rental income will be allowed to count when applying for bank loans. You'll need to start "managing" your taxable income recognition -up not down (i.e. capitalize stuff instead of expensing it, for example). You might even consider restating prior returns if you can fatten your net rental income.

* Get a flip under your belt before you leave, to learn this skill while you still have a comfortable salary cushion.

The comfy six-figure job is like a narcotic. Fortunately, my company decided to relocate our site to other company locations, thus eliminating my job (except for a potential relo) with a nice good bye gift, so the decision was greatly helped along. (I have 5 weeks left.) Your situation takes more courage, but as a young single person you have less responsibility riding on your shoulders, so I vote to pursue your passion.

4Reply
See this reply in the discussion

21 Replies

Jump to latestLatest
  • Mike Jakobczak
    Real Estate Investor · Toronto, Ontario · Member since 2010 · 413 posts · 114 votes
    14y

    Looks like you have a pretty good grip on your situation. I like how you have planned for the next 18 months, in regards to financing. Many forget that once they quit their jobs that the banks no longer like you.

    I think it comes down to what you really want to do in life. I took a major pay cut switching to real estate but it has got me where I am today. I took the mentally that once I did the switch that's there no going back and wouldn't stop until I'm where I wanted to see myself in life.

    best of luck with whatever you choose. Keep us in the loop!

    1Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y

    Many REI wannabes quit their job way too early. You lose:

    - benefits (such as medical) which are costly to get on your own
    - a source of recurring funds
    - some ability to get lines of credit of loans
    - ability to qualify for various loans at banks
    - a lot of your ability to get back in the job market several years later, if you change your mind

    If you do, make sure you have a large cash cushion in the bank. Make sure you open your lines of credits and credit cards now while employed

    A smarter thing might be: a leave of absence, converting to part time, finding people to do some of the REI stuff, like showing properties, labor, screening, etc.

    Lots of people don't like their jobs, until they no longer have it.

    0Reply
  • Jeremy D.
    OP
    Investor · Grand Rapids, MI · Member since 2012 · 74 posts · 8 votes
    14y

    Mike Jakobczak - Thanks for the comments, I will definitely post updates either way!

    Ken Latchers - Thanks for the feedback, I really appreciate it- I'm pretty sure I addressed or have thought about your concerns at this point-
    1) I found a cost effective HSA/high deductible plan which should fit well,
    2) Agreed- the lack of recurring, reliable funds is a trade off
    3) I will have $50k in cash reserves, plus already have a RE LOC at $50k, credit card max of $30k, and 3 F&C properties just in case,
    4) I have already secured the funding to continue growing over the next 18 months at the current rate of 2 properties per quarter. This funding is in place even without W2 income.
    4) Agreed- getting back into my industry within 2 years should not be a problem. anything longer than that might be.

    Thanks again for the feedback and thoughts.

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    14y

    I'm with Ken Latchers. And if it's only 18 months til you add 2 properties per quarter or 12 more properties, doesn't it make sense to just bite the bullet for 18 more months? Or even 12?

    The gurus preach that you're not truly motivated until you have no income and have to make money, but I would argue that marginal income can also result in bad (read desperate) decisions.

    It doesn't sound like you are anywhere near that kind of bad decision making, but stuff happens. How many people's financial lives were changed by 9/11 and the financial meltdown in 2007/08? No one expected those, and political events change lots of lives.

    I tend to be conservative, admittedly, and made the switch to self employment only when my day job was interfering with my business and it was costing me more money to work a job than to work my business. And I reduced hours to part time at my job initially, so I could keep health insurance for a while.

    I think we are still in a transitional time, where it can go either way.

    This is the very conservative approach, and if you decide to quit anyway, then good for you. I was never so happy as when I became fully self employed. :-)

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Jeremy, you are in an enviable position and w/o kids now may be the best time to go for it.

    A few things to consider. 1. Girlfriend/wife type person. 2. Future kids. 3. A major change in our economy.

    Do something like the banks do with a "stress test". If you can weather these variable under worst case scenarios then why not?

    0Reply
  • David VanSteenkiste
    Real Estate Agent · Franklin, TN · Member since 2012 · 50 posts · 12 votes
    14y

    It is a tough decision. Sounds like you are being very careful about it. A few years ago I jumped ship because I had a good chuck saved and a few investments and I did not want to move to where my company wanted me to move. Yet, I was also at a salary level in a unique position that was not easy or possible to duplicate. My biz never got off the ground and I ended up taking a new job, a good job, but still at a significant pay cut. I stayed at that job for 2 years and during the last 6 months of it sensed instability in the company, which is when I started doing REI. I was consequently laid off, but have fortunately built up enough rental properties to provide adequate income to live on (live on), not yet thrive. RE inventory is tight where I live and, yes, banks don't like me as much. Therefore I am actually looking to go back into the workforce as I think I can build my wealth much more quickly, A. with better borrowing capacity and B. with additional income to pay down investment mortgages and buy more.
    So, way the pain vs gain into your plan and wealth goals and make the decision based on the numbers rather than emotion. Trust me, its much harder once you have had it and let it go than if you never had it.
    Good luck

    0Reply
  • Terence Stacey
    Real Estate Investor · Montclair, CA · Member since 2012 · 16 posts · 1 vote
    14y

    First of all, props to you and your goals in real estate and your desire to be in control of YOUR LIFE. I can't say it's a bad or good decision to make that move but Ken, Ann and David all have valid points the ultimate decision is yours.

    I quit my job in late 2005, was buying properties and had about $100,000 in cash saved. But late 2008 came and wiped out my $1million portfolio (too much leverage) and cash. Just really do a gut check and once you have decided go after it with much gusto or play it safe and conservative.

    Good Luck

    Terence

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y
    Originally posted by Ann Bellamy:

    The gurus preach that you're not truly motivated until you have no income and have to make money, but I would argue that marginal income can also result in bad (read desperate) decisions.

    I was a futures/commodities trader for 10+ years (private). I had many discussions with others and on forums like this. Many newer traders had plans to make a lot of money. They wanted to quit their jobs and devote full time to learn to be a day trader.

    The problem? When you must trade the money you also must live on (or in this case, invest), traders call it "scared money." It affects your judgment and clear thinking and makes your more short term thinker, which often sets someone up for failure. You might have money and plans and ideas, but as the above said, "Stuff happens."

    1Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Either choice holds possible regrets. At 30 you have the opportunity to bomb and come back for a 2nd or more chances. Many very successful people have gone broke and come back much stronger than before.

    I was self employed until I was 38. There was nothing more important to me than staying that way. Stuff happens. The economy is powerful and business people, while feeling independent, are needing certain economic support. So, at 38, got a job for 20 yrs, just quit. Having a job has some great benefits but being on your own is much better IMO.

    0Reply
  • Monica Breckenridge
    Rental Property Investor · Colorado Springs, CO · Member since 2010 · 476 posts · 305 votes
    14y

    It's definitely a hard decision to make. And it is also hard to do both investing full time and working a full time job! I made my decision when I had enough money in the bank to cover me to live on for 1 year as well as enough money in the bank to support my business for 1 year. It only took me 1 year to quit my job and I haven't looked back since. One thing to remember is when you quit your job, you are relying on you to be the money maker. You will have to work 2x as hard being an investor to stay alive and make it until you get to the point of retirement and passive income. Real Estate is not a get rich quick and it will take time to get there. The goal is to build up as much passive income as possible.

    When i quit my job, I didn't have any passive income. I was relying on my flips to keep me going. I didn't even consider what would happen if I had a bad month and there were no flips to have. So now I've been focusing on cash-flow through rentals.

    0Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    14y

    It will be 2 years this August since I quit my 6-figure job. Two years prior to that I was running the real estate business and doing the full the time job. I used to get up at 4:30 AM to drive the auction properties for the day, and then bid on them at lunch time. After work, I would drive my remodels to check on the progress and do it all over the next day. I was working so hard that I was miserable, one of jobs had to give. I chose real estate because I knew if I didn't I would have always regretted it. I also had the support of my wife and family. I'm well educated (on paper at least!) and could always go back to desk job if needed.

    On the day that I turned in my two week notice, I was called down to assistant GM's office (2nd in command at my work). He told me a story about how he had come to a similar crossroads in his life, but he chose the corporate route. He understood what I was doing, and told me if I failed he'd find a job for me. I knew then, I had made the right choice.

    If you are miserable at your job, I would quit. Not worth doing that when you have the opportunity to be happy doing something else. Plus, your boss may just understand and offer their support.

    1Reply
  • Steve L.
    Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
    14y

    If I were you, I'd quit. The opportunities in real estate that are available now probably won't be around in 2 to 5 years. If you don't you will regret it.

    0Reply
  • Jeremy D.
    OP
    Investor · Grand Rapids, MI · Member since 2012 · 74 posts · 8 votes
    14y

    Wow..thanks everyone for the feedback. I am a pretty conservative person when it comes to my financial situation. Thanks Ann Bellamy and Ken Latchers for your suggestions on either keeping the day job until RE can replace it entirely, or maybe trying to pursue a part time employment status with the day job. As I think about this more, I might try to have a candid conversation with my boss about how my long term goals are outside of cranking out TPS reports and spreadsheets. :) Justin S. - it sounds like you had this conversation after the fact with your assistant GM and he fully supported you. I'm curious- when you made the leap what kind of properties did you have in your portfolio to support you financially while you did rehabs, flips, or other projects?

    I figure I'm going to work 60-80 hours a week or so at whatever I do, right now that is a combination of the day job and REI. If I were to drop the day job I have some RE related business ideas that I'm dying to pursue. Those ideas have a higher risk vs. reward potential than my main track of buying and holding REI as rentals...so we'll see.

    It is a tough decision, thanks all for your input and support!

    0Reply
  • Jeremy D.
    OP
    Investor · Grand Rapids, MI · Member since 2012 · 74 posts · 8 votes
    14y

    David VanSteenkiste - I couldn't agree more with your quote - "Its much harder once you have had it and let it go than if you never had it."

    The grass is always greener on the other side, that's for sure...

    I just think that my profit potential is higher doing REI and surrounding businesses full time than it is working for the man (that being my current career track of Corporate Finance.)

    Thanks for the input.

    0Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    14y

    My income is purely based on flips. Right now, I try to do 2-3 flips per month. When I quit my job, I was doing more flips but had less profit in each one due to using other peoples money. Now, most of the profit is mine except for my JV partners.

    0Reply
  • Jeremy D.
    OP
    Investor · Grand Rapids, MI · Member since 2012 · 74 posts · 8 votes
    14y
    Originally posted by Justin S.:
    My income is purely based on flips. Right now, I try to do 2-3 flips per month. When I quit my job, I was doing more flips but had less profit in each one due to using other peoples money. Now, most of the profit is mine except for my JV partners.

    Wow, that is some impressive volume. When you first started doing flips full time did you hire out less work and do more yourself? I imagine that when you had a full time day job you sub'd out most if not all the hands on carpentry work. After making the jump what was your strategy?

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    14y
    Originally posted by Jeremy D.:
    David VanSteenkiste - I couldn't agree more with your quote - "Its much harder once you have had it and let it go than if you never had it."

    The grass is always greener on the other side, that's for sure...

    I just think that my profit potential is higher doing REI and surrounding businesses full time than it is working for the man (that being my current career track of Corporate Finance.)

    Thanks for the input.

    I think your situation is more of focusing on a good return for your time. My best suggestion for you is the 80/20 rule. The idea is that 80% of the benefit/profit comes from 20% of your labors.

    I would suggest the following:

    1) At your job, cut out anything that is nonessential and try to fit your work into 40 hours a week. Instead of schmoozing, long lunches, trying to get ahead, etc. Focus intensely on the things that are CRITICAL at your job. Priority 1s. Keeping your skills sharp, etc. You can usually check on status of your deals or properties at lunchtime or from your mobile device.

    2) For your properties/deals, outsource/automating everything possible. Taxes, accounting, repairs, property management, bookkeeping, chasing insurance or property tax issues, finding reliable handymen, rent collection, bill paying, etc. If you find yourself doing something repetitive, boring or anything that is not focused on profit-making ventures, get someone else to do it. NOte - keep things that you find interesting - that is what a business is partly about.

    In summary, sharpen your job to cut your hours or boring tasks to extract maximum salary and benefits and enjoyment. Sharpen your REI to cut your hours or boring tasks to extract maximum profits and future building. 80/20...

    Having a good paying job and properties also DIVERSIFIES you. If something bad happens in one area, you have the other to get you through. Something you should consider is that our country's massive debt and deficits could suddenly put us through something much worse than the 2008 financial crisis. We are on borrowed time and we may go off the cliff. Think what happened to many people at the stock market colllapse of the Great Depression. Many thought they were in great shape and then the lights went out. It took over 10 years to pull out. It may be that either your job or your real estate holdings cushions you against a catastrophe in the other...

    Every serious trader knows it is REward balanced against Risk. Many REIers have little concept about risk. THe mortgage crisis was a warning bell and many went under because they just focused on Reward. Risk is more critical, but poorly understood.

    2Reply
  • Justin S.
    Residential Real Estate Agent · Chandler, AZ · Member since 2009 · 1k+ posts · 928 votes
    14y

    At first, I hired almost everything out except for project management and acquisitions. Now I do the following:

    Acquisitions - 80% of my time
    Listing Agent - 10% of my time
    Staging, photos, other listings - 10% of my time

    Everything else is hired out. I used to hire out photos and staging, but I'm starting to do them now. Once it switches back to a buyers market, I will likely hire those out again but its easy money to save right now.

    0Reply
  • Jad Allen
    Investor · Groves, TX · Member since 2009 · 44 posts · 25 votes
    14y

    I am in a very similar situation. Early 30s with a good paying job and single.

    For me I desire more freedom with my time but I also like my job. So my plan is to quit once I am making 2x my current income from investments (buy and hold rentals). I am very conservative in my plans and I now figure I will be approaching the needed investment income in about 7 years. Of course things could happen that delay or speed up the process.

    I am an accumulator by nature so leaving so much money behind will be very difficult. I also acknowledge that my situation could change if I were to finally get married and have kids. Once that happens then my goals may very well change.

    I was raised up in a worker family. It has been ingrained into me since I was a child to go to college, get a good job, save up, then retire. So leaving a the security of a good job will be very difficult for me. To be honest I will probably stay working in my job long after I am in a position to go.

    Either way, good luck and I hope you keep us updated on your progress and thoughts during the process.

    0Reply
  • David Beard
    Investor · Cincinnati, OH · Member since 2010 · 1k+ posts · 928 votes
    14y

    Yes, make the jump. Who gives a ^&*% if you have to re-enter your field later at reduced pay, you have one go round in this life. But before you jump:

    * Shore up your work relationships and contacts. You might need them for work in the future, position you for contract/consulting work should you want to do some of this, and middle age-to-older executives could be a deep well of potential private money for you. As a self employed person, a private lending network will allow you to grow your REI business much faster. Revamp your Linked In profile, so they can all see you're a successful REI investor these days, as well as other social media.

    * Increase your LOCs as much as possible. Go to numerous banks and ask for unsecured LOCs, at least 25k each. Don't count on credit cards. As soon as you start tapping that promotional cash, they have a hair trigger on cutting your lines down. This just happened to me. Plus the credit cards limit cash advances to just a fraction of the line, commonly, as you probably know.

    * Go ahead and get your agent's license and prepare to hang your shingle with an investor-friendly transaction fee-based agency. This will give you more options to make money when you leave your employment, and will give you a leg up in finding the best deals. Justin S., J Scott, Steve L. and others have all written very persuasively about this.

    * You are already a two-year landlord, which is great, so your net rental income will be allowed to count when applying for bank loans. You'll need to start "managing" your taxable income recognition -up not down (i.e. capitalize stuff instead of expensing it, for example). You might even consider restating prior returns if you can fatten your net rental income.

    * Get a flip under your belt before you leave, to learn this skill while you still have a comfortable salary cushion.

    The comfy six-figure job is like a narcotic. Fortunately, my company decided to relocate our site to other company locations, thus eliminating my job (except for a potential relo) with a nice good bye gift, so the decision was greatly helped along. (I have 5 weeks left.) Your situation takes more courage, but as a young single person you have less responsibility riding on your shoulders, so I vote to pursue your passion.

    4Reply
  • Ryan H.
    Real Estate Investor · Central Valley, CA · Member since 2012 · 8 posts · 2 votes
    14y

    That's a big decision but I'd also say go. Like others on here I'm in a position similar to you but really enjoy my job and stay for that reason only, since you're not happy with your job and given your current life situation I would say it's a good time to make the move. As David said, big salaries are like a drug, I know many in my industry that stayed in jobs they didn't like for years just for the salary and could never cut the cord. I also second doing your first flip while you have a steady paycheck coming in. On my first flip I underestimated both time and cost and it felt like I was bleeding money for a long time. It was nice to get the experience while having a paycheck coming in to soften the blow.

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free