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Updated over 15 years ago, 06/12/2009
The number 1 Dilemna for newbie Investors!
The number one issue that I see for new investors, like myself, is the ability to setup/run a real estate investment business on a part time basis while still maintaining a full time job.
The question I have for everyone is...how do you do it? What technologies, strategies do you use to leverage your time and get the most bang for the buck?
My goal is to spend more quality time with my family and participate in all of their extracurricular activities. Real estate investment is the vehicle I have chosen to help liberate me from being leveraged by employers.
Thoughts?
John
John,
As someone who is very much a part-time investor, I can give you a few thoughts on this. First, you need to know that my goal has never been to replace my full-time job so I have a bit different perspective than you may have - I have a good job that I enjoy and RE is merely a place to put some extra money for me for diversification. However, I believe I have some of the same challenges as you.
First off, can you clarify your goal a bit more? Does liberating yourself from employers mean eventually quitting your job? Working less hours? How do you want to do so - by becoming a landlord? Flipping properties?
These answers can be important to how you may want to proceed but another key question is *when* are you looking to spend more time with your family? Now or sometime in the future? For example, I have 2 young kids and for me, *any* of my minimal investing activity takes a back seat to spending time with them. If I were looking to make a career out of this, that would mean trading off quality time *today* for more sometime in the future (1 year? 5 years? 10 years? or possibly never?) - you really need to think about this. How long and how much effort do you really think it might take to get up a RE Investment Business, from scratch with no experience, to a scale that is large enough to give you this extra freedom that you are seeking? Is it realistic that you are willing to make the sacrifice today and for some extended period of time for the payoff in the future? I don't want to sound negative but just realistic - lots of people come to this site seeking freedom in life via RE Investing. I suspect very few actually find it as it's not easy and for most people, I actually think the stock market is a safer place for their money.
With all that, let me tell you how this part-timer has been mostly *un*successful. First, realize that I had the financial resources to protect myself in case of any disastrous moves and I've made some bad choices. We first decided that we wanted to buy an investment property just for diversification and to 'get someone else to pay our mortgage'. With that goal in mind, we targeted the Phoenix area since I know it and just found a place off of the MLS. Bought it, and in spite of the rise and fall there have still made decent equity on it. It would be considered an *awful* deal by anyone on this board but we put down 20% and have managed to keep it rented. As long as there are no major issues (and that's the big if each year), we make a little money on it and of course, someone is paying our mortage as we had planned. However, we're 1 roof repair or something similar from making this a big loser over a several year time period not to mention the big chunk of cash that we tied up with the down payment. Again, that works for us as it moves some money away from stock but this is not considered a good investment by any stretch.
Since then, I've started learning more and ultimately bought 2 more houses - both from contacts made over Craig's List. One in the Portland area has been an ok investment but if the lease-option tenant ever leaves (on their 4th year of very high rent), that one quickly becomes a loser. My duplex in Indiana is the only one that has very solid numbers that would withstand the scrutiny of the experts on this board. That was the first purchase I've made since having what I feel is a good grasp of what makes a good cash-flowing investment.
So my strategy then to leverage my time considering that I can't buy locally and am not willing to output much effort honestly:
1. Assume that I won't find anything good and be skeptical of anything I do see. This is my most important tenet. If something's a good deal, someone other than me probably already bought it.
2. I glance at various areas in Craig's List and occasionally on a couple other areas on the Web. If I find something interesting, fine. If I never find something, that's fine too since I don't expect to based on point 1. I'm not putting in the effort so I don't expect to find much.
3. With that said, I occasionally find something of interest and am not afraid to take action if it pans out. For example, I recently saw a 4-plex in Indiana listed for around $20k I think, bringing in rents between $1300-$1400. If it were in good shape, why wouldn't I do it if I have the cash? On the flip side, see point 1 again as I have to ask myself why someone else hasn't bought this. Landlord pays utilies - that's an issue but could perhaps be remedied. Some minor rehab needed - need to understand the definition of minor. Anyway, ability and willingness to assess and act quickly may get you the occasional deal but I consider something like this the rare diamond in the rough.
One final point, I also tried to partner once on a rehab since it seems that can be where you oftentimes find your best deals. Unfortunately, that ended very badly and was a very expensive lesson. As a part-timer, I suspect I could probably get my hands on more good rehab deals than anything else but since I know nothing about rehabbing, and don't have trustworthy resources aligned anywhere, I have chosen to stay out of that game. You may be able to find a market with lots of rehabs, partner with someone who can commit the time and expertise (since you don't have the time) and share in the profits - just be certain that you have something to bring to the table and that you are protected on the downside.
Not sure if any of this helps but good luck!
John,
The way I do it, is to buy properties LOW enough that you can afford to pay a good property manager and still profit.
It easy to buy rentals, but once you do there will be problems that you need to attend to and you will not be able to leave your job to get them done. The property manager will handle the evictions, repairs, and renting the apartment to new tenants.
The key is to get a reliable manager otherwise it will be difficult, especially if you are dealing with low income tenants.
Chris
If your goal is landlording, than as others mentioned, having a quality team including the PM is of vital importance so you can continue your 9-5 and then manage the PM and other team members after hours, weekends, etc.
If you are flipping homes, hard to do on a part time basis without a flexible work schedule but not impossible.
But I think what you are missing Chris and Will which I think gets to the crux of the issue for John (and many others) is *how* does he find the great deals given that he will only spend limited time looking. Everybody knows to buy low enough and utilize a property manager if necessary so you don't have to spend too much time on your property. However, given that John is only willing to spend x hours per week, can he reasonably expect to even *find* these great deals? I've accepted that it's virtually impossible with the amount of effort that I put in and that's ok for me.
Don't want to put words in your mouth John so please correct me if I'm misinterpreting.
Evenings and weekends.
The conflict I see here is wanting to keep the full time job, invest in real estate, and have more time with the family. That's just not going to happen.
I have a full time job and only invest in RE part time. When I was in a position to buy another property a few months ago, I started looking in earnest. At least one day every weekend was spent looking at properties. My agent and I wrote several offers out of each batch. Evenings were often spent reviewing properties and deciding which ones to view and determining values.
Once I had a deal that would actually close, the effort slacked off. I don't want to do two at once, though I would if I had the deals come through. But during this time, the project planning for the rehab has to be done. I also started getting bids on the work and choosing contractors.
As soon as closing was done, exactly two weeks ago today, the work began. Since then its been VERY hectic. I'm there every night either doing something myself or checking on the contractor's progress. I've contracted all the big work, but there are still a ton of small items I'm doing. It should finish up this weekend.
I have the for rent sign up already, and have had several calls, and a few people stop by while I'm working.
I also had a vacancy in another property, so there were numerous evening and weekend showings.
So, can you work full time, and invest? Yes. Will it consume a lot of time? Absolutely.
I focus on REOs. I've tried for HUDs and short sales, but these are quite frustrating. REOs are a pain, too, but I've been able to close some of those deals. I do not do marketing. That would take even more time, and would also involve dealing with distressed sellers, and that's outside my comfort zone.
Will this eventually allow me to quit my day job? Realistically, no. That would take a lot of properties, and better ones than I can find in this area. My plan is that this will generate income in the future. So, I figure the time I spend on this is just a job that will eventually pay me back.
John,
If you're trying to replace your job with rentals, the answer is that you're going to work your butt off and sacrifice for a few years so that you can enjoy the rest of your life. I worked at least 12 hours a day, 6-7 days a week for a solid 2 years. That meant giving up a LOT of things including days off and vacations.
However, now I can do pretty much whatever I like and I work on average 12-16 hours a week (semi-retired). I worked 2 hours today. More importantly, I can set my own schedule!
Sacrifice now to life better for the rest of your life. That's the answer!
Good Luck,
Mike
Tom K
I think John should join the local real estate club in his area.
There are all types of people in these organizations from lawyers, accountants, PM's, brokers, contractors. Many word of mouth deals as well. There are also real estate agents that know what properties to look for.
Networking works great for me. Everytime you meet someone, let them know you buy houses and what your looking for.
Chris
John-
I am in a very similiar situation like yourself, I'll explain my day to you and you can take it for what its worth. I started with a few thousand in the bank to pay for marketing.
Right now, I only invest in shortsales and I do double closes for the following reasons:
1. I can control the property with no out of pocket costs
2. Once I sign the people, I have zero competition because I control the property.
3. I do double closes, so I have no out of pocket expenses
4. 100% financing is available for double closes.
5. In my mind, all short sales are good deals cause you make the deal. The investor has a lot control in the outcome of the deal.
My days start at 6 am, in which I check the emails and see if I got any leads. I go to my day job from 7-5. I come home, cook dinner, and work on real estate from seven or eight o'clock at night until ten to midnight. I do this at least 4 work nights a week. I'm not hiding in my office doing this, I'm generally on the couch with the girlfriend watching TV with a laptop or something. I will generally dedicate at least 8 hours a weekend to real estate but sometimes cheat when I get too stressed or the girlfriend yells at me.
My marketing plan is weak right now, but I send out 50-80 postcards a day (I prepared them the night before). I'm constantly updating my website and constantly checking biggerpockets for information. My favorite subject right now is whether a option contract gives you equitable interest. The debates on it are quite good. When I remember, I place adds all over craigslist. Myself and my mentor (Nick Johnson) created a new postcard that we are testing out this week. I just received them today.
When I'm not putting physical effort into RE, I'm reading books on tax law, real esate law, negotiation tactics, etc. Anything to make me smarter on RE.
I've been doing this pretty steadily for 6 months. Before, that I'd say I was spinning my wheels for 3 months. Before, that I was learning the basics.
So adding that up: My day job takes 40-50 hours a week. My RE job takes 28 hours a week. So, I work close to 80 hours week.
Things that I found that help are:
1. Blackberry's so I can respond to emails real time.
2. A separate line to receive calls
3. Electronic fax subscription so I can fax docs during the day if I have too.
4. I'm now setting up an external harddrive that I can login to from anywhere in the world. So if someone calls to send me a contract, HUD-1, etc. I can login and grab it.
5. I call back all my leads same day, I do it in my car at lunch time or on the drive home.
6. I only mail postcards cause stuffing envelopes took too much time. When I get cash, I'll probably outsource that.
You can do it, but if its not your passion then I would suggest something else. It definitely takes time and effort. Once you get your 80 hour routine down though, it becomes second nature.
Thanks so much for your feedback, there seems to be a wide variety of investors on this forum.
I know that real estate is not a get rich quick scheme, but you definitely need to set your course of action right so you dont have to backtrack.
I am a non practicing attorney who works in sales and put in probably 60+ hours per week and even more hours when I am call on the weekends. So, I really dont have a "set" schedule....no 9-5 here thats for sure. Part of my plan is to identify a position with a company that does not require so many hours!!
I have plenty of knowledge in the real estate arena and always looking to add more! That is why I am here....to help and to be helped.
I will post an introduction in the appropriate section so as to not bog down this post so if interested check it out.
Back to topic, I think MikeOh strategy of cash flow is something I need to look into as that is what I am after. The problem is that I do not like doing the repair work myself....which I know I can hire out.
There are a lot of investors that say starting out in rentals is a terrible strategy and they made a mistake by starting that way...what do you guys think? MikeOH seems to be doing pretty well with that strategy. I know there are alot of variables and nothing is clear cut just looking for opinions.
Whats the path that you recommend for investors if you had to do it all over again....keeping in mind the investor that wants to be full time in say 2-3 years.
Hey John -
80/20 rule. Use it - live by it.
80% of what you do in REI will be a waste of time - 20% will be worth your time -
Don't just sit down and surf - have a clear puprose of what your going to accomplish each year / quarter / month / week and day.
If you know this year you want to buy a house - then figure our what you need to do each quarter -
Break that down to each month
Break that down to each week.
You have to structure your time to make sure you are moving forward and not just wasting time.
Most people waste time and pretend to be working but they are just wasting time.
Make sure you recognize the 80% of time wasting stuff in your life and get rid it.
Schedule the time you're going to work on your investing--make a firm appointment with yourself, show up, work like crazy during those hours, and then STOP and go home.
Rentals require some financial stability and assets. If you're out of work and have no cash on hand, rentals will kill you. The first time something bad happens, even a sudden vacancy, you'll be unable to handle it.
If you have the ability to withstand a hit rentals are fine. Rentals are, IMHO, the only true form of "real estate investing". Other types of "investing", wholesaling, developing, bird-dogging, rehabbing, etc., and all real estate jobs. You do the job and you get paid. Further, they're all commission sales jobs. You ONLY get paid if you close the deal. Nothing at all wrong with any of these jobs. But if you have a job that produces income and you're satisfied with it, there's no reason to trade it for a potentially risky new job.
When you say you want to be full time in a few years, what do you mean? You want to have enough rentals to give you the income you want? Or, that you want to trade your current job for a real estate jobs? Or, perhaps a combination of the two.
Rentals just don't produce a ton of real income. Sometimes, you'll be lucky and have a good tenant in place and you'll think you're pocketing the difference between the rent and the PITI. Other times the tenant will bail out on you leaving a mess behind. If you have one or two rentals, its possible to get lucky and pocket a lot of cash. With enough to live from, you'll be having some big expense -- roof, sewer line, furnace, tenant damage, eviction, something -- every month or two.
If you want a RE job, you should continue to research the different possiblites. You might want to try each of them and see which appeals. Then, pick a niche, and focus on getting good at that. Then, only when you've saved up a years living expenses, and you feel comfortable with the sporadic income from the new job, make the leap.
