Is REI just an investment, or can it suffice as a job?

Question

My job of 25+ years is winding down due to sweeping changes in the market I work. It's a long story; the job isn't ending cold turkey, just slowing way down such that I need supplemental income. I suspect there's a good chance it will end entirely sometime within the next 5 years. I really need a 2nd job for now but probably a new job altogether in the near future, but I 1) don't want to have to quit my currently dwindling job just yet, 2) don't really want to work for somebody else, and 3) would prefer to work for myself controlling my own schedule, and everything else that comes with working for ones' self.

The plan I'm considering is to purchase 2 or 3 quads using a HELOC on my own currently-paid off ~$150K home for the down payments, and me being my own PM (I have 30+ years of construction and repair experience, and some landlord experience).

Would this plan count as 1) a job, 2) an investment, 3) a mix of the two, 4) a gamble, 5) I'm nuts, or 6) _____? (please fill in the blank)

I've done the analysis (well, quite a few variations of what-if scenarios using ideal conditions, bust market conditions, and everything in between) and believe the annual cash profit will be about $29K in year 1 (excluding appreciation, tax benefits, and rent increases)

So there's a good chance that at some point soon, possibly sooner than later, I'd be relying on the success of this three-quad plan to 1) pay back the HELOC, 2) pay back the mortgages on the quads, and 3) provide me and mine with living expenses.

Does this make sense? Would YOU be willing to borrow against your own home to enter into such a plan?

Feel free to ask, if I have omitted something you need to know to consider this.

Thank you very much for weighing in, for whatever you can offer ...

Jeff G. · Answer

Thanks ALL for the replies! I like the idea of not caring what the title JOB is ... you're right, it doesn't matter what I call it - income is income. If it's enough, it's enough.

I'll add that I have the cash to make the down payment, but like the idea of using a HELOC because 1) I'd like to let my home equity actually work for me instead of just making me comfortable knowing that I have a paid-off home, and 2) I can keep from taking the cash from my account.

@Jean Bolger re seller financing: You're right, the seller, who is selling 3 quads, is not interested is owner financing.

@Joe Villeneuve {snip} "Followers", are victims of their circumstances.  "Leaders" take control of them.

I like this!

Paul Strauss · Answer

My question would be- what difference does it make what you call it?  Talk to a CPA about the best way to structure it.  Frankly, even with your experience- which is great for self-managing rentals btw-- RE investing isn't the most stable / secure replacement for your income if it is vital.  An unexpected expense can wipe out all the cash flow for the year- and they come in spades when they happen.  Reserves are the first order of business, and if you are in immediate need of replacing income, it can be very tempting to mismanage the rental income because of your personal income needs.  My suggestion is find a way to replace your income FIRST; then invest.

Adam Sheren · Answer

Joe-

You're plan/strategy is a solid. You've stated you have some landlord experience from the past? Was it with multi unit structures? A much different ballgame than single family homes.

As far as the "job" goes. I think you're focusing to much effort on a title that ultimately has no affect on what you're doing. Investing in real estate is NOT a job. There are millions of people out there who invest in real estate by simply writing a check, that being said, acting as your own GC, landlord, accountant, R&D team, and property manager can certainly be a lot of work, and it's maybe in that context that you're wondering about the term "job".

My only suggestion for you, would be to do the math again and this time include paying a property manager. See what the income comes out too. If you're planning on doing this full time with no other income source to supplement your rental cash flow, then you most likely will not need a property manager. But if your are still planning on doing something else, even if it's part time, it would be prudent to at least see what the costs are!

Most importantly, if you don't quit if/when things don't go smoothly, you will undoubtedly be successful in this venture!!! Good Luck!

Joe Villeneuve · Answer

@Mark Freeman nailed it.  REI replaces the job, but in itself should not be thought of as a job.  What is it?  It's a way of life, and a philosophy in life.  Here is the base mentality one must have when understanding the difference between a j.o.b., and REI...it's the mindset.

REI is made up of "leaders", jobs are performed by "followers".  What is the difference?  Simple.

"Followers", are victims of their circumstances.  "Leaders" take control of them.

Darrell Shepherd · Answer

Throw in a couple of flips to your rentals and sure, its very easy to replace J.O.B. income with REI.  I made six figures on two houses in 2013.  Took 5 in 2014 to get there, but I had a loser and had to split one with a partner.  That is nowhere near 40hrs a week to do that, btw.  It just doesn't take too many of the big checks to replace normal income, but it is a lot harder to budget not knowing when the next check is gonna come in, especially starting out.

Mark Freeman · Answer

Sorry I didn't read the whole post, but I think of REI as THE WAY to GET RID of the JOB!!

Elizabeth Colegrove · Answer

I would say yes, but than that is what we are doing!

We are investing in Real Estate, today to allow me to stay home and raise our family "tomorrow" and my husband to early retire in 15 years.

We are buy and hold investors who live frugally to invest one income while living off the other one.

I am a huge believer in the saying. If there is a will there is a way! Therefore if you believe in yourself and have a plan I would "go for it".

Jean Bolger · Answer

I think supplementing your income and eventually replacing your income with RE is quite possible. I don't know if you can get there in five years or not- there are just so many variables -especially your market, which I know nothing about. And yes, being a hands on landlord is definitely a job (part time, at least) as well as an investment. I think your main obstacle will be getting funding. You're not likely to find a lender who wants to give you two or three investment mortgages at once with no track record. So you may have to start slower. That all probably depends on your current income and your DTI. Some lenders will count a percentage of the rents (usually 75%) towards your income when qualifying you, some won't until you have two years' landlording experience. Of course, there are ways to work a deal that would bypass this- finding a seller who was interested in offering seller financing, for example. That of course is often trotted out as the answer to funding problems, but it's not always the easiest thing to find.

Is REI just an investment, or can it suffice as a job?

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