Quitting Your Job is the WORST Decision for Newbies? Right?

Question

I've been seeing a lot of folks around BP that seem to be here with the express purpose of quitting their jobs to invest in real estate.

The problem that I see, however, is that many of them seem to think that they can quit their jobs and invest in real estate to replace that income straightaway. To me that seems like a dangerously foolish plan.

I get that quitting a job may be the right call for the 9-5er that has a truly poisonous existence at his/her company and wants to start fresh in real estate. On the other hand, I also feel like the majority of folks are reasonably content with their jobs, but would like to slowly build up passive income to replace their 9-5 over time.

To THAT end, I feel that quitting your job is the absolute worst decision you can make when trying to enter into Real Estate Investing. Your job (or the stable, long-term income stream from that job, rather) is the primary asset backing most conventional mortgatges - which I think are one of the most reasonable and likely means for many newbie investors to get financing for their first few real estate investments.

Basically - if you quit your job, you can't get a mortgage... which DELAYs your first investment substantially by making access to financing much more difficult or impossible, or worse will create very unfavorable financing terms and dilute your ownership.

By the way, I'm NOT talking about the person who is ready to quit their job and become a full fledged entrepreneur. If you are willing to hustle 12 hours a day in the real estate industry to build your thing, then good for you - you'll probably make way more money in a few years if you can hustle like an entrepreneur and build your empire full-time. I'm instead talking about the 9-5er looking for financial freedom in the medium term, and wants to add quality properties to their portfolio.

Linval T. · Answer

@Scott Trench

That's a good conversation starter and one that I have responded to many times on this site primarily to newbies. I totally agree with you that this line of reasoning is very myopic for those who think that they can readily do so and become an overnight sensation in REI.

The likelihood of success of this ill-conceived move from a stable W2 paycheck, to immersion in REI with no related education, experience or backup funds, though minutely achievable is tantamount to hitting the lottery.

In other words the chance of success is slim to none!

This career migration path if conceived, has to be thoughtfully planned and must include room for backup plans B and C to start, then, discussions with family members and friends to weather the impending storms.

As we all know, REI is a marathon and not a sprint, coupled with the fact that for those who don't have a lot of money, but, good credit and a W2, can start out by house hacking whether it's a single family unit with room rentals or via a duplex/triplex/quad with occupancy of one unit.

In this case a FHA mortgage could be the starting point on their REI roadmap to accumulating wealth and being their own boss. Eventually, adding other RE accumulations while simultaneously leveraging a W2 for mortgages as time progresses.

Lastly, I must admit that I am an avid risk taker, but, only pursue calculated risks. So, this W2 flight to REI would not be on my risk list, as leaving a stable W2 job to jump into the vast world of the REI unknown without its education, experience, planning and forethought is like jumping off a cliff without a parachute.

Christopher Brainard · Answer

@Scott Trench

I think the answer to your topic is pretty simple. If you have sufficient funds (of your own) to invest and support yourself with a reasonable buffer for unplanned expenditures, you are ready to leave your job. I figured out what that number was years ago and when I hit it, I was gone.

There are a few successful job-quitting stories, which you can find on the forums, but I'd wager there a hundreds of unposted horror stories of those who quit their job, only to find themselves far worse off, but nobody posts that!

-Christopher

David Dachtera · Answer

Then again, some folks turning to REI had their jobs taken away through lay-off, company folding, forced retirement, etc.

Yes, an income is always helpful, but when you no longer have one, ya gotta play the hand you're dealt.

Anthony Certonio · Answer

@Scott Trench Great post and I couldn't agree more.  Do I want to go full time into the REI world, of course.  On the other hand, I do know how important my job is.  The ability to use it to get a mortgage.  I am new to REI and one thing I have learned through either podcasts or forums is how important a W2 job can be in getting started.  On the other hand, I also love what I do.  I am a RN and work in the ICU.  I save lives daily, comfort very sick patients and their families.  It is by no means easy work.  We laugh together and cry together.  Like I said, I love what I do but I am still working towards my goal of enough passive income to be able to quit what I do to sail around the world on a sailboat.  Great post.  Happy Veterans Day to all my military brothers and sisters.

Steve Vaughan · Answer

Great discussion @Scott Trench.  Well thought out replies above.  Not something to do 'willie-nillie' or sometimes never for those that have careers that took so much work and specialty knowledge to obtain or provide them with real meaning.

It's sad seeing the folks on here that say they quit their job last week now can't get a mortgage. Doh!  Right before I quit and left CO, I lined up my HELOC.  No where on the loan app did they ask if you were planning to continue working, thankfully.  Plan accordingly as so many have said, especially Account Closed.

Wait for the boat to be near the dock before you jump!

Mike Arias · Answer

I completely agree with you Scott. Letting go of a steady income, benefits and health insurance is not something that can be left to chance. This is especially true when you have a family. It took me a few years of working days straight, long hours, flipping and part time landlord to finally let go.

There are exceptions to this rule of course. People are gifted/inherit properties or capital. In this case they are able to skip a few steps and continue growth if they use it wisely.

David Dachtera · Answer

Well, I am not in such a position myself, but I have known people who had the reserves to keep their bills paid, do enough fix-and-flips their first year in REI to replace their former salary, then go on to acquire enough flips and income property to leave the W2 world behind permanently.

I grant you, it's BY FAR the great exception, but it's not totally unheard of.

JD Martin · Answer

I have several "day jobs", so I agree wholeheartedly. From a selfish standpoint it works out well for me if people do this because they have less ability to compete with me for houses, but from a moral perspective I would not tell anyone to do this unless their cash flow was very close to the job, they had diversification, and no or little debt.

Scotty Brown · Answer

"...a truly poisonous existence."  That was me, but toss in a dash of toxicity as a bonus!  Sometimes it has to be done, but yes...if your current situation is bearable, start your real estate career as your second job.  There is a ton to learn, and a lot of hours to be put in before it will come together for you.  Some faster than others, of course.

Regards,

Scott

Stone Teran · Answer

Haha, great quote.  Working for someone else is usually more stable than being self-employed, so keep that dayjob until your own business was grown enough to support you plus leaves cushion for the added risk.

Quitting Your Job is the WORST Decision for Newbies? Right?

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