Why did you start a real estate business and not some other type of business?

Question

Do you just love real estate?  Or, like me, do you just like business in general?  Was it the "glamour?"  Or was real estate simply the vehicle to financial freedom?

For those of you who have or are making this a business, not just a hobby, why real estate?

I thought of this question because I was just perusing, since I never completely read, this article, How to Start a Startup, by the president of Y Combinator which has launched 725 startups.  Of course, my mind went back to several episodes of Shark Tank, a show I really enjoy.   I'm generally interested in business and there are other opportunities I'd enjoy pursuing in the future.  I know my reasons for pursuing a real estate business right now.  What are yours?

Steve Vaughan · Answer

Lots of reasons to be in the REI business vs other businesses - control, cash flow, leverage, obtaining instant equity, well understood/proven wealth-building strategy, inflation protection, tax advantages, etc.    The disadvantage I am experiencing as a portfolio holding landlord is the difficulty in putting systems in place so I can work more on my business vs in my business.  Too many variables with changing needs and problems of tenants, sellers, municipalities, hoa's, etc. Difficult to document a manual or handbook that covers every situation.  More possible to do as an agent, wholesaler or flipper I would think.

Chance Cooper · Answer

I purchased a home when I first got out of the Military, lived in it for a couple years then decided to come back in the Military. I tried going in business for myself but it never worked out. Well when I came back into the Military I put that house up for rent. I started other businesses while I was out of the Military but my phone never rang as fast as it did when I Iisted my house for rent. Within a week of listing it I had a tenant bring me first months rent, security deposit, and signed a lease agreement for 12 months and had a ton of other calls... The total I received was $1700, oh and I also received about $300 in application fees.

It didn't take me but about a second to realize this was a very lucrative business. Those tenants never called me, or bothered me. IF they needed something I made sure I took care of it because it is my house, and I want my houses taken care of plus they paid on time and were very good tenants. Once I seen how easy being a land lord was I started running numbers in my head of the potential money I could make owning multiple properties.

Then this year when I deployed to Afghanistan I started googling different blogs about land lording and stumbled upon "Biggerpockets." Once I started reading all the other threads about owning multiple rental properties, it was like the heavens opened up for me. It was like this dream/vision that I had, that I sometimes thought was a long shot was confirmed to be a great idea because a lot of other people was doing it and they were very successful. So thats my story in a nutshell. I plan on owning 10 homes one day, right now I currently own 2. 8 More to go...

John Thedford · Answer

Do you mean as a broker, licensed agent, or simply an investor. I got started by accident. I like the numbers, the freedom, and being my own boss. I have been self employed all my life. I have another business I have decided to sell simply from being burned out. I truly wish I had pursued RE years ago and stuck with it.

Joe Villeneuve · Answer

Well said.

Joe VilleneuveREcapSystemA2REIC

Larry Turowski · Answer

@Edgar Collado I think your return on rentals in option 1 is very conservative. With leverage you can achieve up to 100%, though I don't claim to be there.

And 3 or 4 flips making $20K to $30K each in option 2 seems extremely optimistic. I anticipate a 6 month turn around between having the cash waiting to close, closing, rehab, selling, and closing on the other end, and maybe a 20% return on investment, meaning with $100K I'd hope to make $40k in a year assuming I could find the deals.

So, to me, for option 3, the question is is there another business that could get me 40% ROI with the same amount of work.  And then there is scaling. Flipping is hard to scale. Buy and hold easier, but not maybe as scalable as many businesses. I know there are several small pizza and burger chains in this area with maybe 20 locations with the potential to franchise nationally.

Brad M. · Answer

@Larry T. & @Joe Villeneuve - Here are my Top 10 Reasons to Not Procrastinate :

1)

Edgar Collado · Answer

@Larry T. Great question.  I was just wondering the same thing...searched the forum and here it is!  Love BP.

Anyway, imagine you have $100K to invest.  Why pick real estate?  Let's put passion aside for a minute.  Many of us are into real estate because we enjoy the challenge, love the work, whatever.  But speaking strictly on a financial basis, does it really make sense.

Option 1 is to invest the $100K in one or several rental properites with a 10-15% COC, giving you $10-15K per year.

Option 2 is to take the cash to buy and flip.  I'm not sure what kind of return I can expect here, but it will depend on how many deals you can find and crank out.  A random guess says as a beginner maybe 3 or 4 deals a year once you get some momentum (maybe less?), netting 20-30K each?  So you can earn a $60-120K.

Option 3 is to put it into any other business...maybe a tech start up that can turn into the next big thing, or perhaps your neighborhood pizza shop or barber shop.  Depending on the type of business your income growth is limitless with that initial investment and without the need to continuously look for the next deal.  I did a quick google search (because the interest is always right) on barber shops.  One article claimed the national average income for a barber shop owner was about $30K, but another had several examples of barber shop owners making $80-200K per year in net cash.

Personally, I'm like many of the others here.  Real estate is only one faucet of my financial plan.  I like the numbers involved in real estate, I enjoy finding and closing deals, I enjoy the interaction with other (most, but not all) real estate professionals, and like the idea of an asset generating income for me without much effort after the initial push (assume you property manage, hire contractors, etc.).

Curious to hear your thoughts.

Cierra Seay · Answer

@Jim B. you're absolutely correct !!! Hope to talk to you more and best of luck in the business !!

Jim B. · Answer

@Cierra Seay Being a fellow 27 year old, I feel the same way, but other's on the forum would probably give an arm to be in our shoes!

I was pondering it recently, think of it this way.  If you were 40-something and just discovering real estate, what would your goals be?  For me, it would be to have enough cash flow for retirement in 10, 15, 20 years.  Now, how great is it to be 27 years old and be thinking of "retiring" at age 35, 40, or 45?

Start small, what would it take to replace your income as it stands now?  For me, $3,000/month would pay my bills and give me some excess to play with or have for emergencies.  Break that down by how many "doors" you would need to make the $3,000.  10 doors might be a little aggressive, but 15 is reasonable if you find above average deals.  How long would it take you to get a couple duplexes or multi-families? Say you got a duplex and 3-unit this year, you're already 1/3 of the way to freedom!!  Duplicate that the next two years and you're at your 15 units, paying you $3,000/month, paying your bills, and giving you freedom.  And.....you're only 30 years old.

Obviously this would be in a somewhat perfect world, but even if my scenario takes you TWICE as long, you're still not even 35 years old and financially free.  I'm not doing this to be rich, I don't need to drive a Mercedes and live in a 5,000 square foot house.  I want to not have a boss, be comfortable, volunteer, coach football, raise my future children....

Best of luck to you, hopefully I'll be seeing you around the boards!

Shaun Carl · Answer

I enjoy looking for different ways to make money and become financially free. I own stocks and have traded all different types. Dabbled with FOREX trading and commodities. I even now have an account with Prosper just to see how that works and if I can make anything with that. The main reason why I liked REI is because Land will always be there and people will always need a place to live. A company can go bankrupt, and many things influence the price of oil and gold and silver, people can default on loans, but I can always drive to one of my properties and walk around.

I really enjoy the searching or hunting for that next great deal.

Why did you start a real estate business and not some other type of business?

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