Find a New W2 Job or Take Plunge Full-time Into REO?

Question

Hey folks, looking for some advice and feedback. I've been working in the IT field full-time doing systems support for the last 6-7 years. I've been working for a contracting company at a client site this whole time, and I found out last week that the client will be ending the support contract with the company I work for in October of this year, which means my position will be going away.

I've been purchasing rental properties the last 4-5 years with the goal of eventually being able to replace my W2 income in the event something like this happened, and also just to get to a point where I'm not trading time for money as much and have greater control over my time. I currently have enough positive cash flow from the rentals to cover about 70% of my living expenses where I am at right now, and am trying to decide what to do next when this support contract expires. Honestly I've been looking to make a change for awhile now, but have stayed in part because the pay is good and also because it's easy to get mortgages for additional rentals with this W2 income. My plan was to get to the point where 100% of my living expenses could be covered by rental income before making a change.

I would love to transition into real estate full-time, while also supplementing my income by doing freelance writing gigs online. I've been doing freelance writing on the side for a bit and know for a fact that with freelance writing, plus my rental income I can easily make enough to pay my monthly living expenses without a W2 job. I also will have about 4-5 years worth of living expenses in cash as soon as I sell a flip project I am currently working on that is set to close within 3 weeks. My two main concerns with this however are:

1. It's going to be difficult if not impossible to get a conventional mortgage until I would at least build up 2 years worth of steady 1099 income from freelancing and real estate investing (flipping most likely).

2. I'm afraid that if full time REO investing and freelance writing don't end up working out as well as I'm expecting, I'll lose out on a lot of growth I could have had with investing that steady paycheck month after month.

3. I've only ever flipped one house before and don't have near as much experience as I would like before trying to go full time.

4. If I flip a house and can't make as much as I'd like to on the selling side, normally I would look into refinancing and holding it as a rental as a plan B. This likely won't be possible without W2 income.

My other option is to play it safe and find another W2 job even though my heart's not really in it.

What would you all recommend? Take the plunge or look for another job and keep buying rentals and prepare further? Are there other things I should be taking into account and considering as well?

Thanks in advance for any feedback!

Greg Dickerson · Answer

@Tim Porsche Sounds like you are definitely at a crossroads. The decision is a personal one and depends greatly on how old you are, if you are supporting a family or just yourself, how many properties you currently own and your overall tolerance for risk and ability to motivate yourself. When you step out on your own you eat what you kill so you need to be a self starter and self motivated. The only right answer is what's right for you and how bad you want it. That being said I will answer your general questions regarding REI as a business from an entrepreneurial standpoint.1. You only need 1 year in business with steady income to qualify for most traditional mortgages. Mortgage brokers have a lot of options for self employed individuals however they are a little more costly. Local banks also offer loans for investors especially with a solid track record and multiple properties. You need to shop several banks as they are all different. They will use the income from the property to service the debt and your credit history to qualify for the loan. There are other non-traditional lenders and private lenders as well as owner financing and lease option strategies so its really a matter of what you want to do.2. This is fear based. Using that logic you've already wasted 7 years earning a paycheck if what you say is true. There is no job security in todays economy. The only true security is in your knowledge, skillset and ability to earn money without relying on anyone else. I'm sure you could get a job anywhere anytime so it's not a matter of unemployment for you its a matter of growth. The real question is what will the W-2 get you over the next 10 years? How much passive income can you generate during that time? If you continue on the the same path you've been on will that be satisfying enough for you? Again no right or wrong answer just what is right for you and how bad you want to start your own business.3. Flipping is very different than buy and hold but there is plenty of information and help in this area. Again it boils down to desire. If you want it bad enough you will figure out a way to make it happen.4. We answered this in question 1.My final thoughts are its sounds like you are more comfortable with the steady income and investing as you go. I think this is a great strategy. You can continue grow your single family portfolio exponentially with some creative options and even get into multi family, commercial and development while working a full time job. I have plenty of clients and friends who do this. No need to rush or feel like you have to make the move before you have the income to support it.