Closet real estate investors often consider transitioning from side-hobby to a full-time gig. With some planning and preparation, you can become a full-time real estate investor and quit your day job.
Now, don’t expect to make a fortune right away. Even if you see a very quick return on your first investment, that money will be gone soon, spent on living expenses and future investments. “A $20,000 check from a rehab may look nice, but after all expenses are paid and everything is said and done, the bottom line will be significantly less,” says Than Merrill of FortuneBuilders.
If you want to ensure you’re taken care of now and in the future, you’ll need a plan to transition from your day job to real estate investing. You probably can’t transition cold turkey, so here are a few steps for making it easier:
1. Make Sure It’s Right for You
It’s a bold move to go from your stable, long-term job with a 401(k) to becoming a full-time real estate investor with risks. However, those who have done so successfully find that it’s worthwhile. They report making their fortune through the venture and retiring in comfort early on.
But it’s not for everyone. As a successful real estate investor, you must be a self-starter who can work with little supervision. You must be on the hunt for good properties and use metrics of positive investment to succeed. You may need certain character traits and a knack for financial markets as well.
You might take a quiz, like this one, that helps you decide if real estate investing is the right choice for you. You can also ask other investors what their typical day looks like to see if it’s something you’ll enjoy doing long-term.
2. Establish a Clear Revenue Stream
Very few investors are willing to take the risk of quitting their day jobs before they make money. Establish a stream of revenue that will keep food on your table and a roof over your head before leaving your job.
Typically, this means you’ll have found success in one or more of the many avenues of real estate, such as house flipping, wholesaling, buying and holding, rentals, etc.
Education is key to your success here. Learn all you can about strategies and methods of making money on a specific venture. “If you want to start flipping houses – it’s important to read everything you can on house flipping,” suggests Brandon Turner of BiggerPockets. “Meet with several house flippers and see how they do it. Perhaps offer to work part time for them (for pay or without.)”
When you’ve brought home a few paychecks, and you’re certain this is something you can sustain, then you can consider leaving your job.
3. Live Frugally
The transition from making a full-time, steady income to a job that pays lump sums sporadically can be challenging. Managing cash windfalls is more difficult than a steady paycheck, and when you’re used to a certain lifestyle, it’s hard to rewire your financial habits to meet your current financial needs.
Start living frugally before you quit your day job. Cut out a few extras here or there. Recognize that you’ll have to make some sacrifices until your business gets off the ground.
In addition, have some savings to fall back on, just in case your cash flow doesn’t start immediately, or you experience losses. “Don’t quit your day job if you do not have enough savings as a financial buffer,” recommends Victoria Daibes of Mashvisor. “Consider at least 6-12 months of savings before you quit your job.”
This isn’t forever. Successful real estate investors enjoy a very comfortable lifestyle once they get into the swing of things, but cash is crucial at the beginning. Spending all your returns will make it difficult to succeed.
4. Determine Your Leverage Source
Perhaps the best thing about real estate investing, particularly for new investors, is that you don’t have to use your own cash to get started. Determining where you’ll get this funding and how it will be applied is essential for the planning phases.
Real estate investors seek capital through several means, including conventional loans, investment partnerships, angel investors, hard money loans, non-bank mortgage loans, crowdfunding, and more. There are also government programs to help investors get started as well, such as FHA loans or small business loan programs.
Even if you’ve saved up a large chunk of money, take advantage of leverage. The goal is to make more on a property than you purchased it for. Anything left in your savings can be used for living expenses or as a fallback if you experience a loss.
5. Build a Team
You might be the primary driver behind your real estate investment, but you’re far from the only one who can make it successful. You’ll need a network of professionals that will assist you.
Chad Carson, an experienced real estate investor who’s been in the game since he was 23, says that without a strong team, he couldn’t have made his fortune in real estate. He reports using lenders or other financial investors, general contractors, property managers, brokers, expert real estate listers, real estate attorneys, insurance agents, accountants, and other real estate investors to network with. This takes time, and you want to have most of these individuals in place before you quit your job to improve your chances of success.
6. Develop Leadership Skills
Carson also says that being professional and in-charge is the key to a successful investment. “Building my team starts with the realization that I am the leader. When the thought of being the team leader scares me a bit, I revisit some of my favorite resources to rebuild my leadership muscles.”
He recommends reading books like The 7 Habits of Highly Effective People and The Tribes We Lead. Remember that even though you might have the fewest years of experience on your team doesn’t mean you don’t have plenty to offer. You can be a leader, and this confidence will carry you to success better than anything else you do.
Let Green Residential Be Part of Your Team
If you’re looking to become a full-time investor in the Houston area, make Green Residential a part of your team. Our realtors are the most skilled in the area. We also offer an excellent flat-rate fee program that will save you money. For more information about all we have to offer, give us a call!