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So You Want to be a Full Time Real Estate Investor?

by Kevin Perk on August 27, 2012 · 23 comments

  
leaving the 9-5 job behind

Reading Michael Zuber’s post the other day got me thinking back to the days when I was a newbie investor and still had a full time day job.  My weekends were pretty full also, as well as many of my nights after work.  My wife and I worked very hard, buying and rehabbing properties, dealing with tenants, raising and saving capital.  Heck, I even cut all the yards for a while. However, we worked so hard because we had a goal.

That goal was to become full time investors and leave the 9 to 5 world behind.  I think many people who get into real estate investing share the same goal.  They want to change the path they are on.  They want to build wealth and have the time and flexibility to enjoy life.  Real estate can do all these things for you and more.  It is not easy though.  If it was everyone would be doing it.  So if becoming a full time real estate investor is one of your goals . . .

Here are some thoughts and tips before you leap into the full time investor world and quit your day job:

  • Be sure to start and keep a monthly household and business budget.  You must have a firm idea of what money is coming in and where it is going out.  Only then can you begin to think about what it will take to leave your day job behind.
  • Know what you “jump off” point is.  If you know you will need a minimum of $30,000 once you quit your day job, and you know you can get a cash flow of $150 per month per property in your market, then you know you will need 17 or so properties/units to reach your “jump off” point.
  • Some of your expenses may go down once you leave your day job.  Things such as gas for that commute or dry cleaning may no longer be needed.  Other expenses may increase like utilities since you may now work out of your house all day (and keep the air or the heat turned up).
  • One big expense to plan for is health insurance.  Do some research and shop around.
  • Don’t cut all the fun stuff out of your budget.  While you may need to cut some costs at first, remember to have some fun as well.
  • Put some reserves away if you can before you quit.  Having reserves will not only help you sleep at night but it will get you through some unforeseen rough patches.  Plus bankers really like to see reserves on that balance sheet these days.
  • Keep your cards close until you are ready to make your move.  There is no need for you to rock the boat until you are ready.  When you are ready to make your move, give plenty of notice, do not gloat, be gracious and never burn that bridge.  You never know when you may need someone later on.
  • Make a plan for your real estate business.  Outline some goals and set a path to achieve those goals.  Sure you can enjoy a little time when you first get out, but remember it will be all up to you once you are on your own.
  • Make sure that your sources of capital, such as banks, are ok with you leaving the “working world.”  Will your sources of capital dry up along with your W-2 income?

Finally, do not be afraid to get up on the diving board and jump in when you are ready.  I was very excited when the day finally came and I have never looked back.  I know the though of leaving that security can be scary, but you will be amazed how much you real estate business grows once you can focus on it full time.  What tips do you other full time investors have for those just starting out?

Till next time, happy investing!

Photo by Jere Keys, www.jerekeys.com

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{ 23 comments… read them below or add one }

Brandon Turner August 27, 2012 at 12:06 pm

Good tips Kevin. I think a lot of people jump into full time too soon, without building up those reserves (I know I did!)

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Kevin Perk August 27, 2012 at 8:35 pm

Brandon,

Reserves are important. They help you sleep at night!

Thanks for reading and commenting,

Kevin

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Karen Rittenhouse August 27, 2012 at 12:23 pm

And, it’s a big help if your spouse is on board.

I left my W-2 job and worked on investing full-time because my husband’s income was able to pay all of our bills. Two and a half years later, we had 25 properties and he quit his W-2 job to join me. Five years later, we have 11 full-time employees!

Knowing your goals, even if they change, is absolutely necessary to keep you on track.

Thanks for the post.

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Kevin Perk August 27, 2012 at 8:41 pm

Wow!

Fantastic Karen, Congratulations!

Having a supportive spouse is so important. If your spouse is not on board it is going to be a difficult road. My wife is an integral part of the business and I am grateful she is a part of my life.

Thanks for reading and commenting,

Kevin

Kevin

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Randy Smith September 1, 2012 at 11:19 am

Hello Karen,
My wife and I are on our way as well. We are getting ready to purchase home number 7. Our first year was a real shocker and I would like to ask your experience. We were really disappointed with our tax bill as we did not realize (nor did our accountant of ten years) inform us that we would not be able to deduct any of our expenses or losses because our adjusted gross income exceeded 150k, in which case there are zero deductions and a huge tax bill for selling other investments and declaring their capital gains. We purchased our homes in our individual names and obtained an liability insurance policy for the just in case. Did you all have this problem as well, how did you go about that. According to our accountant, we were not considered professional and were only qualified as “passive” investors. You may email me directly, if you like. Let me know via this post and I can send it to you. Thanks, Randy.

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Karen Rittenhouse September 1, 2012 at 11:59 am

Hi Randy:
Yup, we all get our education one way or another!
Your issue here is not only your income, but your hours. To be able to take advantage of many of the wonderful deductions real estate allows, you must have a minimum 750 documented hours per year spent in the business and this 750 hours must represent over 50% of of your employed hours (you must work more in this business than your W-2 business to qualify).
You have not lost your deductions. They continue to roll forward until such time as you meet these minimum requirements for real estate professional status rather than “passive” investor.
This is one HUGE caution to investors who start out flipping – they rarely realize how much will go to Uncle Sam. Something not discussed on the TV “flip-it” shows!
I highly recommend taxloopholes.com and any information by Diane Kennedy.
Thanks so much for asking. Hope I’ve helped.

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Kevin Perk September 2, 2012 at 5:28 pm

Thanks for helping out here with some good info Karen.

Kevin

Randy Smith September 3, 2012 at 2:02 pm

Thank you very much Karen!

Randy Smith September 3, 2012 at 6:29 pm

Karen, thank you so very much! I’m excited to know I have not loss the deductions. Hopefully, if all goes well, we can go full time with property number ten. We may reach that goal this year. If not for sure early next year. Thanks again, Randy

Mike Z August 27, 2012 at 12:38 pm

Kevin

You are my hero

THanks for the clarity and vision. I love to see that others have done it successfully

Good Investing

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Kevin Perk August 27, 2012 at 8:41 pm

Mike,

Thanks for your articles and for reading and commenting.

Good luck,

Kevin

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Mike August 27, 2012 at 12:42 pm

Good tips here, Kevin…and Karen, very impressive business you have – I get some help from my wife as well as she’s a real estate broker (keep the broker fee all in the family if possible)!

I did it working for the family business (flooring) doing it part time and doing a lot of the work myself. Now, I rarely do the work (although I did last week on a floor that had to be done in a pinch) and have the GCs do it all. Part time starting is the way to go, with a bit of a nest egg just to be on the safe side.

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Kevin Perk August 27, 2012 at 8:43 pm

Good advice Mike.

We did a lot of repairs and such ourselves at first as well to get to know the business from the inside out so to speak. I think starting slow and learning everything you can is the way to go.

Congrats on your success!

Thanks for reading and commenting.

Kevin

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Terry August 27, 2012 at 1:00 pm

Thanks for that Kevin and Karen. Both of your comments helped me to try to get my husband on the bandwagon. Although I sold my first house recently, after just 2.5 months of “getting the idea” to become a wholesaler and soon-to-be investor, he still wants to make coffee, literally! We went to Costa Rica in 2007/2008 for about 8 months and he got hooked on the coffee importation, roasting and selling bandwagon, but still works his 9-5 and hasn’t taken the first step. I think, Karen, until we have “25 properties and….11 employees” he’s not even going to think about it. I told him that coffee is a commodity and real estate is an investment, but it still didn’t work. He did go with me on a couple of open house deals and he was really good with the investors. Anyway, thanks you guys for the tips and encouragement. Kevin looks young enough to be my son, so if he can do it so can I!

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Kevin Perk August 27, 2012 at 8:49 pm

Terry,

I could get hooked on Costa Rica. Such a beautiful country.

Have you shown your husband a cash flow/business plan? Perhaps you can borrow from Dave Ramsey and tell him you want to “Live like no one else so you can live like no one else.” Perhaps with a long term plan on the table where he can see the outcome he may come on board. Maybe he just needs to see more checks. :)

Good luck and keep it up, you will get there!

Thanks for reading and commenting,

Kevin

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Terry September 3, 2012 at 1:29 pm

Kevin:

I did a search for that term thinking I could find it in the forums but no luck. Can you point me in the right direction to obtain this information? That would be great!

Thanks!

Terry

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Kevin Perk September 3, 2012 at 3:09 pm

Terry,

Do you mean info on a business plan?

Kevin

Tracey September 2, 2012 at 5:17 pm

Kevin, Great article !
Having the reserve is very important & I learnt it’s not your dowm payment because the banks still expect you to have cash to make paying even after closing and the property is not yet rented.
Tracey.

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Kevin Perk September 2, 2012 at 5:32 pm

Tracey,

Thanks for the kind words and for reading.

More and more I hear of banks wanting to see reserves on those balance sheets. They want to make sure you can ride out some of those storms that come with owning real estate.

Kevin

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Kat March 5, 2013 at 9:34 pm

Hi Kevin, great article. I am in the process of paying off my car to reduce expenses and getting some 6 months of emergency reserves; and after that, I want to raise capital to invest in real estate. I am taking this time to prepare. Are there investment classes I can take? I can’t find them in academic institutions. Is it advisable to join REI clubs in the area? Do real estate professionals such agents the most knowledgeable when it comes to real estate investing? I’m wondering if I have to work in the real estate field to be successful in investing. Basically with all these questions, I would like to know how I can educate myself and get that foundation to be successful in real estate investing. Anyone can answer to my post too. I truly appreciate it!

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Karen Rittenhouse March 6, 2013 at 6:54 am

Hi Kat:
I know Kevin will answer, but I was reading this morning and came across your questions so I’m jumping in as well!

Welcome to real estate investing! Yes, join your local REIA clubs, and local Landlords Associations as well, to learn the language and specifics of investing in your area.
Most real estate agents don’t know much about investing but more about buying and selling retail.
You do not need to work in the real estate field to be a successful investor.
There are many posts here on BiggerPockets that discuss how to begin investing. Take you time, study what’s here, join the local groups, plan to learn something new everyday. Next month you will know way more than you know today. By summer’s end, you will be rockin’ and rollin’!

To your investing success!

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Kevin Perk March 6, 2013 at 9:17 pm

What she said!

Thanks for helping out Karen!

Kevin

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Kevin Perk March 6, 2013 at 9:16 pm

Kat,

Great job and welcome to the wonderful world of real estate investing!

I would recommend you join your local reia group. They will be able to give you local knowledge, introduce you to realtors and others who understand real estate investing and provide classes and courses to help you focus and achieve your goals. You generally will not find these in academic institutions.

I would also suggest you check out the investing section at your local library. It is free and often times they have a lot of decent sources on real estate investing, investing in general, business, marketing and other topics that can help you.

This blog and website is also a wonderful resource to the new investor. The articles are awesome and the forums can provide almost instant feedback. Use them!

Best of luck to you and if I can help in the future please let me know.

Thanks for reading,

Kevin

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