Why you shouldn’t jump into real estate hoping to avoid a job

24 Replies

On a lot of new investor posts, I read that they want to replace their full time income with passive income from real estate investing. Which all in all is not a bad thing but I think their time frames to do this is not very realistic. 

Many newer investors look at work as if it is a bad thing and they get fascinated with the idea of getting paid passively. They seem to want to skip the working hard part and jump straight to the getting paid passively part.

I discourage this. Not just because I believe that hard work is a principle of success but also because I don’t think it is very realistic. Let me explain. If you don’t already have money to invest, then it is very difficult to acquire properties. You can work hard to get investors to partner with you on flipping properties to accumulate cash so that you can put money down for down payments on rental properties. However, once you do that, you will likely only start cash flowing a few hundred dollars a month for months of work. You will need to eat during that time along with pay rent and other monthly bills. How will you be paying those bills? If you use your flipping money then you won’t have investing money. And by the way, the more involved in real estate I get the more I realize that flipping is a job. So for everyone who gets into real estate in order to get out of a job, I’m sorry to disappoint, but flipping is a job. It is a small business. And there is nothing wrong with that but I just want people to realize that it is trading one job for another.

A better alternative in my point of view would be to learn to love to work. Jump into the job market as hard as you can. But do it with a strategy. Find an area or industry where you can charge a lot for your service and become really good at what you do. Excel at customer relations, build a great network, save money as best as you can, then go off on your one with your own small business. Stabilize that business and start accumulating money to use to invest in real estate. Have your business invest in real estate rather than you as a person. With the flexibility of owning your own business, you can more easily invest in real estate without a boss looking over your shoulder wondering what you are doing with your time. This whole process can take 5 or 10 years, but doing this will set you up to better succeed at becoming a real estate investor. 

What are your thoughts?

Totally agree @Shiloh Lundahl !  If your why is just to earn $x,000 per month, it's not enough to take the punches RE can give you. You will stay down. It's a strong why that gives the energy to get up and push on.

Michael Gerber says it best I think.  He won't mentor or coach people that only want to earn $X per month.  Gotta ask yourself why 7 times to get to the true motivation of 'why'  you want something.  He will only take folks on that align their mission, vision and purpose.

I 'retired' from a w-2 long ago, but freedom was the why I found after asking myself 7 times.  Freedom from the commute and the thumb.  Freedom to live and give as I see fit.  Good discussion!

Lots of great points. I think a lot of people forget that you have to live while you are flipping houses and that money has to come from somewhere. The nice thing about passive income is that even before it's enough to completely replace your income, it can allow you the freedom to choose a career based on something other than salary.
Originally posted by @Jason DiClemente :
Lots of great points. I think a lot of people forget that you have to live while you are flipping houses and that money has to come from somewhere. The nice thing about passive income is that even before it's enough to completely replace your income, it can allow you the freedom to choose a career based on something other than salary.

 Sorry, Jason, but flipping and passive income are mutually exclusive.  Flipping is a job (for most) and profits are taxed as ordinary income.  Nothing passive about it, literally or tax-wise!

I say this as I am new to real estate, but I disagree to a certain extent, the key is to take the cash from flipping and diversify it, tying all proceeds into rentals is not going to work today. you see my goal is to flip to bring good cash to purchase other real estate and small service businesses, now I've used the funds to the fullest and now have multiple streams of income, to only rely on rental income unless you have large investors or large amounts of cash is setting your self up for failure, if you diversify the proceeds into multiple cash flowing businesses and properties now your building stable wealth. an example, I know I can purchase let's say 80 loan accounts for 30k, I can hire 2 guys to cut the 80 lawns in a week at approx 11k in monthly income, that's 110k income for 10 months, not bad from 30k profit off a flip to now a steady 110k income. the same goes for several service business you can buy them cheap and make a great roi off a small investment. Let the profits work for you in multiple streams not just real estate.

Image result for put the cart before the horse

cart before the horse...let's get one property under our belt before deciding it's the key to "retirement"

Yes @Steve Vaughan , I'm aware. I was making two separate points because the original post mentioned flipping and passive income.

It's work, it's stress, it's risk, it's self doubt, it's winners and it's losers. Most of all though, it's glorious  to own my own time and to love what I do! 

@Steve Vaughan

“If your why is just to earn $x,000 per month, it's not enough to take the punches RE can give you. You will stay down. It's a strong why that gives the energy to get up and push on.”

I re read that over and over.  That is very well said.

People think it's a get rich quick scheme. It's not. 

Quitting your job and losing that W2 is a big deal. Loans become much more difficult to qualify for. 

Plus what if you decide it's not for you? 

The years I spent building up my rental portfolio involved very hard work, lots of stress, and frustration  dealing with sellers, agents and banks. Not to mention I spent almost all my personal time on it. I would spend every weekend and some weekdays looking at properties with my newborn baby (feeding, changing, holding), which took a lot of physical effort, and at the same time inspecting properties and calculating numbers. Mortgage firms were difficult to deal with in 2009-2012 because they barely survived the financial collapse. Lots of agents had no experience handling investors and wasted lots of my time (I told them I'm an investor, they showed me a property, and when I called back to put an offer they said "I just found out it's only for primary occupants ..."). Banks were totally unresponsive to my offers for their listed foreclosures. So no big accomplishment is easy. 

I'm now in my second stage of strategy; paying off the loans, which will take another 10 years (and spend my discretionary income on paying off loans instead of on fun activities). So a total of 18 years for me to eventually replace my earned income. Not easy, not quick, and not simple at all.

I havent seen much thats passive about rentals . Its a job in itself .Sure you can pay a PM company and call a contractor for every problem . But that all costs money , and if a property is cas flowing $ 200 a month that gets eaten up on the first service call . 

I have to agree with @Shiloh Lundahl dont give up your day job .  My business is contracting and rentals . They go hand in hand , we do all of the maintenance in house . That saves me thousands of $$$$ . 

Great read. And thanks for bringing me back down to earth with this nugget. For the past few months, since discovering BP, I've been on a tear lately, gobbling up vast amounts of information, listening to podcasts, now on my 3rd RE book in one month,  constantly day-dreaming of the day I can replace my W2 with passive income. But the truth is, I make great money on my regular day job. And I've worked hard to get to where I am. But the promise of greener pastures is always so tempting that you forget to realize what you have. To think that I started on this quest merely to supplement what I currently have and to put to work whatever  modest amount of "excess" I have from my current job. Thanks for the perspective check. 

@Shiloh Lundahl So true! Investing in real estate for passive income takes work. And it's not easy! Funny how people talk about just wanting to quit their jobs. It's not about that. It's about creating other streams of income (aside from your job) so as not to depend on one source only. Interesting thread! 

@Steve Vaughan  thanks for your comment. I can relate to your personal “why.”  My “why” is similar in a way. It was about freedom too. 

I got into investing in real estate is because I wanted to be a great therapist and in order to be a great therapist I needed to do trainings that cost a lot of money. However, it’s not just the training that I needed to pay for, but it was also the travel, the food, the lodging during the training, and don’t forget the opportunity cost of not working during the week of the training and missing out on that income. So I needed something to supplement my income so that I could do the trainings that I wanted to do. 

After having some successes investing in real estate I started wanting to learn more about real estate investing and it became a passion. I have been achieving my why by gaining a lot of freedom through investing and I am on my way to where working is more of an option rather than a necessity. But I love what I do so even though in about 8 years I should be able to fully replace my income from my profession with income from real estate I don’t see myself stopping in helping families. In fact I see myself doing it more effectively all because of the freedoms that I get by real estate investing.

@Jason DiClemente thanks for your comments. I do think real estate investing can create freedom to choose what you really want to do or what you feel your life purpose is. Once the money thing gets taken care of, life becomes more full of choices as you don’t have to worry about making ends meet.

@Shiloh Lundahl I 100% agree with this! There is no short cut to financial freedom. You need to put in the work and set a realistic timeframe (5-10-15 years). Investors should think of work as pursing their dreams. You might have a job but you are working for "You Incorporated" where you are the CEO. 

@Jimmy Dudley I love your comment "Quitting your job and losing that W2 is a big deal". This is absolutely true. Especially, if you work for a good company that will provide you health insurance, 401k matching, and slew of other benefits. 

For most people it certainly is a job.  It's more about working for yourself than working for someone else and what that lifestyle offers.  Eventually, some investors get the system on auto pilot but a lot do not.

@Mike Dymski I love the cart before the horse picture. Yes, I think people get excited and do that. I agree that that people should test out real estate before deciding that it will be their key to retirement.

@Mark H. What a great story. I loved the description of the amount of work and the personal time spent creating your portfolio. I think it gives a realistic view of what it is really like to build a real estate business on your own.

Sometimes it seems like a newer investor may look at a more experienced investor like a kid who looks at a farmer and says, “You’re a lucky guy. You have all of this food around you that you can eat. We have to go to work to get money to buy food to eat, but you just get to eat as much as you want because what ever you eat just grows back.” And he doesn’t take into consideration the working the field, the planting, the watering and the watching over, that took place before the harvest.

Real estate investing is a lot like the farm. The effort that you put in today pays off very little today. But the seeds you plant today can payoff in multiples at the time of the harvest.

Originally posted by @Shiloh Lundahl :

On a lot of new investor posts, I read that they want to replace their full time income with passive income from real estate investing. Which all in all is not a bad thing but I think their time frames to do this is not very realistic. 

Many newer investors look at work as if it is a bad thing and they get fascinated with the idea of getting paid passively. They seem to want to skip the working hard part and jump straight to the getting paid passively part.

I discourage this. Not just because I believe that hard work is a principle of success but also because I don’t think it is very realistic. Let me explain. If you don’t already have money to invest, then it is very difficult to acquire properties. You can work hard to get investors to partner with you on flipping properties to accumulate cash so that you can put money down for down payments on rental properties. However, once you do that, you will likely only start cash flowing a few hundred dollars a month for months of work. You will need to eat during that time along with pay rent and other monthly bills. How will you be paying those bills? If you use your flipping money then you won’t have investing money. And by the way, the more involved in real estate I get the more I realize that flipping is a job. So for everyone who gets into real estate in order to get out of a job, I’m sorry to disappoint, but flipping is a job. It is a small business. And there is nothing wrong with that but I just want people to realize that it is trading one job for another.

A better alternative in my point of view would be to learn to love to work. Jump into the job market as hard as you can. But do it with a strategy. Find an area or industry where you can charge a lot for your service and become really good at what you do. Excel at customer relations, build a great network, save money as best as you can, then go off on your one with your own small business. Stabilize that business and start accumulating money to use to invest in real estate. Have your business invest in real estate rather than you as a person. With the flexibility of owning your own business, you can more easily invest in real estate without a boss looking over your shoulder wondering what you are doing with your time. This whole process can take 5 or 10 years, but doing this will set you up to better succeed at becoming a real estate investor. 

What are your thoughts?

PSHAW! Where do you get off suggesting that someone might actually have to do some work to collect some money? Blasphemer! :D

I think the whole thing sounds seductive, and sucks a lot of people into it that are working unfulfilling jobs. But jobs don't have to be unfulfilling; I've had a very successful career, and I've been able to make a huge difference in my community working this job. Are there bad things about it? Well, of course, but on a whole the good outweighs the bad. I've been able to build a real estate "empire" on the side, while having plenty of money to pay the bills, carry health insurance for my family, put money away for a pension, and generally enjoy life. As someone who grew up dirt poor, let me tell you having money beats the hell out of not having it, and there's not too many things more stressful than worrying about how to pay the light bill or if the repo man is going to take your car in the morning. 

Part of it is man's inherent default towards laziness - it's how we built all the trappings of civilization in the first place. But it can be taken way too far, and while man has a need to be lazy, he also has a need to be creative, productive, be loved, feel valued, and a whole lot of other things better enumerated by sociologists than me ;) 

Hard work, perseverance, and luck. Most of the time "luck" is preceded by the other two (I'm making up statistics here). 

Originally posted by @Jason DiClemente :
Lots of great points. I think a lot of people forget that you have to live while you are flipping houses and that money has to come from somewhere. The nice thing about passive income is that even before it's enough to completely replace your income, it can allow you the freedom to choose a career based on something other than salary.

This is what I’m striving for

There are plenty of get-rich-quickers out there but there are plenty of others who do want this to be their career and business. Those looking to get rich quick fall off rather quickly, I’m sure, as with anything worthwhile. But some people do want to work at REI because building something for yourself rather than someone else is where you find fulfillment.

I agree with all that's been said about hard work, taking up time and that it's definitely not a get rich quick scheme. However, I do think a lot also needs to be said about the benefits of automating and streamlining your processes and systems. Mainly to find time to do even more of the hard work that's been mentioned. A property manager is a great way to make things more passive so you can focus on growing your portfolio. But most importantly this needs to be built into your deal analysis and as we always hear; it all comes down to the deal! I'm not by any means saying that real estate investing quickly gives you a passive stream of money that you can sit back and enjoy, but I do believe there are effective and efficient ways to go about your business to make it thrive and get you to that next step quicker. I think this also comes down to how you view your portfolio. Is it a way to invest your money, that you don't want bothering you too much while giving you an income stream? Or is it a fully professional business that you devote endless hours and effort towards? The mindset is huge!

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Join the Largest Real Estate Investing Community

Basic membership is free, forever.

By signing up, you indicate that you agree to the BiggerPockets Terms & Conditions.