Should i quit my job and manage my mentors property full time?

Question

so i've been working with a mentor for the last last 3 years or so and i work for him from time to time. he is 77 and has always managed his own property and did his own work and he has a team of self employed tradesman that help out. his properties are older and my job would include doing maintenance work and not just collecting rent and sending out notices and evictions. i will also make rounds and do a 'health check up' on his portfolio.

This work is exactly what i want to be doing as it gives me free time to find property to build my own portfolio. the reason he is my mentor is because he is doing exactly what i want to be doing. he has the systems in place to run his business and i would be learning the whole business from someone who has had success for the last 30 years in real estate.

i have experience in rehab and construction and i own several units that i self manage. i also have full time job where i do shift work 12 hours a day on a texas swing shift schedule. i can work as many hours as i want basically. but it takes toll on my body. i make a living doing what I'm doing and i have insurance and the 401(k)( not much but something).

i want to save enough cash as a cushion and quit my job and work with him. the cushion number is debt free except house and rentals. it will take about 6 months. there is no rush.

what are some things i should be thinking about and set in place before i quit my job? how can structure my compensation for management ? right now its 15% gross rents. anyone has had a similar experience? thank you in advance for your feedback.

Bryan O. · Answer

15% gross rents!! That's pretty damn good given that most management companies charge 10% and that agent gives some of that to the brokerage.

• Absolute first question: Can you manage legally?? In many states, you must be an agent under a brokerage to manage properties that you own less than 51% of. You list yourself as a wholesaler, which often means no license, so legally no managing. That would have to be fixed first
• Think about health care costs. Check into what the price would be on your own
• Retirement: Do you like the 401k? Manage inside an S-Corp and tie a 401k to it. Management is active income, so you can use that do put away
• Lifestyle: Once you leave your job, are you at the same level of income to support your current lifestyle? If so, is your wife (if applicable) onboard?
• Future: What happens when your mentor passes? Does his portfolio liquidate and you're left in a tight situation?

Lots of things to consider, but it sounds like you have a great relationship, a good plan, and are moving in the right direction. Best of luck!

Wes Brand · Answer

Diversify your income. If you plan to go forward with this, make sure you manage investments from other investors, not just him. That way, when he dies and the properties get sold, you'll still have income coming in.

Bryan O. · Answer

@Mark S. search the site for solo 401k, self-directed 401k, or self-trustee 401k. You'll have many days of reading, and they are as amazing as they seem! Your income from rents is passive, so cannot be used as profit to fund the 401k, but your income from management or handyman services is active income, which qualifies.

It sounds like you're thinking it through with your head, not the typical, "I don't like my job so I'm going to quit and magically become a gazillionaire!" So that is a good sign ;)

Best of luck to you.

Mark S. · Answer

@Bryan Otteson thank you for the response. technically he self manages and  my job would be mostly light maintain. he would be paying salary form gross rents. he wants to do less. for health care we can go to the exchange or transfer to my wifes employer.

tell me more about the 401k inside the Scorp. i was going to open a roth. i also plan to own rentals for cashflow in retirement.

my wife and i still hashing it out. i work long hours now and rotate days and nights and every other weekend. so this will give me more family time.

basically my income would double when i start with him.

the property is hold in trust so it will pass to an only son who lives out of state. chances are i continue with what i'm doing as i will be the 'apprentice' who knows the properties health and other info. the son may decide to sell or continue to collect cash flow. at this point I'm not sure.

thanks again for the insight!

Account Closed · Answer

No.  Don't do it.  Sorry to be the negative person.  But, I worked for an owner who did all his own maintenance and occasionally hired someone to do something he wasn't capable of doing.

I'm afraid this guy will micro-manage you.  And, when you think about it, you will be paid 10% for collecting rents, etc., and 5% for maintenance, basically.

Now, what does this entail exactly?  What if the sewer lines go, and the sidewalk needs to be torn up with a back hoe?  Does that come out of your pocket?

What if there is a tenant who needs to be evicted?  Are there extra fees?  A professional management company would charge extra for everything.

This guy is cheap.  That's why he's done all of his own work.  The only reason he's asking you to take over, is because he thinks you will be cheaper than his other options.

Honestly, I think you should thank him for what he's taught you, but keep your job until you can quit your job to manage your own properties.

This guy could fire you tomorrow.  He probably won't be paying any benefits. He'll probably tell the IRS that you are an independent contractor.

Really, keep your good relationship with him, but tell him no to this job.  That's my opinion, for what it's worth.

Mark S. · Answer

Tim Weisser thanks for the insight! m sorry I'm late to respond. but yes a budget is very important. my wife and i have work one out already. it seems to work for us. i'm excited about the way things are looking going at this point.

Tim Winter · Answer

One thing that wasn't mentioned is figure out a budget. And I don't mean figure out how much you spend, but figure out what's the bare minimum you need to survive, and then create a number for what you can live comfortably and still invest for your future. If you can't hit the second set of numbers with your plan, then you're not ready yet.

15% is an amazing amount. Usually do a sliding scale from 7-12% depending on the class, location, and # of units and how close together they are. Something else to consider is if you have the license, if you want to do work that doesn't take a toll on your body, how to leverage the license to work with more investors/landlords/house hunters.

Mark S. · Answer

@Bryan Otteson- by the way i am not a 'wholesaler' per se. bigger pockets labeled me as such. i tried to changed and could not. i have to request a change and go thru a few a steps to get it changes and i haven't  done it yet.  i was licensed realtor in my state and the threshold for property management is a lil lower here in my area.

Again thank you for your insight and wisdom.

George P. · Answer

your mentor is in trouble.... you wont be working for him much longer.

Mark S. · Answer

@Wes Brand thanks for the advice. yes i was thinking of that. my goal is to build a portfolio of my own over time. i am thinking about how to best do that. whether i use seller financing or private money. we have whats called bond for deed here in louisiana and it works great for seller financing. i also will buy smaller properties cash. most of the investors that i know in my area started with a job or business and paid cash for c class properties and then moved up to a better class  of tenant and sold the lower grade stuff. so the bar is pretty low on entering the market here. but you gotta be careful about where you buy. my stategy has been to find the vacant homes that i can work on and rent or sell. they are getting harder to find. if i go with working for my mentor then i would get a top notch education and support but also potentially a private lender. also i would be working the real estate space which is important to me. ultimately i want to be a buy and hold investor and own most of my portfolio free and clear and use leverage to grow it.

anyway thanks for the feedback.

Should i quit my job and manage my mentors property full time?

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