When to quit your day job?

Question

How did you know when it was the right time to quit your full-time job to go into real estate? Also, how do you get around the banks requiring a W2 to get a loan for rentals if you don't have a full time job?

Don Konipol · Answer

@Tabitha Johnson, @Cody L. hit the nail on the head.  Being a real estate investor, full time, has a lot of financial benefits, tax deferral being one of them.  However, reporting a low net income, from investments instead of "wages" means higher down payments and higher interest rates.  Its the cost of being independent.

I have built a fairly substantial business which allows me to earn a substantial "salary', so I do qualify for the best rate and terms.  Even so, when I tried to get a home mortgage last year from Bank of America, they became frustrated with my income sources and various businesses, and actually turned me down!  Interestingly, my average deposit at B of A was about twice the amount of the mortgage loan I was requesting!.  I went over to SWBC, they took one look at my 850+ Fico score, needed very little additional documentation, and took about one week to close a 30 year fixed loan at 3.5% with 1 point.  About 3 months later my "personal banker" at B of A called me to see if I was interested in a business line of credit of $500,000.  You just go with the flow.

One of the things that doesn't get a lot of mention about "going it alone" or quitting your job is the type of person you are.  Many people have trouble working the hours required when they are not being supervised, or are easily distracted and engage in activities that turn out to be non productive.  Other tense up without a steady paycheck, and every small problem becomes a major catastrophe.  Almost all people who leave a steady paycheck to go it alone have sleepless nights, ruined vacations, etc.  Some people can't budget; the fact that their income varies drive them crazy.  So the first decision is not WHEN to quit to go out on your own; its IF to quit to go out on your own.  Despite what the gurus would have you believe, plenty of people get rich "working for somebody else".

Mario B. · Answer

@Tabitha Johnson a huge topic and one with many answers, however I think @Kyle M. gave a great answer.  I'm reading the book set for life, I highly recommend it.  The book talks about your spending habits and becoming very conservative with spending aka frugal.  It breaks down the % of what your check should be going to.  I own 2 properties, one has a 12% return but not paid off, and the other I live in.  I pay the bare minimum on my rental and take the cash flow and apply it to my mortgage in an effort to pay it off as quickly as possible, it's a small two bedroom condo.  My mother in law lives with me and helps with the mortgage each month to the tune of $600.  When I get my rental property paid off, I'll make about $1000 a month.  If I don't carry a mortgage on my home and my rental is paid off, I live a very frugal life, I can essentially quit my job, suck the equity out of both properties reinvest them in rentals and continue my journey, providing my own funding. I could also sell my 2 bedroom condo and live like a hippy in a VW van traveling the rest of my life.  It's all dependent on the life style you want to live an maintain.

Kyle Collette · Answer

@Tabitha Johnson

I'm with @Kyle M. on this. I did something similar and have cut back the number of hours I'm working/made it more flexible - but have not quit my day job.

The actual "number" of when (if ever) to make the full transition depends on your individual case. Find your freedom number and work backwards from there.

Cody L. · Answer

Commercial loans, at least how I know them / use the, are not used to fix/flip residential SFH.  If I wanted to do that I'd use the cash from a refi of a commercial property.  Or get a line of credit that was secured by a commercial property.  In terms of "where" I go.  80% of the time I go to local banks.  2 banks in Houston fund about 90% of my local bank deals.  For the other 20%, I go to brokers who hook me up with CMBS or Fannie or life co lenders.  Those terms are nice (and longer) but they're a pain to get and only for the 'cleaner' properties.

Matt K. · Answer

If you doing buy and holds I wouldn't quit, you can only have 10 fannie may loans open at once and that wouldn't take up that much of your time. Even if it did and you made good money on w2 you could hire a property manager. I mean pretend you were clearing 2k mo in rent x10 you could get a property manger to handle all that for (9%)1800 mo plus the 75% fee for first mo of a 12 mo lease (15k). That's "only" 36k a year... doesn't seem wise to quit a w2 job for that if you want to be an active investor. Maybe it'd make sense if you had double that and now we're talking 72k, but even then if you had enough capital to get loans for 20 units renting for 2k you probably have a high paying w2 job.Again, please note this doesn't apply to commercial for obvious reasons.

Account Closed · Answer

@Tabitha Johnson In my case, I went from doing mortgages to buying the houses on Subject To and Fix & Flipping them. It was a relatively easy transition for me. However, I'd recommend people hang onto their day jobs, do Subject To and sell to Tenant Buyers neting about $400 per month and when their cash flow approximates the income they need, then go full time. So, generally, when properly taught, lots of people can quit their day job after a year to a year and a half.

Michael Plante · Answer

Where do you go to find commercial  loans please?

I have always paid cash but thinking maybe I am missing the boat

When you say commercial loans can they still be used to fix and flip residential SFH?

Thank you

When to quit your day job?

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