Here I go cheating again.
It seems that once I receive a question enough times I decide that it is a good idea to post it here. Not only does this give me a place to reference but I also assume that if I am getting a question consistently from a group of 60 individuals that it must be surfacing elsewhere.
It is the end of the year, and I am just finishing up my semester. One of the classes on my roster was real estate investing and analysis. After months of having students run numbers and deals, both actual and hypothetical, they come to me and ask what the next step is to break into the market. They often already have offer letters for a job but they want to know how to start a real estate portfolio. They ask if they should intern at a particular place their last summer or read a particular book. They ask if they should get a real estate license or just go out and find a group of investors to work with.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
The First Thing to Learn When Getting Started with Real Estate Investing
So what would you guess my answer most frequently is . . . learn how to swing a hammer.
In other words I want them to get their hands dirty and know what to expect in the field.
I don’t care if they work at Habitat for Humanity to get started or if they find a contractor that is willing to mentor them. The fact of the matter is that I try to express the value associated with an investor not only knowing the numbers but to also know their investment from the inside out.
I try to express to them that even if they decide they absolutely hate getting their hands dirty, they will be better for the time spent in this endeavor. It will make them better prepared when organizing budgets, schedules, proposals, securing contractors and ultimately not get taken advantage of whether they decide to proceed or just invest in their primary residence.
Why Does It Matter?
Why do I tell young ambitious and educated individuals to go swing a hammer? The fast answer is because this is what worked best in my past.
My first investment was a complete gut rehab 12 years ago. After four years of college I had a few months before starting my first job and night school for graduate school. My father thought that this “free time” would be best spent learning how to actually work.
So what did I do?
I took all of the money I had saved from student loans that I didn’t use over the years and my father and I went forward. I learned more in that four months that has helped me in real estate than any of my degrees or licenses. We took the property out to the exterior brick walls and literally re-built everything. (To be entirely honest the only thing we did not handle was the electric and this was more so a result of not wanting to deal with bending pipe at the time). We moved slow . . . . very slow. I learned how to do nearly every facet of a rehab, from rough framing to trim work. I learned that I absolutely hate taping and that I will forever outsource that task. Most importantly I learned how to estimate costs, timelines and ultimately budgets.
So why do I possibly tell bright college students that are moments from graduating that I suggest they get their hands dirty? Simply put I realize the value it adds. While I can’t find the time to handle all of my projects now I do know what I am looking at, the approximate time it takes and most interestingly I find that it has really helped me to vet contractors for the future.
If by chance the person asking has some general experience in this area and has decided they absolutely hated the hands on approach I have a common recommendation for them too.
The next thing I often recommend is that as they expand it is beneficial to take a few construction management classes. These were paramount to me while working for property developers and paying my way through graduate school. These are often taught by local project managers or contractors. The individuals in the class are often those looking for a career in construction which is a great learning experience in itself. It cost a few hundred dollars a class but the technical information that I learned was very valuable and the material I learned from peers over the few classes I took was valuable.
Is this the right answer for everyone?
Of course it is not. However, the majority of those that ask me the question have career paths that they are interested in, but they also often have a goal of wanting to actively and regularly invest in real estate while enjoying the salary from a firm. In these instances I do think that these are the next steps.
What are your thoughts? Am I steering my students and future investors in a wrong direction? What would you recommend?