4 Steps for Getting Your Finances in Order BEFORE You Quit Your 9-5 to Invest

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I made the jump to full time investor just over a dozen years ago. I can tell you that it was perhaps one of the most exciting and scariest things I have ever done. Once I got the real estate bug, I could not wait to get into it on a full time basis and get more control over my life and time. That was the exciting part. But that little voice inside of my head was always in the background asking if I was making the right move. Was I sure I wanted to leave the steady income, health insurance, and security? That was the scary part.

I guess that I can say that after a dozen years or so, things have worked out and that I made the right decision. Still, I can remember that I was actually shaking a bit when I handed my boss my resignation letter. It is a big decision, and quitting a full-time job requires a lot of forethought and planning.

I know that some of you out there are perhaps thinking of taking that same plunge now. Many more of you are still in the dreaming stages, wondering what it will take to quit and not knowing even where to start. This post is for those of you who are thinking or dreaming about taking the leap to a full time investing career. I am going to assume that you have already learned about real estate investing and have determined what it is you wish to do. Perhaps you have even done a deal or two. So I will leave the real estate stuff alone and lay out some steps for you to follow if you want to quit a 9 to 5 job and get into real estate investing full time.

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4 Steps for Getting Your Finances in Order BEFORE You Quit Your 9-5 to Invest

1. Create a (Realistic) Budget

Quitting your 9 to 5 job basically means losing your regular income. So in order to leave that behind and transition to full time investor, you have to know how much money was coming in and where it was going. Thus, the first thing you need to do is sit down and calculate a monthly budget. What is coming in and what is it costing you to live? If you have never done this, you may be in for a rude awakening. Hopefully you are living below your means, but if you are not, you need to start. Preparing a budget is likely going to take you several months because of monthly differences in expenses, so get started on that budget now.

2. Cut Out the Fat

Secondly you need to take a hard look at your budget. Where is your income going? Do you really need some of those items on your budget, or would it be better to cut and save? Do you have larger expenses like a car, student loans, or credit card debt? Perhaps it is best to clean those things up while you have a steady income. If you need help with a budget, Dave Ramsey’s books are simple to understand and cannot be beat.

Related: 3 Feasible Game Plans For Quitting Your 9-5 to Invest Full Time

3. Figure Out What You Can Live On

Third you need to figure out what you can live on. After a few months of budgeting and examination of your expenses, you should have a pretty good idea of what you will need to live on. Understand that this number may need to be a bare bones budget in order to get you out of your job and get your new business up and running. You also need to understand that after you leave your 9 to 5 job, your budget may change significantly. For example, you may need to pay for health insurance out of pocket. Gas and dry cleaning bills might be significantly reduced. So you may need to estimate a bit. Estimate high because it is better to be safe. This number may be three, four, five or more thousands of dollars per month. Whatever it is, be sure it is something you can live with because it is very important for the next step.

4. Replace Your Income With Real Estate

Next you need to figure out how you are going to replace your current income to cover your monthly expenses. I decided to go the landlord route so I calculated it as follows. I figured out that I could buy rental properties, manage them, and make a positive cash flow of approximately $150 per month per unit. So if I needed to make $3,000/month to cover my basic expenses, I divided that by $150 and figured I needed 20 rental units. There was my goal. If I could acquire 20 rental units that cash flow over $150 per month, I should be able to leave my 9 to 5 job. And that’s what I did. You will of course have to acquire them while still on the job, but that will allow you to get loans more easily, while you have W-2 income, and will give you some on-the-job training. Realize that this process may not be quick. My own process took over four years.

That is basically it. Remember that getting out of the job is usually the first goal. Once you get out, you can then begin to set goals for increasing your income. And meeting those income goals will be much easier now that you are out, as you will be able to focus much more on growing and expanding your business.

Related: I JUST Quit My Job to Invest: These 4 Lessons Helped Me Get Here

Here are some closing thoughts for you as you finally do quit that job: Never burn any bridges as you leave your job. You really never know what the future holds, and you may need those folks again someday. Also, please make sure your significant other is on board. If you do not have their support, you are doomed to failure. Plus, a support network can be really helpful and comforting. That is why communities like BiggerPockets and your local real estate club can be so important. Use them.

Fellow full time investors, how did you manage to leave the “working world” behind? Those of you still with 9 to 5 jobs and looking to move on, what steps are you taking?

Please share with your comments.

About Author

Kevin Perk

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in and manages rental properties in Memphis, TN and is a past president and vice-president of the local REIA group, the Memphis Investors Group.

16 Comments

  1. KevinP,
    Nicely done. Adding to this is to not forget to add the annual or bi-annual expenses such as car insurance, home owners insurance, vehicle tax, property taxes. Creating your own escrow account and adding these expenses monthly is helpful.

    I’m in the preparation phase, although different and less risky circumstances, I’ve performed most of the actions you have mentioned and agree. Get the debt down or eliminated, live below your means, know what you spend and mind what you spend. We have no debt, except rental mortgages. We are frugal, no cable (Hulu), cheap phone plans (Republic) and even without car payments, house payments, cable, etc our expenditures are still in the 30K range, before health insurance. Over 8K of this is tax and insurance where the bill comes once/twice a year. Don’t forget our mutual uncle Sam, he takes his cut first from the money that you make.

    Please, anyone considering this, estimate your medical insurance costs. As a older guy, 53 with a family, the low end non temporary coverage starts at $700 a month, with large deductibles ($10K). In other words, you are paying $8400 a year for the option to only have to pay another $10,000 before the insurance kicks in. Be informed.

  2. I would have two additional recommendation: (1) develop a specific investment criteria that fits your comfort level, and (2) ensure you have a foolproof system in place to keep financial score of your progress. My criteria consists properties cash flowing between $500-$1,000/month with an appreciation rate of five to 10% annually. I buy and hold REO properties in a beach community that specializes in short-term rentals. There is a dearth of long-term rental properties, so this works very well in my market. I also use Microsoft Excel to track every little piece of financial information that could impact or impede my success. There are many programs that will accomplish this goal, but Microsoft Excel seems to be the most malleable in terms of fitting any particular need.

  3. Gregory Jackson

    Kevin,

    Nicely penned! Always enjoy reading your posts as I’m sure others do as well.

    If you were to go back in time, what RE-related W2 jobs would you recommend before one goes full time? Agent? Appraiser? Etc. I’m thinking this might expedite leaving the 9-5 world. Or if one’s current gig pays well and one is fairly content, should one stick w/ that?

    Thanks, Greg

    • Kevin Perk

      Greg,

      I was a city planner before I went into real estate full time, and I enjoyed a lot of the aspects of that job. It gave me a lot of real estate experience as well. I just wanted to be out on my own and more in control of my life, so that is why I move on. I guess I would say any of those jobs you mentioned would work as would many others. If you enjoy what you do, make a slow transition and tailor your current job towards gaining experience for that transition as much as you possibly can.

      Everyone is different and everyone will have different motives and timelines. So should you “stick with that?” I do not know, only you can answer that. I guess I can say that you will know when it is time to move on.

      Thanks for reading and for the great questions,

      Kevin

  4. solomon Mamo

    Kevin,

    Thanks for the post. I lived in Nashville and Memphis 10 years ago. I work for the FED now and learning on how to get into the real estate business. is that possible to use my TSP money (i is just sitting there) to invest in rental and other real estate properties? I was hit with many expensive coaching and mentoring programs for some reason.

    Thanks again for the post.

    • Kevin Perk

      Solomon,

      I wish I could answer your question but I do not know the rules of Thrift Savings Plans. Please consult someone more knowledgeable than I am as it may be possible. I just do not know.

      And stay away from the expensive programs. Spending a little on education is not a bad thing, but do not go overboard as it is not worth it. You can get as much as they offer and more here or at your local reia.

      Thanks for reading and for the kind words,

      Kevin

  5. Tyler Herget

    Depending on your individual needs, I believe you can roll over IRA’s, 401Ks, etc. into a SEP IRA / Self Directed IRA and run investments through an account like this. My very limited understanding is that there are some great tax benefits to doing this, however you have very limited free access to this capital and penalties for early withdraw. Definitely worth considering if your cash flow is already so much that Uncle Sam is punishing you for being too good of an investor.

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