Ready to Quit Your Job? STOP! Here’s Why That’s the Worst Idea for New Investors.

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Week in and week out, thousands and thousands of would-be real estate investors flock to BiggerPockets with a singular vision:

“I want enough passive income from real estate investing to quit my job!”

And week in and week out, we see the inevitable follow-up:

“I just quit my job! I’m so excited to go full time into real estate investing.”

Really?

Let’s take a moment and think about this for a second. Please keep in mind that the audience I’m trying to write for here is the white collar folks out there who are interested in aggressively pursuing financial freedom to escape their decently paying 9-5 jobs.

Now, if your job is providing you with a low income or is a nightmare and you desperately want out, then get out. You are rotting internally with every day you spend in a situation you desperately want to leave.
But if your job is pretty decent and earns you $40,000+ per year, then by all means pursue financial freedom, but I’d suggest that you don’t quit your job just yet.
If you are interested in real estate investing and you work a full-time job currently, then that full-time job is your best asset, not your biggest liability, in getting started!
I’ll let you in on a little secret — buying real estate is not a difficult task. Perhaps it is fair to say that buying great investments and managing them well may be difficult, but buying single family or even small multi-family properties is not a terribly difficult challenge. If this were difficult, then there wouldn’t be 75 million American homeowners today.
Well, on second thought, that may not be entirely true. Buying property is actually extremely difficult, and it is only really easy if you have this important advantage:
A decent job.
With that, we’ll get into the three biggest reasons why new white collar investors should NOT quit their jobs in an effort to speed up their first real estate investment.

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3 Reasons to NOT Quit Your Job to Invest as a Newbie

1. Access to Financing for Your First Properties

Here on BiggerPockets there’s a lot of talk about “creative financing,” including “no or low money down” and the like. It’s fine to look into those strategies and to be creative in scaling your real estate business, but the fact of the matter is that the vast majority of real estate investors will finance their first few investment properties through more traditional lenders and conventional financing.
Most newbie investors simply won’t put in the necessary work to make creative finance happen. That’s totally fine, and guess what? If you’ve got a decent job, then putting in the work to learn creative financing for your first or second deal might be a waste of effort when cheaper, easier conventional financing is readily available to you!
For the vast majority of folks, traditional and conventional financing is likely the best way to go in financing the first few properties. It’s usually cheaper, easier, and simply more standard and unlikely to pose obstacles to closing. When I use the words “traditional and conventional financing,” I am specifically talking about personally guaranteed mortgage financing — the type that your average homeowner would get when buying their personal residence. This type of financing often works well for those first few rentals, too.
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To qualify for a conventional loan, you need to convince the bank of just a few things:
  1. You have enough stable income to make the mortgage payments.
  2. You have a history of paying your bills and debts (credit score).
  3. There is nothing weird going on with your finances.
Folks, doing these few things correctly is really easy for anyone who is considering buying property, at least over the long term. In fact, I’ve met people who have literally gone from heavily indebted homelessness and addiction to being homeowners in just a few years of applied effort and consistency. I would argue that if you are on BiggerPockets and can NOT do these things currently, then real estate investing is not something that you should be considering in your immediate future. If you haven’t proven to yourself and loan-happy bankers that you are financially capable of buying a property, then I believe that you should take a long, hard look at your personal finances and life circumstances before you take interest in real estate.
Pay your debts on time, collect your paycheck, save monthly, do this for a year or so, and voila! Someone will give you a couple hundred grand to buy property. Investment or personal. It’s pretty fantastic. And pretty easy.
That is, it is easy unless you make things hard on yourself by doing something foolish — like quitting your job or changing from a corporate job to a totally unrelated real estate career right before attempting to qualify for a loan. That whole “stable income” side of the equation is immediately eliminated, making it exponentially more difficult to finance that next purchase.

Related: 5 Ways to Make Enough Side Money to Eventually Quit Your Job

It quite simply doesn’t make any sense to quit your job and then try to buy property. I’m not going to lend to Johnny Changes-His-Mind right after he embarks on a new career in real estate as a total novice; why would I? Jane Boring-Corporate-Job is way more likely to pay me back than Johnny! If your goal is to buy a quality small rental property as soon as you can, then quitting your job will almost certainly slow you down, barring a huge increase in income or some other factor that makes changing jobs or becoming an entrepreneur an obviously correct career choice for you.
Oh, and for the record, nowhere on my loan application did they ask me if I planned on quitting my job right after I used the loan to buy real estate.

2. Opportunity to Scale

One of the great things about real estate, why investors on BiggerPockets and around the world love it so much, is its stability. Real estate produces predictable, regular cash flows, and assuming that you can cover the occasional irregular capital expenditure (read: replace the roof, kitchen, plumbing, etc.), you should have an income-producing asset for the long term.
That income is fantastic for a couple of reasons:
  1. You can live off of it.
  2. You can reinvest it.
  3. You can use it to collateralize debt. 
It’s that third option that really helps those of us who are employed to scale our real estate businesses. Remember how I mentioned in my first point that lenders want to see stable income when you apply for a loan? Well, after a year or so of steady rent collecting, the rental income from my duplex will be at least partially available to me to use in qualifying for financing on the next rental — I’ll have proven that it’s stable. That means that I can basically qualify for financing that wouldn’t normally be available to me, unless I made $25,000 per year more than I do currently. Even if I never get a raise at my job, my ability to finance properties increases over time as I progress with my investing.
So, even if you are already investing in real estate but want to expand your investments, keeping your job is still a great idea. This is because, unless you are a very advanced investor, you are likely making enough money from your job that it is material to your ability to finance that second, third or fourth rental property.
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3. Safety net

One of the great things about real estate investing comes in the form of capital expenditures. Now, capital expenditures are referred to as such by businesspeople here on BiggerPockets. However, your typical property owner or newbie investor doesn’t understand or use the term “capital expenditures.” Instead, the term they have for these irregular large expenses is “disaster.” As investors, we like it when “disasters” occur (disasters mean that a great deal and motivated seller are not too far away). Close to 100 percent of the time, disasters are preventable or common — and can and should be planned for.
You will have to replace the roof, and hopefully it’s later rather than sooner. You will spring a leak, be forced to evict, have a property vandalized/broken into, see water damage, have the HVAC break down, and bear witness to everything else that goes with owning a property. Some unlucky investors will have this happen to them all at once.
You have to make  the choice — today — to make these into planned-for capital expenditures instead of disasters. This can be done very easily by making two simple choices:
  1. Set aside at least a five-figure cash reserve for unexpected capital expenditures.
  2. Comfortably bring in a large, positive monthly cash-flow.
Together, these two things should ensure that you have the ability to comfortably cover most minor capital expenditures, and in extreme cases put a sizable chunk down towards that new $30,000 repair the insurance didn’t cover and finance the rest with your cash flow.

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

It’s my belief that for the majority of new investors starting from zero or close to it, the best way to get to the position described above is by sticking with their current profession in the first 3-5 years of investing.
The cash flow from the job and a high savings rate can be a great way to insure against unexpected expenses that are larger than your emergency reserve as you begin to manage your first few properties.

Conclusion

It is my hope that the conclusions in this article are fairly obvious to most tolerably employed aspiring real estate investors out there. A job providing stable, long-term income is an incredible blessing to most beginning investors, even though many on BiggerPockets aspire to use real estate to supplant their W2 income.
No one is saying that early retirement from your job is a bad goal, and real estate has time and again proven its ability to get people out of dull jobs and into the life of their dreams. All I’m trying to say in this article is that the job that you are trying to retire from may just be the best asset you currently have in launching your successful real estate business.
And for heaven’s sake, don’t quit right before applying for that next property mortgage!
Investors: What’s YOUR story — have you quit your job to invest full-time or do you plan to do so? What has your experience been?
Let me know with a comment!

About Author

Scott Trench

A longtime fan of BiggerPockets and a Real Estate Investor managing his first property, Scott is the company’s Director of Operations. BiggerPockets is a BIG website, and Scott’s background in finance and big data analysis will be instrumental in the next phases of company growth and in helping to bring the resources of BiggerPockets to more investors worldwide. Scott is passionate about helping others build wealth and serving his community in whatever ways he can. In his spare time, Scott enjoys skiing, biking, and cooking, and he is a lifelong rugger.

44 Comments

  1. Brian Adams

    Great article Scott and your readers should really pay attention to your wise words.

    I had a six figure income and I quit my CPA job to buy apartments – when I quit I had a plan and money saved.

    However I quickly realized that the money ran out faster and the plan was great on paper, but the “plan” doesn’t always come together the way you think it will.

    The idea of being a full-time real estate investor has great appeal, before you make the leap make sure you have thought out every possible scenario…

    • Brandon Hall

      Brian (and Scott) – what if, instead of quitting to enter REI full-time, you are quitting to jump start, or go full-time into, a business are have started? Instead of counting on your REI for income, your business is the income and the REI is the supplement.

      I realize that there are still financing implications and risks, just wondering if either of you have (or had) contemplated a scenario like that.

      • Scott Trench

        Brandon – I think that is a fine plan – I will say however, that it seems to me that most entrepreneurs seem to take at least a year or two to fully supplant their W2 income – if they are really good that is.

        I think that if someone really truly wants to be an entrepreneur, then the W2 job is holding them back and they should pursue their dreams! Their passion will shine through as an entrepreneur and the resulting long-term income will be much greater, though it will delay their real estate investing in the short term.

        But, if their goal is to use real estate investing to passively generate income, then in THAT pursuit, a content W2 employee might be unwise to quit their job before building out a real estate portfolio.

        • Beth Montes

          I started my first business when I was 25, and kept my full time job teaching at a community college for the first 3 years. Half of my paycheck (sometimes more) went to fund the business, which was writing computer applications. I was married at the time, and we used my husband’s income to help pay the household bills.

          Having started 6 or 7 businesses, I can say that a steady source of income until the business starts producing revenue is absolutely necessary. W-2 income is what most people have available, so use it!

          While I’ve read about startup loans for new businesses, I don’t see funds for new entrepreneurs being any more available now than they were back then. Further, I’m not sure a big startup loan is the best way to build a lean and eventually successful business — having to keep to a tight budget for the first few years is a good learning tool.

          I began investing in real estate with the buildings where my business was housed, and funded their purchase with revenue from the business. After that, I used a number of creative financing options, ALL of which required that I have money flowing in from somewhere. Future cash flow doesn’t count for nearly as much as current cash flow with a few years of history.

    • Scott Trench

      Thanks Brian – I obviously agree with what you are saying here. I think that the point is to live far below your means both before and after you “retire” on real estate income, to be sure that you are prepared for that which you hadn’t thought of..

  2. Michael Boyer

    Agree… No property I have owned ever had benefits (health, 401k etc) and every banker I have met treats the unemployed like Dracula does sunlight (unless they have a major assets or stable income stream)… Plus, if you run them right, there should enough time to keep a day job and run a few rentals.. If you grow enough to replace your income, then think about quitting, but even then it may not be wise if you have fulfilling work that fits with your business. I run rentals, not a hotel or store, so I don’t need to sit and watch them all day… That is the beauty of a small scale rental operation…it can fit the day job..try for the best of both worlds, stable income and benefits from the w2 job and your own side business in real estate to a scale that fits your lifestyle…

    • Brandon Hall

      If you have a split focus, one will certainly have more attention than the other – but you can make real estate investing quite passive where it requires very little of your time. It would be different if Scott was advocating against quitting your job for a business venture, but he’s just saying don’t quit to invest in rentals full-time which I have to agree with.

    • Scott Trench

      Robert – I agree that this comes back to POV. As Brandon says, if your goal is to pursue a massive real estate empire full time, and you are willing to do anything and everything to pursue your goal at the exclusion of other career aspirations, then quitting your job is the right thing to do.

      However, if you are looking to methodically build net worth and passively generate rental cash flow, then it wouldn’t be a great “investment” if it required a full-time dedication to do well in my opinion.

      I believe that I can manage a successful real estate portfolio, up to several million dollars in assets under management over the next few years while working full time, and I believe that many other investors can do that as well.

  3. Why ever retire or quit your job if you really like your job? You are making good money, your friends are there, you have full hospital coverage, and you are probably getting a 5% or more match of what you put into an IRA. Keep working.

    The idea that you can only focus on one thing and do it well is foolish. Just get your rear end out of bed early on weekends and give it some effort in the evenings rather than watch old sit coms on TV and get to work on your real estate investments. In a very few years you will quit your job because you have to not that you want to.

    • Scott Trench

      Larry – I think that you make some great points here. I think that the case is not whether you should retire or quit your job – if you love what you are doing and have the option of doing whatever you want, why would you change?

  4. Aleksandar P.

    Scott, another great post. You said something very important, I would say crucial, that I don’t see being touted here on BP, and that is – Your FULL TIME job is your BIGGEST ASSET in Real Estate when you are in the first phase of investing. Try to get a money without having a stable job – good luck! What I have found, so far, is that the only thing that makes the real, genuine smile on lenders faces is not your Credit score, Income or value of your savings account but the fact that you have stable full time job for several years.

    Also, as you pointed out, no need to live off your income and ability to reinvest that money back in your RE business will increase your Rate of Return through simple compounding effect. It is the same as the effect of dividend reinvestment in the long term stock investment. You will reach your goal much faster if you are able to handle a current job and RE investment at the same time.

  5. Andy Cross

    These are excellent points. All of which, as a newbie, I’m taking into consideration. However, in LA, buy and hold are few and far between. It seems like buy and flip is the better approach; in this area. With that said, kinda goes back to your, the investor, POV.

    I’m a FT advertising project manager. Advertising is a 60hr work week minimum…period. And as a person not married, a second income isn’t there. So now the question becomes, how does one that works more than 40hrs/week invest in property part time? To me, it seems like saving money is the first priority. Then quit the job, with a plan, and a solid budget.

    • Beth Montes

      Any chance of buying a small commercial property in good condition somewhere near your workplace? Commercial properties often have stable tenants, and I’ve found them to be less problematic than residential.

      Or buy a duplex or 4-plex, live in one unit and rent the others. You’d be there on the premises to keep an eye on things, and can hire maintenance people to minimize your chores.

      Keep your eyes open near where you live and work, for a small property in good condition and conveniently located.

    • Scott Trench

      Andy – Have you considered a Live-in Flip? Perhaps you could buy a property that needs a lot of work, and then work on it when you get home in the evenings or on the weekends.

      That will allow you to leverage your time more efficiently, build your toolkit (literally) from home, and expand from there. After just one or two of these, you might have enough cash to pursue this full time..

  6. Mitzi Castiglione

    April 2014, I quit my steady, decent paying full time job to become a RE agent. I felt my current situation was holding me back in many ways, I wasn’t happy and it was affecting my personal life. It was a dreadful feeling though after the money ran out that I had saved. For awhile I felt that I had made a big mistake. However, now I am back working a 9-5 that I absolutely love, making decent money again, and investing part time. In just a year, I’m so much further ahead than I’d ever thought I would be. Working another 9-5 wasn’t originally in the plan, but leaving my old job and finding new employment turned out to be one of the best decisions I have ever made!

      • Mitzi Castiglione

        Sorry for the late response, but yes, I do see myself going back to FT investing. I know now that typical RE sales is not for me. However, if not having gone through that, I would have never learned about REI. I have a lot of aspirations, but also a lot to learn. It will all come in time.

    • Scott Trench

      Mitzi – I think you are a great example of someone that needed to quit the job for reasons unrelated to Real Estate investing. It sounds to me like your job was preventing you from fulfilling yourself and that excitement and passion in your day-to-day were missing because of the old job.

      I think that yours is a great example of a case to leave the job and to pursue something else. And I’m glad that things worked out so well for you in the end!

      Thanks for sharing!

  7. David Thompson

    Investing and long term income / wealth creation centers around buying solid properties that cash flow and get decent appreciation over time. Buying in good areas, with good schools and cities w/ solid long term economics seems not hard or time consuming. A lot of the work can be outsourced and should be if you are going to scale and get larger. A good investor realtor should be able to find solid opportunities. I don’t think you need to work 40hrs a week at this to find “killer deals”. Let the experts help you find good value. Once property is acquired and assuming you are buying good properties that don’t need a lot of work, you can hire a property manager or do a hybrid approach, having a realtor / prop mgr do the screening, lease, while you manage the day to day to keep costs down and give you some experience. I’ve found that managing a handful of SFRs, I don’t think I spend more than one hour a month honestly doing the paperwork, handling a call, etc. I have a fix it handyman that I call as needed. I probably could add several more SFRs before even thinking this is a part-time job at best.

    • Scott Trench

      David – I’ve spent enough time listening to errors and ommissions on the BiggerPockets podcast to plan for the worst and have ample reserves, and I always plan on property management taking much more time than it actually does.

      That said, I’m definitely also still waiting for the part where this becomes a significant time suck now that the investment is running with a quality tenant in place… I think that since I got a tenant in place, that the property has taken about 1-2 hours per month at most, and most of that is mowing the lawn and doing basic yard work and home maintenance expected of any homeowner.

  8. Christy Greene

    This is a great article. I have my own business and it takes a lot of time and energy just to run the day to day and often fantasized about having rental properties and working from home. However, I knew that it would much easier to get into real estate if I had a “stable income” . Whenever I read about someone just “going for it” with no solid plan, I would wince knowing that the “ball and chain” job could be their life jacket later. Thank you for writing this article as it shows that no matter what it is, whether it is real estate, starting a new business, changing careers, or going back to school, you need some form or regular income to pursue a new endeavor… at least for a while until the new endeavor can float itself. : )

  9. george p.

    I am confused.. one article said to quit my job just a week or two ago and this one says not to quit my job. I can’t read between the lines and that’s why I rely on the Internet to tell me what to do. please help!

    • Scott Trench

      George – I’m not sure about the other article, and I don’t say NOT to quit the job under any circumstances here (sorry for the double negative…). This article looks only at the narrow set of circumstances in which one is regularly and comfortably employed, but is looking to begin investing in rentals. In that case, quitting the job to become a real estate entrepreneur or to switch to a totally unrelated real estate career **right before** attempting to qualify for a loan to buy a first or next rental property is probably unwise – if the goal is to buy passive real estate assets.

      If your goals are different, and involve becoming an entrepreneur, or your job is a terrible, life-sucking grind, then of course it makes sense to quit the job!

  10. Jay D.

    SCOTT! I WISH I HAD READ THIS ARTICLE 6 MONTHS AGO!!!

    I was one of those who left his job and THEN learned the hard reality about loans. Banks don’t even want to talk to you if you don’t have a 9-5 …it’s something like having a disease to them (so I found out).

    You’re totally right, not quitting is the way to start…well, education is also very important, too. Thanks for the article, I appreciate the time and effort that you are giving to others,

    Jay

  11. Jesse T.

    Any criteria for when to quit the W-2 job? It seems it would vary greatly based on a number of factors.

    If Real Estate income covers at least basic expenses, it would seem pretty safe. I think for a lot of people the best move might be a downshift or PT job to bridge the gap.

    • Christy Greene

      I would think that you would need at least 6 months worth to cover expenses just in case you have someone who does not pay the rent. I would consider one of the many factors is to be able to have enough to cover any unexpected emergencies both in your personal life and any emergencies that might come up in the rentals (i.e. hot water heater, plumbing,etc issues) .

  12. Thank you very much Scott for this post. I never thought of my job as my biggest investment until you shed the light on the subject. Now my question to you is: when is it a good time to quit your job? And when you finally do how do you manage for health care (benefits you would normally get working a 9-5)?

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