I get asked this question frequently: “What would you do if you were starting over?” The answer is: It depends. It depends on life circumstances. It depends on the amount of money available. It depends on the amount of time I’d have.
What I’m going to do in this post is give 3 scenarios that I think cover the most people and tell you what I would do.
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 3 Best Options for Getting Started in Real Estate (Depending on Life Circumstances)
Scenario #1: Early in my professional career, more time than money, looking at real estate as an investment.
I think the easiest route on this would be to start with house hacking. I would look to find a 4-unit in a B-class area and buy it with an FHA loan. I think it’s one of the least risky ways to figure out if you want to be in the real estate game or not
First, financially it is an extremely low cost option using a 3.5% down FHA. If you purchased right, you probably are going to be living for low/no cost. Your expenses will be low because you will be taking care of most of the stuff yourself. You get to lock in to a low, fixed-rate 30-year note. If rents continue to rise, you will make more and more each year.
Now look at the experience that you’d get from this:
- You’ll get to do deal with three tenants firsthand.
- You’ll get to do deal with the leasing and screening of tenants.
- You’ll get all the maintenance calls and you’ll learn a lot about how to fix things.
- You’ll be on top of the situation every step of the way.
Scenario #2: Early in my professional career, more time than money, looking at real estate as a career.
In this scenario, I would start by networking and trying to find someone who was doing what I wanted to do as a career. Then I would offer my services free of charge. I would put in as many hours as I was able to afford, but it would be a minimum of 20 hours a week.
When I first got started, this is basically what I did. I had a “job,” but it was a commission only job, so I worked a long time for free while I figured things out.
It should be fairly easy to find someone to work for free, but if for some reason you can’t, I would either work on getting my real estate license and try to get into a brokerage that deals with a lot of investors or I would try to get a job at a property management company.
Each of them would give you a different view of real estate.
- Property management will give you an opportunity to gain hands on experience in dealing with the operations and day-to-day management of rental properties.
- A brokerage firm will give you an opportunity to gain hands on experience on the valuation of rental properties and finding them.
After that, I would have free time to learn about what I wasn’t getting experience in. Once I felt I had a pretty firm grasp, I would look to try to partner up with someone on a deal.
Scenario #3: Established in a career/late career/retired, more money than time, looking at real estate as an investment.
I look at this scenario as someone who has money for investment but isn’t looking for a career in real estate. I also look at this as someone who is looking to invest for the long term, who doesn’t need the principal back for at least 10 years.
Real estate isn’t like stocks or bonds. The transactional cost is much too high to be in and out as a passive investor. All of your profits will be eaten up by fees. So, you need to go in with a long hold time in mind. When thinking about this scenario, I am excluding people with sizable assets. If a $100,000 house purchase is 0.1% of your investable assets, then this isn’t written for you, but you should reach out to me.
I would first look for a partnership with someone that I knew. Maybe the person from scenario 2. I like this best because I would have a personal relationship with this person, and I should have a good idea of their character. (Side note: I’ve raised a lot of private money in my career and every single person that I’ve done business with was someone that I knew, and every one of them said that yes, the returns are good, but if I wasn’t the one running the deal, they wouldn’t be investing.) I also like this option because I am close enough to the deal to see what is going on. I have direct access to everything.
My second choice would be a turnkey property. When I say turnkey, I don’t necessarily mean properties like I sell or others sell as turnkeys. I would start by trying to find a single family home. Something that is local in a B-class neighborhood that I could manage myself. If that wasn’t an option, I would look to a local C-class neighborhood where I could hire a property management company to manage it. If I couldn’t get something local, I would look to find a reputable turnkey company.
Lastly, I would choose to invest in private placements. I make a distinction on this. If you know the person sponsoring the deal, then I look at it more like a partnership. I personally think I’m too far away from the deal to have any control. I personally would want to have some control over what happens, and with this structure, you have no control over what happens.
I chose these 3 scenarios because I think they will cover the most readers at BiggerPockets. Everyone’s situations and personalities are different. This is just how I would do things given my experiences and knowledge.
If you see things differently, let me know!
Leave your comments below.