So, you hate your boss and you’re thinking of going full time in real estate investing? After a few deals, you may be tempted to do so, but here are some important considerations you need to review before making the jump:
Although Real Estate transactions can be done successfully without any cash out of pocket, it does take cash reserves in order to maintain your properties in the event of vacancies, equipment maintenance issues (like a broken furnace or hot water heater) and other “surprises”. The time to increase your cash reserves and improve your credit is while you are still drawing a paycheck from your regular job.
This is also a good time to analyze your expenses, eliminate and pay down current debt and plan where and what cash flow will be available for living expenses while your new business is in the start-up phase. The number 1 reason that businesses fail is that the business owner doesn’t plan for lack of cash flow.
It is also a great time to get with someone such as a trusted mentor experienced with 401K or Roth plans as these can be “rolled over” or converted to a plan that allows you to use the proceeds to invest in real estate. I can’t emphasize enough that you consult someone experienced in the rules and regulations of using an IRA for investments.
Running a Business
Many new investors fail because either they have always worked for someone else or act as though their real estate business is a hobby. It is essential you treat your real estate business as a business and work it as such. You need to have preplanned hours and actions that you tackle on a weekly/monthly basis.
You also need to take into account some of the benefits you enjoyed in your job such as a company car, gas, health insurance, vacation time and more. Most, if not all, of these items you will now be paying for out of pocket. The good news is that some of these items can provide great business deductions! It is important to have an idea of what you will do in order to provide yourself with these essentials in advance.
In addition, it is important to set up the right business entities and the bookkeeping from the start. I urge you to make sure to consult your real estate attorney or an accountant familiar with real estate in order to make sure you have a solid foundation for your business.
It is essential that you have a set place to work, even if it is the corner of one of the rooms in your home. You need at a minimum, proper phone, internet and fax setup, file cabinets, a computer with plenty of storage capacity, proper backup, necessary office supplies and a desk to work from. You need an area free from distractions. For most investors, an outside office is unnecessary as they can utilize realtor or title company conference rooms if they need to meet clients outside of the clients’ homes.
Working From Home
Although we really enjoy it, working from home can present its own set of problems. When starting out, you may find that it is difficult to get motivated and may flounder about for a period of time until you finally build momentum. I found that going back to my “routine” of arising at a certain hour and going through the morning routine that I used for over 20 years when I worked somewhere else allowed me a base of familiarity. After that, I went to my computer and reviewed my to-do list for the day and got started. I was further helped by the fact that my wife (and business partner) and I had a business plan, solid goals and action steps already in place. Once you are up and running you may find that working from home is a huge benefit.
Initially, property acquisition is the stumbling block for many investors. You can have the best business plan and goals in place but without leads, you are dead in the water. In the beginning, you will need to plan a good amount of your time with marketing. A good mentor is most helpful during this phase of your business. They can help you determine your farm area, investment strategies, marketing media and more. A lot of new investors start out with Wholesaling properties to build cash and then graduate into Rehabbing for even larger chunks of cash and then Buy and Hold for long-term wealth and passive income.
One thing my wife and I found was that because we worked from home that our friends, relatives, and neighbours thought we had lots of free time. We try to be as accommodating as possible but we laid out the boundaries early in a diplomatic but firm way with everyone.
Other interruptions can include phone calls, emails etc. We try to look at our emails 3 times a day and respond during those times. As far as phone calls, if it is a possible buyer or seller of a property, we try to answer live if possible. If it is a team member or business associate with a non- critical call, we will let them leave a voicemail and follow up at the various times of day scheduled for returning and making phone calls.
Although working from home has a lot of advantages, you may find that you really miss the social interaction you once enjoyed with your prior career! We get around that by taking periodic breaks, going to the gym, doing volunteer work and attending an educational real estate course at a title company or other entity. Real estate has allowed us a lot more time with our friends and family, but it took hard work- and a little time, to get there.
So are you ready to get started on the adventure of a lifetime? It can have its hills and valleys and the road can be rough initially but with focus, proper goals, determination and proper action steps to move your business ahead -you can enjoy your life both in business and personally like nothing you have ever experienced before. Good luck and here is to your success!
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Attorney William ("Bill") Bronchick, host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 25+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the Executive Director and founder of the College of American Real Estate Investors. Click on the "About" link above for more information on William Bronchick.