No one is advertising to hire “a real estate investor” but there are plenty of people who would like to trade their full-time job for real estate investing.
So how does that happen? How can you say goodbye to your 9 to 5 job and work full-time for yourself as a real estate investor?
First, you should know that it takes time to build up your real estate investment business so it can sustain you without the need to have a traditional job. How quickly you get there depends on a lot of factors. An investor looking to replace a monthly income of $10K through single-family rentals will have a longer road than say the wholesaler who’s trying to replace a $40K per year income and is fine with the income clock resetting to zero at the end of every month.
How do you know when to quit your 9 to 5?
There is no magic, universal formula to know when to quit your job. In other words, knowing when comes down to numbers and risk tolerance. Everyone's situation is different. Everyone's ambitions are different. What works for one simply will not work for another. With this in mind, it's best to sit down early in your real estate investment career and figure out exactly what you need per month, or per year in order to sustain not only your personal livelihood but the livelihood of your real estate investment career as well. Add those numbers together and you will find the magic number. Oh yeah, don't forget to add a little padding for unexpected expenses on both sides.
The first scenario is the Buy and Hold Investor.
The accepted formula for this scenario is as follows:
Target Monthly Income ÷ Average Monthly Cash Flow per Rental = # of Investment Properties
In this scenario, we'll say you're looking to earn $6K per month passively and your typical cash flow is $300 per property AFTER expenses. In this case, you will need a portfolio of 20 cash-flowing units to walk away from your 9 to 5. How much you leverage your properties plays a major role in the number of properties needed, so know your numbers and leverage well.
The second scenario is the Wholesaler
aka the quick flipper
The accepted formula for this scenario is as follows:
Target Annual Income ÷ Average Profit per Wholesale or Flip = # of Yearly Transactions
For the wholesaler a.k.a. quick flipper, you’ll need to figure out what you need to earn per year and divide it by your average profit per deal. If you average a wholesale fee of $5K and want to earn $50K this year, you’ll need to close 10 deals. Working backward from there, consider the number of leads you need to generate in order to close 10 deals. That should become your primary focus as well as the “wash, rinse, repeat” system of marketing for leads to get you off the boss’s time clock.
If you look a little closer, you’ll notice that for the buy and hold investor, the target income is broken down per month, whereas for the wholesaler and flipper, it’s based on a yearly basis. The reason for this is because rentals are typically consistent. Other than some vacancy between tenants, your monthly income is fairly stable.
Before considering going the route of becoming a Wholesaler you should fully realize that the income can be inconsistent. You may go for three months without a good deal. Then suddenly two fall into your lap from marketing you did six months ago. For the fix and flipper or wholesaler, it’s a little harder to close deals each and every month, especially if you’re just starting out. So breaking up your income goal on an annual basis is a great way to stave off a panic when you have a few dry months.
Getting yourself ready to walk away from your job starts from the very first day you decide to take that leap.
Getting yourself ready to walk away from your job starts from the very first day you decide to take that leap.
You have to build your business into one that has replicable and repeatable systems that will allow you to scale up as your experience and capital allows. This is a process of failures and wins. The difference between a successful investor and an unsuccessful investor usually is the fact that a successful investor sees their failures as a learning experience and their wins as proof that they were able to learn from their mistakes and modify their system accordingly.
If you’re able to create one closed deal by marketing and speaking with a few distressed sellers, you should be able to repeat that success. Documenting the steps you took to close the deal and repeating those steps is how you grow.
In addition, the professional investor has quality resources in place to help close more deals than the competition, including:
- Motivated Seller Leads
- Title Companies
- Standardized Contracts
- Referral Partners
- General Contractors
- Access to Capital
- Insurance Agents
- Appraisers
- Buyers Lists
- Mentors
All of the resources listed above are essential tools to the professional investor. You simply can’t do it all by yourself and understanding this from day one is crucial to your success. To be successful, you must invest in the relationships and resources that propel you toward success. At the same time, you must make note of the missteps, relationships, and resources that didn't help you and strive not to repeat those mistakes.
Making the transition from being a 9 to 5 employee to being a full-time real estate investor is the dream of most people who get into this business. Getting to that point takes planning, dedication, and hard work. Taking the time to understand both your financial needs and what it will take achieve them within your chosen niche is crucial.
If chasing deals monthly isn't your idea of the perfect real estate investment job, you should know that in today's real estate climate, no matter what your chosen niche is, at some point, you will have to start building your investment portfolio and that may involve chasing a deal of two.
A wholesaler or flipper can still do deals while adding a few rental properties to their portfolio. Doing this over time builds consistent passive monthly income for living expenses while reinvesting proceeds from your flips. There’s nothing tying you to one niche or strategy as an investor; this is your business and you can expand and tap into opportunities across the real estate investing spectrum as you see fit.
A wholesaler or flipper can still do deals while adding a few rental properties to their portfolio. Doing this over time builds consistent passive monthly income for living expenses while reinvesting proceeds from your flips. There’s nothing tying you to one niche or strategy as an investor; this is your business and you can expand and tap into opportunities across the real estate investing spectrum as you see fit.
As you get some experience under your belt, every property should be considered for it’s highest and best use. As an example of the term "highest and best use", how to get the most return of every property using a variety of strategies. Of course, this is dependent on where you are in your investment career at the time. But when you take the time to give each property careful consideration about how you can maximize your return, you’ll find yourself seeking creative deal structuring, new partnerships, and funding possibilities.
Being tired of the 9 to 5 grind is a problem many have or have had at some point until making a permanent change. You have everything you need in front of you to turn your side business into your main one if you’re willing to dedicate the time and effort to make it happen.
