Am I Ready to Become a Full Time Real Estate Investor?
By Paul Esajian on January 15, 2019
We live in a now society. With the increase in technology we can find out almost anything within seconds. As much as this can be a benefit, it can also work to our detriment at times. We no longer have the patience to build a business or wait for the right time to start something new. Such is the case with deciding to invest in real estate full time.
There will never truly be a right time to make the change. However, there are a few areas you need to be comfortable in before shifting gears. Not only will you be much more productive, but you won’t have the stress to perform. There is a huge difference in dabbling in real estate and making it your primary source of income. If you are not fully ready, you won’t have the success you anticipate. Here are four things you need to have in place prior to committing to real estate full time.
- Reserves. Things may be great in your real estate business on a part time basis, but full-time investing is different. When you invest full time, you don’t have a safety net if deals fall out or closings are delayed. The more you invest the more you will find that unexpected things happen on almost every deal. Things can be sailing right along smoothly and then one day six unexpected items will hit you at once. It is essential that you have reserves to fall back on if things don’t go your way. Most real estate flips take a minimum of 90 days, or more, from start to finish. If there is a delay in the sale you can easily be looking at up to half a year before you realize a return. Do you have six months’ worth of income to keep you afloat until your deal closes? If not, you should really hold off and wait until you do. What will end up happening is that you will make decisions based on short term finances rather than what is best for the bottom line. By doing this you will not maximize your return and ultimately feel disappointed in the process.
- Long Term plan. There is a huge difference in closing three deals a year and investing full time. Investing in real estate requires you to treat it like a business. You need to have systems, policies, procedures and goals in place, prior to getting too far. If not, you will simply make offers on properties, without really knowing what you want. You will end up with accepted offers that you wish you could take back or overpay for properties you don’t really want. You don’t necessarily need a full business plan, but you should have some basic goals in place. Ask yourself a few simple questions such as how long do you want to hold your acquisitions for or do you want to pursue any rental property options? Are you looking to take on a partner and how much capital do you have to invest? Once you have your goals in place it is easier to map out the future. Without a plan you won’t have the success you desire.
- Lead generation funnels. Investing full time means having a steady flow of lead generation funnels. It can be said that successful investing is as much about marketing and lead generation than anything else. You are truly only as good as the deals you can produce. Anyone can get an occasional lead from a friend or family member. Eventually those leads will dry up and you will be left looking for opportunity. You need multiple funnels to keep your pipeline full. With more investors in the market today than in recent years, closing deals is often a numbers game. You will talk to ten homeowners to get three potential deals of which you may end up closing one, if your lucky. Without dozens of deals to sift through your business will be choppy at best and you will have prolonged stretches between closings. If you do nothing else well, you need to excel at lead generation. It is not a stretch to say that it is the backbone of your business.
- Insurance, etc. As great as having the ability of limitless income potential is, there are some strings attached. For starters, you do not have the cushion of a steady, consistent paycheck. You will have to learn to balance the income you receive and make it last until your next deal. What is arguably more important is that you also need to account for a lack of health insurance and retirement income. Anyone who has tried to obtain health insurance in the past knows just how expensive this can be. Throw in a wife and three kids and you can easily pay more for insurance than you do for a second mortgage. With the rising cost of health care, this must be a consideration as you think about diving into real estate full time.
There is nothing wrong with investing at your own pace, part time until you build up your business. Once you commit to full time investing there is no safety net and no turning back. At a minimum, make sure you are comfortable in these four areas before getting too far.