For most real estate investors, quitting the daily grind and becoming a full time real estate mogul is the ultimate goal. Working for yourself, the potential for a substantial income, and being able to work as much or as little as you want are some appealing benefits of the world of real estate investing.
However, there is no specific time frame for when you might be able to quit your job and do real estate full time. Like many things in life, the answer is, “It depends.”
Telling someone who wants to know how to become a real estate investor that they’ll definitely be able to quit their jobs in six months or a year would be dishonest.
While there’s plenty of information floating around claiming that investing in real estate offers a quick and easy path to wealth, the truth is that it’s a long and often somewhat demanding process.
That isn’t to say we don’t understand the drive to set aside your 9-to-5 job and forge your own destiny. But if you’re wondering how to become a real estate investor, we’d suggest you start by asking yourself a few questions.
1. What’s your plan?
If you were going to open a restaurant, car wash or hair salon, you’d need to have a business plan. Investing in real estate is no different. You’re essentially starting your own business, so having a plan can help you to remain focused on your goals.
2. Have you ever flipped or rehabbed a property?
If not, you may want to hold onto your day job for the time being. Lenders and contractors will feel more at ease working with you if you can point to some successful projects.
And lenders in the world of real estate financing might want to know that a novice real estate investor has a steady source of income outside the real estate world if a project goes south. Sometimes bad real estate investments happen, and you’ll want to be able to fall back on that income if proceeds from the project don’t materialize.
3. What kind of savings do you have?
We’ve all seen the hype – buy real estate with no money down, using OPM (Other People’s Money). Although this happens every day across America, it is typically not available to first time flippers working on their first project. Ask yourself this – would I be willing to loan tens or hundreds of thousands of dollars to someone who was doing something for the very first time? Getting access to OPM usually requires that you have some skin in the game. This means when doing your first project most lenders are going to require that you have some of your own money invested. How much will depend on the lender, but it is not uncommon to see lenders only willing to loan up to 50% or 60% of ARV (After Repair Value). ARV is the expected price the real estate will sell for after all the rehab work is done. You will need to come up with the other 40% to 50% of the money to do the project.
Does this mean that as a first timer you need to put up all of that cash? No! Many first timers partner with someone to do their first deal. Not only does partnering lower your funding requirement, it also spreads the risk and, if your partner is a seasoned flipper, it will also likely lower your cost of borrowing and improve your odds of successfully (profitably) completing your first flipping project. Obviously, partnering means you will need to share the profits but getting half of something is much better than getting 100% of nothing. Losses in real estate investing, especially early in your career, can be devastating.
4. What’s the market like?
A good real estate investor knows their market and current trends, whether that means mortgage rates, consumer spending, employment figures, etc.
When they have a handle on the market, real estate investors can better plan for the future and snatch up opportunities when they arrive.
5. Do you have help?
You can’t walk this path alone. Good real estate investors are usually quick to point to others who helped them succeed.
This could be a mentor in the real estate world, an attorney who handles real estate transactions or even a friend who works with you. But you should also make practical connections as well, like hiring an accountant to help with the taxes associated with real estate transactions.
You might also want to join a network of other real estate investors like DIG. These groups allow investors to support, challenge and learn from each other.
If you’re in the Delaware Valley area and want to learn more about how to become a real estate investor, the Diversified Real Estate Investor Group (DIG) can help.
Founded in 1978, DIG gives real estate entrepreneurs the skills to cultivate practical real estate investment knowledge through education, discussion and networking.
We typically hold our general meetings on the last Thursday of each month. Occasionally there are exceptions so please check out our calendar to find out more information about our next meeting. Your first meeting at DIG is free, so come see what we’re all about.