This is the question that every employed real estate investor has to make a decision about. For those who are unemployed, it isn’t much of a decision – just get started and see what happens. However, if you are employed and have a livable income, there are other factors that should be taken into account.
Most people want to change their careers because of the people they are working for or with, or their field of endeavor has changed with economic times. They tend to know they have to get out for their own sanity but are constrained by a life-style or other financial obligations. These constraints can include putting children through college, alimony, child support, excessive life style or not earning enough to allow for any breathing room financially.
Real estate investing can be very attractive as an alternative career or even just for additional income. If a part-time investor is initially successful, he has to start considering about doing it full time and giving up his job that is either financially or emotionally no longer rewarding. But at what point does he make the jump to investing full time and will his effort translate from his part-time experience into a full time upsizing?
Too often, wannabe investors get excited by national speakers professing the attributes of real estate investing. The speaker’s motive is likely to sell books and tapes and not worry about the success or failures of the majority of the people who purchase the courses. Here are some generalized statistics that relate to the success or failure of new inventors:
1. If an investor does one profitable deal his likelihood of continuing in real estate investing as a career is only 5%. [Soft Break]2. If an investor does two profitable deal his likelihood of continuing in real estate investing as a career jumps to 30%. [Soft Break]3. If an investor does three deals his likelihood of continuing in real estate investing as a career is 50%.
The caveat to these numbers is that the deals don’t come from local realtors giving him listings or pocket listings that haven’t been listed on the MLS. These have to be deals that were gotten from the prospecting, negotiating and closing efforts of the investor. To be successful in real estate investing long term, an investor has to be able to change his business to meet changing conditions in the market place.
So when should a part-time investor become fulltime? While the answer isn’t the same for everyone, my personal experience is that wannabe investors should keep their “day jobs” and worked part-time at investing until they complete five deals with at least an average net profit of $10,000 each. At this time you should have saved money for your change-over to a new career and not be so concerned about where the mortgage payment is coming from. A good guideline is to have at least 6 months of cash reserves to pay all the expenses you normally have and one month for emergency reserve of the unexpected. Most critical is health insurance which is unnecessary until you need it and then it is invaluable.
Some of the most successful investors have full time jobs and work making offers and looking at properties in the evenings and on weekends. If you quit your job and start investing, you will be under a different set of financial constraints than before which can affect your judgment. As with any start-up business, take a close look at a simple business plan and if it’s workable, do it until you know it is reproducible time and time again before you jump off the cliff and lose your benefits and income.