Many self-acclaimed real estate gurus state that everyone should quit their jobs and immediately jump into full time real estate investing. They often claim incredible results from students with little experience. We would like to caution that life-changing decisions are not usually simple and that full time investing is not for everyone. Let’s discuss some pros and cons of full-time versus part-time investing.The Full-Time InvestorEntering into the real estate profession on a full-time basis offers several advantages over a part-time commitment. Being successful requires you to develop knowledge in many aspects of real estate, and more time focused on real estate leads to greater knowledge. The more your learn, the more you earn, since you do not need to rely on as many professional services or partners for help. You also learn to recognize a deal (or a dud) faster, which gives you more time to do more business or spend with your family.As a full-time investor, you work your own hours. When we say “full-time,” that may mean as little as twenty hours per week if you are good at finding deals. The rest of your time can be spent pursuing other vocations or hobbies. Or, if you are so inspired, you can work forty or more hours and use the extra cash flow to buy rental properties or diversify your holdings in the stock market. The point is that you need to satisfy your cash flow needs before you can start “investing” your money.One final point you should consider is whether you want to be “self-employed.” If you have always worked for someone else, being your own boss sounds very attractive. In some, respects, this isn’t quite the truth. Being your own boss means being an accountant, bookkeeper, stock clerk, receptionist and office manager all-in-one. You have to do deal with tax returns, payroll, office supplies, customer service, bills and all the other hassles that come with a business. You don’t have friends to chat with at the water cooler. You don’t have paid health insurance, a company car and a 401(k). You take your problems home with you every night. Sound like fun? It is, once you learn how to master your time and run your business. Being the master of your own life and career is well worth the other hassles of dealing with your own business.The Part-Time InvestorThe part-time investor holds a “regular job.” This may be by choice or for the time being until his real estate ventures are bringing in enough cash to quit his job. If it is the latter reason, don’t quit your job because the real estate “guru” told you so. Quit your job when it is not worth the income that it brings you. In other words, if you are making more money per hour flipping properties on the side, you are at the point that where your regular job is costing you money. Only then, is it time to quit!One of the advantages of starting out part-time is that you can maintain cash flow while learning the business. It may take weeks or possibly months to find your first deal. That same deal may take several months to turn around, especially if you decide to fix it and sell it retail. Think twice before telling your boss you’re leaving; you will have plenty of time to make the career switch once you have real estate experience. You may, on the other hand, like your occupation. If so, continue to work at it, and invest in real estate on the side.The best case scenario, if you are married, is to have one spouse work a regular job. The other spouse work the real estate business for creating wealth, retirement income and a nice college fund for the children. Of course, in today’s market, you could be laid off due to unforeseen circumstances. If you earn additional income flipping houses and invest the proceeds into rental properties, you will be covered if your main income is lost. This is especially the case for married women that often forego a career and raise a family, only to find themselves divorced with no means of making a living. We don’t want to sound cynical about marriage, but with a fifty-percent divorce rate in America, it never hurts to have a system for making money.Someone with a full time job tends to have little free time to focus on real estate. A part-timer should learn most of the same skills as a full timer. Thus, the key disadvantage to flipping properties on a part-time basis is that it takes sacrifice to learn the business. Something has to give; television, lazy weekends, meaningless hobbies and even some family activities must be compromised. As with any education, time spent learning about real estate will bring its own rewards, especially if the people in your life understand your goals and your plan to achieve those goals. If you are married, make sure your spouse reads this material with you and participates in the fun process of making money.Treat Real Estate as a BusinessPeople are lured to real estate because of the quick buck that it promises. Don’t hold your breath, you won’t get rich quick. An “overnight sensation” usually takes about five years. More than ninety percent of the people who take a real estate seminar quit after three months. Real estate investing should be treated with the seriousness of a career. It takes months, even years for a business to cultivate customers and have a life of its own. You need to treat it like any other business.
It is extremely important to find a good property manager. Even then you should keep track of everything that is being done with your property. Remember this is a business…your business. If you aren’t careful, you’ll see your investment become a liability.Although what a property manager charges is important, even more important is what you get. On average we pay 8% a month on collected rents. You may find someone that will charge you only 5%, saving you money, and in return they may destroy your business. To date, we have not found a good property manager that only charges 5%. Saving money isn’t as important as hiring the right property manager that will properly take care of your investment.Your goal is to:
• Decrease expenses – utilities, repairs, etc.
• Avoid tenant turnover.
• Raise rents to keep up with current market rent rates.Property managers are not your business partners. They work for you! They can make recommendations but that’s it. Consult them as a resource but you must make the final decisions.It’s very important that you explain to them how you want things done. Then you must pay close attention to be sure they are doing what you’ve asked.Every time a property manager says you need to repair something you should ask why. We were told once that the kitchen light was broken. Before sending the handyman to repair it, I asked them to first ask the tenant to check the light bulb. Believe it or not, simply changing the light bulb fixed the problem. You want your property managers to only send repair personal when absolutely necessary.Anytime a repair is made on your property, be sure to get a copy of the invoice from the property manager. Look at the invoice to verify that your properties address is on it. If you have any questions about the repair, the contact information will be on the invoice allowing you to call the repairman. Unfortunately there are dishonest property managers. They will charge you for things don’t exist so that they can make some extra money. Keep track of everything and verify it all.The repair people can be your eyes. Be sure the property manager has them pay attention to how the property looks and report back.You want tenants, but only good tenants. Be sure the management company is only bringing in qualified tenants that will pay the rent and take care of the property. Always approve the tenant yourself. Don’t trust it to someone else. Have the property manager discuss the potential tenant with you. Talk about their credit score, if employment was verified, how much money the tenant makes, the back ground check, etc.You will get bad tenants, it’s part of the business, but you will lower the number of bad tenants that you get by doing proper due diligence on them before allowing them in your property.Be Sure That Your Property Manager Is Strict! No excuses should be accepted as to why the tenant hasn’t paid rent. The bottom line is they should pay rent or move out. Otherwise the property manger must evict them immediately.We own a 4-plex in Arkansas. One tenant was late one month. Then two tenants were late. I was busy at the time so I let it go. Then three tenants were late. At this point, busy or not, I needed to call my property manager to see what was going on. She said, “well they’re all having trouble paying the rent….but they called me to say they’d be late!” I told her I don’t care if they call to say they’re going to be late. If they are late you must start the eviction process. That sounds harsh but over the years we’ve learned we have to be. Tenants will take advantage of you if you let them. I told the property manager to send all four units a letter stating that if they were ever late they would be evicted. No excuses. The next month every unit paid on time and they have ever since.Most tenants understand that the most important thing is to keep a roof over their heads. However, if you let them make another expense the priority, they will. They’ll pay that expense first and hopefully pay you when they can if there is money left.The other thing we’ve learned over the years is that by allowing the tenant’s to pay the rent late each month you are actually hurting them. If you let them get behind and pay late one month, then usually it will be harder for them to pay on time the next month. What happens many times is they’ll pay later and later each month and eventually get so far behind that they can’t catch up. At that point you have no choice but to evict them, and in my opinion it’s your fault because you set them up to fail. The rule of thumb is they must pay the rent on time, or at least by the 3-5 day grace period. If not, then your property manager needs to understand that they must start the eviction process. When tenants see that you are serious, they’ll usually pay on time.Be sure that your property managers understand that they are not ever to give the tenant your name or contact information. Make this very clear!We like to always add fire extinguishers in each home or unit we own. Just be sure that you know how long the extinguishers should last and replace them as needed. There may be legal ramifications in your state when adding fire extinguishers so be sure to discuss this with an attorney that practices real estate law in the state the property is located. You should also run this buy your insurance carrier.Most tenants will forget about changing the smoke detector batteries and replacing heating and AC filters so it’s a good idea for you and the property manager to keep track and have them regularly changed. Whoever replaces everything should also inspect the property while they are there to verify that the tenants are taking good care of your property.It can be very helpful for you to use a property manager to manage your properties, however, you must oversee them. Don’t make the mistake of not paying attention to what is happening to your investment.Copyright © 2010 / Michael Gier & MHVProperties.com