by William Bronchick & Frank Pulley
So, you hate your boss and you’re thinking of going full time into real estate investing? After a few deals, you may be tempted to do so, but here are some important things you need to review before making the leap:
Your Cash Reserves
Although Real Estate transactions can be done successfully without any cash out of pocket, it does take at least some cash reserves in order to maintain your properties in the event of vacancies, equipment maintenance issues (like a broken furnace or hot water heater) and other “surprises”. The time to increase your cash reserves and improve your credit is while you are still drawing a paycheck from your regular job.
This is also a good time to analyze your monthly expenses, then eliminate and pay down as much current debt as you can and plan where and what cash flow will be available for living expenses while your new business is in the start-up phase. The number 1 reason that businesses fail is that the business owner doesn’t plan for lack of cash flow. Then they get desperate and either get into risky deals or end up having to go back to a job to support themselves.
It is also a great time to get with someone such as a trusted mentor experienced with 401K or Roth plans as these can be “rolled over” or converted to a plan that allows you to use the proceeds to invest in real estate. I can’t emphasize enough that you consult someone experienced in the rules and regulations of using an IRA for investments.
Running Your Business
Many new investors fail because either they have always worked for someone else or act as though their real estate business is a hobby. It is essential you treat your real estate business as a business, take it seriously, and work it as such. You need to have preplanned hours and an action plan that you tackle on a weekly/monthly basis.
You also need to take into account some of the benefits you enjoy in your current employment, such as a company car, gas, health insurance, vacation time and more. Most, if not all, of these items you will now be paying for out of pocket. The good news is that some of these items can provide great business deductions! It is important to have an idea of what you will do in order to provide yourself with these essentials in advance.
In addition, it is important to set up the right business entities and the bookkeeping from the start. I urge you to make sure to consult your real estate attorney or an accountant familiar with real estate in order to make sure you have a solid foundation for your business.
It is essential that you have a set place to work, even if it is the corner of one of the rooms in your home. You need at a minimum, proper phone, internet, and fax setup,(yes sometimes you still need a fax- even if it is just an e-fax app on your computer) file cabinets, a computer with plenty of storage capacity, proper backup, necessary office supplies and a desk to work from. You need an area free from distractions. For most investors, an outside office is unnecessary as they can utilize realtor or title company conference rooms if they need to meet clients outside of the clients’ homes. There are a variety of “temp” offices available in this day and age at a reasonable cost. If you are a realtor, you have access to your broker’s office and its resources.
When Working From Home
Although we really enjoy it, working from home can be a challenge. When starting out, you may find that it is difficult to get motivated and may flounder about for a period of time until you finally build momentum. I found that going back to my “routine” of arising at a certain hour and going through the morning routine that I used for over 20 years when I worked somewhere else allowed me a base of familiarity. After that, I went to my computer and reviewed my to-do list for the day and got started. I was further helped by the fact that my wife (and business partner) and I had a business plan, solid goals and action steps already in place. Once you are up and running you may find that working from home is a huge benefit.
Your Marketing Plan
Initially, property acquisition is the stumbling block for many investors. You can have the best business plan and goals in place but without leads, you are dead in the water. In the beginning, you will need to plan a good amount of your time (and budget) with marketing. A good mentor is most helpful during this phase of your business. They can help you determine your farm area, investment strategies, marketing media and more.
One thing my wife and I found was that because we worked from home that our friends, relatives, and neighbors incorrectly thought we had lots of free time. We tried to be as accommodating as possible but we laid out the boundaries early in a diplomatic but firm way with everyone.
Other interruptions can include phone calls, emails etc. We try to look at our emails 3 times a day and respond during those times. As far as phone calls, if it is a possible buyer or seller of a property, we try to answer those calls live if possible. If it is a team member or business associate with a non- critical call, we will let them leave a voicemail and follow up at the various times of day scheduled for returning and making phone calls.
Social Interaction is Important
Although working from home has a lot of advantages, you may find that you really miss the social interaction you once enjoyed with your prior career! We get around that by taking periodic breaks, going to the gym, doing volunteer work and attending an educational real estate course at a title company or other entity. Real estate has allowed us a lot more time with our friends and family, but it took hard work- and a little time, to get there.
So are you ready to get started on the adventure of a lifetime? It can have its hills and valleys and the road can be rough initially but with focus, proper goals, determination and proper action steps to move your business ahead -you can enjoy your life both in business and personally like nothing you have ever experienced before. Good luck and here is to your success!