CHAPTER 1:Why Real Estate?
The Ups and Downs of Real Estate
The claims of real estate as a lucrative field are genuine, but there are many aspects, both good and bad, to weigh when you consider venturing into the business of real estate. Having the luxury of making your own hours, the opportunity to be your own boss, and potential financial freedom are all trade offs for sporadic opportunity, inconsistent paychecks, and irregular working hours. The following sections are candid looks of the pros and the cons of a career in flipping houses to help you consider all angles while contemplating it as a career.
Although a career as a real estate investor appeals to many people because it can bring large profits quickly, it is not easy money. If you are currently employed full-time, think of everything your current job entails. Now think of the duties of your Manager, Vice President, IT Specialist, and Administrative Assistant. When you become your own employer, you will, at least in the beginning, also be assuming the duties that each of these individuals would perform in their respective roles. You must be prepared to commit yourself full-time to doing whatever it takes to set events in motion and keep them moving forward. Although there is a significant amount of freedom gained when one becomes self employed, the stress bar is raised slightly in the assumption of multiple roles and responsibilities.
It is important to remember that not all of your current financial obligations and responsibilities will disappear simply because you change careers. What this means is that it is essential that you give full consideration to how you will maintain your finances while you get your investing off the ground. This is not only important for lifestyle purposes, but because you are entering into a business in which maintaining an acceptable credit rating is essential.
Health and life insurance are seemingly small details that many people do not consider prior to venturing into business for themselves. If a medium or large sized corporation employs you right now, chances are, they are paying a large portion of your health insurance costs. When you go into business for yourself, you will need to purchase your own health insurance, which can be somewhat pricey. This is an essential added expense that many people erroneously leave off the books when initially evaluating their financial condition.
Make a business plan. Although the early stages of your business will primarily evolve around finding those first properties in which to invest, it is important that you have goals and a plan for achieving them. In a world in which so much is frequently going on, it is very easy to get distracted and lose focus. A solid business plan will help you prioritize and stay on track.
Essentially, there are certain aspects of being in business for yourself that you either can utilize to work for you or, if neglected, can end your dreams of being a successful entrepreneur. Understanding the role of elements and understanding how to use them to your benefit can help you realize your dreams.
Time
Your time is yours. When you own the business, there are no time clocks or time off requests dictating your work schedule. You decide the demands of your business needs. If you need a morning off to visit the doctor, rather than disrupt your work schedule, it can be built into it. If you want to take a morning exercise class at the gym, that can also be built into your day. You decide what hours and days you work, not someone else. If you prefer to work evenings and/or weekends as opposed to a regular nine to five schedule, this can also be accomplished through entrepreneurship.
The downside to the time aspect of flipping, however, is that your time, to a certain extent, must be coordinated with that of contractors, real estate professionals, and city officials. Visiting the worksite to oversee progress, locating and touring potential investment properties, and obtaining the proper permits and inspections will all be important parts of your business. Completing them will sometimes require you to make compromises in your daily schedule in order to ensure these tasks are accomplished.
You will also sometimes find yourself working odd or irregular hours. For instance, you may be able to ensure you do not work on Thursday mornings so that you can take a real estate class at a local college, but the trade off may be that you find yourself working evening or weekend hours to compensate for it. Likewise, during some phases of a real estate project, you may find that you have scarcely enough work to fill more than a couple of hours of each day. However, as the project picks up pace and nears completion, you may work sixteen, eighteen, or even twenty-hour days to ensure work is completed on time and within budget. In real estate, time is money, and a large part of your success will rest upon how well you are able to budget your time.
In general, though, one of qualities you will notice that increases exponentially during your real estate career will be the way in which you manage time. One day, you will notice that you are exceptionally efficient in the way in which you budget your time. You become so accustomed to making time count in the world of flipping that it becomes almost second nature to make the most of your time. Eventually you will realize that being set free from a cubicle in which you were forced into a daily eight-hour box actually freed your ability to maximize your time.
It’s Your Money to Gain or Lose
You pay yourself. Your hopes for a better income will no longer be limited to whatever raise your company may give you at the end of the fiscal year. Instead, your paycheck will be a direct reflection of your strategy and efforts. Gone will be the days in which your pay increase and salary are interdependent on the efforts of your coworkers. Gone will be the days when your income expectations are limited. Only you will limit your income potential.
Of course, there are certain drawbacks to being wholly financially dependent on your own efforts. Primarily, you must work. If you do not, you will not make any money. Likewise, whereas minor mistakes at your old corporate job may have been absorbed by the sheer size and budget of the company, you will not have the numbers to afford yourself that same luxury. Errors can be costly and even business ending. That means careful consideration must be given to all decisions. Proper management of time, commitments, and budget will literally determine your success or failure. In real estate, it is completely possible to achieve that dream of owning a vacation home in Hawaii. It is also completely possible to find yourself penniless if you are not prepared to commit fully to your efforts.
Of course, in real estate, the old adage that you must have money to make money is somewhat true. Although it is possible to finance or flip property yet incur almost no costs out of pocket, you still must be prepared to meet expenses. You need to allocate properly those funds that you do have and know how to spend in order to get back what you put in, plus a profit. Making the most of every available dollar will be the name of the game in the beginning. As long as you master and do this, you will be successful in the financial aspects of your pursuits.
People Will Always Need Housing
Whether you are thinking of getting into the flipping business to act as a landlord while property appreciates or you intend to strictly renovate and sell, the need for housing is constant. It is one of the five basic human needs. Population growth and the increase in immigration ensure real estate will always be a steady market that is relatively resistant to economic slumps. A career in real estate means you will not have to worry about your commodity becoming outdated or eliminated by newer and greater inventions. The market is secure. With that security, though, is a certain amount of risk.
Although real estate is steady, income and spending potential are not. Therefore, even though the real estate market often suffers minimal impact in a poor economy, it still takes a hit, nevertheless. It is important to be prepared with a plan for weathering a poor economy. Inevitably, the outlook will rise again and with it, so will the real estate market. However, sometimes you will be forced to either hold a piece of property in order to usurp its full profit potential or sell it at a loss. Chances are, either choice will disrupt your budget and put some sort of temporary financial strain on you. However short-lived the slumps may be, they still hit property owners pretty hard, which makes them an important aspect of the business to consider when thinking of a career as a real estate investor.
Risk is a Part of the Business
Risk is the one word in real estate that scares most potential investors, but it is something that cannot be eliminated. There will always be risk involved in property flipping. However, with proper research, risk can be assessed and minimized. Risk alone should not keep anyone from a career in real estate, but decisiveness, the ability to analyze a scenario from multiple angles, and comfortableness in situations of chance is essential to managing risk. Those unable to enter into a situation with a certain level of uncertainty should probably give careful consideration to the field of real estate before pursuing a career in flipping houses.
It is important to understand that real estate is not a field into which you can enter half-heartedly and expect to find success. Real estate is a self-paved path, and your heart will determine whether you travel down a good path or a bad one. You will need to own each and every project with an almost passionate zest. Although one of the primary lessons you will reap from this book is that planning is essential, it is equally important to deal with issues of the moment and ensure they are completely resolved before running ahead of yourself. If you do not, you may find yourself with an even bigger mess down the road. If you are the type of person who will assume each property with the attitude that it is nothing but a big headache that you need to unload as soon as possible, then you should probably stop reading and begin reconsidering your career choice, because you will not get very far. As with any career, in order to find success, you need to believe wholeheartedly in what you are doing.
You also have to be willing to stand alone and trust in your own decisions. This sounds very simple to many, but take a moment to really stop and think about the last time you made a choice that was completely uninfluenced by anyone but your own thoughts and conclusions. For most of us, outside influences often play a larger role in our decisions than we are willing to admit. If you do not have a healthy dose of good old-fashioned self-esteem, you will need to build it up before considering real estate any further. You will face many obstacles and rejections that require a person who is confident in the business decisions he or she makes and is certain that his or her goals are attainable.
It is healthy to think as big as you want, but remember that everyone has to start at the beginning. You need to understand that, although you will eventually reach a point of independence with persistence, goals, and a well thought-out plan, as with building any business, it will take some time and work. Do not hurry through the early developing stages. It is important that you understand the reasons for them and take away the lessons you get from them. This is how you gain knowledge and learn the business, which will ultimately make you a better businessperson and make achieving the big dreams possible. The primary mistake that many would-be successful investors make is that everyone wants to be an expert, but few want to invest the time, effort, and energy into becoming one. Just as most scholars did not earn a Ph.D. by merely taking a few classes, you will not become a real estate expert by dabbling.
Full-Time Versus Part-time Ventures
At first, many potential investors consider a part-time venture into real estate in order to minimize the initial financial impact of the transition. Part-time flipping efforts can work if you intend to purchase property and either live in it or hold it while you refurbish. Living in a property while you renovate will absorb the potential financial burden of an additional mortgage. However, with this option comes the reality of living in a construction site. If you are a person who is accustomed to having everything in your home in a neat, working order, you may want to reconsider a part-time effort in real estate. However, if you love being able to regale your friends with stories of cooking on a Bunsen burner for three weeks while your kitchen was torn apart, then you might find it a pleasurable adventure to live in houses while you are renovating them.
It is still important to remember that even if living in your property while renovating does allow you to maintain your full-time job, in all likelihood, you will still find yourself taking time off to take care of business at the house. Inspectors, in particular, tend to do their rounds during normal business hours. If you fail to meet with an inspector, your construction will literally be halted until you do. In addition, even if your renovations go smoothly, you will still find yourself preoccupied with what is happening with the project, which may inhibit your ability to focus elsewhere and ultimately affect the quality of your work at your full-time job. Therefore, it is a good idea to take a candid look at how intense your full-time job is before conclusively deciding to flip part-time.
If you find yourself frequently bringing your work home with you or are often thinking about work matters after you have left the office, it is probably a good idea to decide if maintaining your full-time job or pursuing a career in real estate is more important to you now. Inevitably, if you attempt to split yourself part-time between two full-time efforts, you will fail at one of the two. Not only are you not being honest with yourself, you are being unfair to the contractors handling the project you have undertaken as a flip, as well as to your boss and coworkers at your full-time job, since both expect and require a full-time effort.
Proper consideration should also be given to the quality of your family life, if you are considering adding a part-time effort to your full-time job. If you cannot remember the last time you attended one of your child’s soccer games because you have been so preoccupied with your full-time job, it probably is not a good idea to add a part-time job that will only interfere even further into family matters. On the other hand, if your full-time job requires such dedication from you that you feel your child’s life is passing you by without your having the luxury of enjoying it, it might be time to consider exchanging such a demanding full-time job for a career. Real estate allows you the flexibility and opportunity to make improvements to the quality of your family life.
A particular part-time opportunity that can be used to generate cash for those who simply do not have the option of leaving their full-time jobs until they are able to build up some sort of savings to live off for a period of time is to purchase a rental property that turns enough cash to meet their mortgage plus a small profit. You should be prepared, however, for the responsibilities that come with being a landlord. You will be expected to maintain the property, which will also take time, albeit not the same amount of time required to oversee a large renovation project. Another drawback to this approach is that it is definitely not the speediest route between point A and point B. Often times, after maintenance costs are deducted, the income from a single rental property is not significant enough to reinvest right away. It often takes years of appreciation before rental properties really begin to pay investors back, which may be more time than what many are willing to wait.
Sometimes a partner can provide the balance needed to make a part-time pursuit a viable option. Since the responsibilities will be split between the two of you, a large portion of the burden you would otherwise carry yourself is alleviated. You can take turns visiting the site, speaking with contractors, and meeting with inspectors. Of course, with a partnership, you must be certain that both parties are completely aware of individual expectations and are in agreement with them. If not, what you will end up with may be a full-time mess rather than a part-time job. In addition, with a partner, your profits will be split in half as well. The upside, though, is that two people usually begin with twice the pull when it comes to financing, unless one of you enters into the partnership as an investor.
The moral here is that, in general, whether you ultimately decide to keep your day job or not, flipping is still a full-time effort. So, it doesn’t so much come down to a decision of whether to pursue real estate full-time or part-time as it does a decision about whether you realistically have the capabilities—mental and physical—to juggle two full-time careers while maintaining a healthy lifestyle.