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.
Beginning a real estate investment business plan may seem intimidating to you. You may feel you haven’t had the experience and you don’t know where to begin. Fortunately, the process is not really that difficult if you put the issues in order and then prepare a rationale plan to support the issues.First, before beginning a business plan, you need to consider what an investor or lender needs to know about your project or larger business. The major items are:
Define the project or business,
Explain specifically what the investment requires in cash and participation,
Explain the risks and how they are managed focusing first on the invested capital and then on the intended returns,
Define the financial plan with a good sources and uses table, pro forma financial projections, and return projection tables,
Describe the exit plan for the investor or lender’s capitalWith these points in mind, you should have the following:
Your research or history for income and expenses;
Your study of the market and competition;
Your sales and marketing plan with revenues for products, services, rents, and eventual sale; and
The capital improvements or investments you expect to makeMost entrepreneurs at least have these elements together. To the extent that you run into developing the business plans, these are probably your issue more than writing the plan itself.Now, with this information in hand the key point is to understand is that writing a business plan is really a matter of “eating the elephant a bite at a time”. To make this easier a simple plan outline can really simplify and assure your ability to write the business plan. The plan can be complete if you include the following in the following order (remember too if you want to add additional information that you feel the investor or lender must know simply add it at the point you feel is most appropriate):Executive summary with paragraphs explaining what the investor or lender will contribute and under what terms you anticipate the contribution, a few line description of the market and competition, the key differentiator / success factors of your plan, the financial highlights including top line sources and uses, top line income, expense and returns, and a brief summary of the exit.
The main body will include:
Financing including 1) Sources and uses, 2) Pro Forma Financials, 3) Return Tables
Detailed pro forma projections,
Other documents as appropriateSo get started and create a great business plan.