When To Become A Real Estate Investor
I love the saying, “I’ma do this, I’ma do that…” by Jake and Gino. These guys are full time investors, and they started their business with the mentality that they could do everything, all the time. Often times this is what we see as well. You have a small investor, often times a newbie that is starting to get into investing. They have a full time W2 job, and they also manage their property, and make all the repairs, and collect all the rents. In fact, I had a Client who was a multimillionaire that would still collect his own rents, and drive from four hours outside of town once a month to come and get them! #dedication
In the beginning, I can agree that it is oftentimes good for an investor to start by taking care of their first investment, or even first few investments. To me, the biggest problem though is that you are not actually looking at your productivity. You are missing the forest for the trees.
The I’ma Investor
The I’ma investor will come in and purchase their property with their W2 job, and be so happy that they now have a piece of the American dream. They should be able to retire with some extra income as well! Congrats! Now, if you are anything like the rest of us, your day to day job puts stress and demands on your physical and emotional well being which takes a toll on you after a while, and you want to be good at what you do so you take on more at work and start to grow with the Company you are working with. By this time, a little more income has come in as well and you decide to purchase another property.
Now that you have this second property, you have noticed that the problems are starting to pick up a little. The calls from the Tenants are starting to pick up a little. The repair requests are starting to catch you at night, when you were planning on relaxing for a little, and all of a sudden, you now have a second job!
The True Investor
Now, let’s look at a different scenario. Let’s assume the same job and timing, but this time look at efficiencies. For example, now that you have this higher level position, you obviously know what you are doing and it would seemingly be easier to double down at your current position, and earn a much higher income to then invest with, than to try and save the few hundred dollars a month by doing your own management.
At first, you may not realize the difference in following through with your specialized knowledge, but over time I believe you will because let’s assume you are able to make around $60,000/year currently. Now, if you double down on your knowledge, you can theoretically get around a 25% increase in pay over the next 5 years, which would bring you around $75,000/year. An increase of $15,000/year.
I’ma Take A Break
However, if you double down on managing your own rentals, you will not have the same amount of energy to excel at work as you might have previously, so let’s assume you end up with about half of the original raise which would put you at $67,500/year. Not too shabby! And on top of this $7,500/ year raise you also manage your own properties, so you save yourself around $200/month or $2,400/year. This means your total increase is just shy of $10,000/year, while if you had doubled down on your speciality, you would have made close to $15,000/year extra!
Of course, we have not accounted for the $2,400/year you would spend in having your properties managed, so that would still leave you with just over $2,500/year in excess profit, AND you have someone to take care of your assets and help increase their value over time, and who knows what they are doing. This saves you in legal fees, time, headache, and much more. You now have this time back to take vacations, and spend time with your loved ones, instead of worrying about Tenants, Toilets, and Trash, AND you are still making more money over the long term than you would have to begin with.
DIY Is Not For Everyone
In this world of DIY, not everything done by you is the most efficient or best way possible. Would you ask your heart surgeon to let you operate on some people because you read some books on it, and you think you can do it? NO! And even if you can do it, why not focus on what you really like and give the rest of it away? Less headache, less dealing with angry people, and random repairs, and trying to find the handyman who will show up and do the job without bubble gum and lipstick.
To me, investing is about freedom. The freedom to do what you want. This is why we invest. This is also why we aren’t heart surgeons or truck drivers, or anything else like that, because this is what we want to do, and we give the rest of it away. I don’t need to drive up to Idaho to get my potatoes. I’ll keep letting our wonderful truck drivers take care of that!
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