When I look at the successful part-time investors — and I draw on my own experience here in Dallas where I started as a part-time investor — I see them succeed when they treat it like a business. It is not a hobby or get-rich-quick solution, and it’s not a gimmick.
If you boil it down to the fundamentals, you have a product: affordable, safe and quality housing for rent. The part-time investor is buying those properties for the purpose of renting them.
Lucky for you as a part-time real estate investor, you have a product that satisfies one of the most fundamental and core human needs, which is shelter. That is a universal need for every human being regardless of your neighborhood, city, state or country. You are fortunate enough as a real estate investor to have that product: rental real estate.
What that means is you now have a product that is in demand, and you have a strong demand for your product – you have a business. I do not say this to scare anyone. If anything, that should excite you as a part-time real estate investor. That is probably one of your fundamental needs or desires. You have a full-time career somewhere doing something, but you obviously have a need, or interest, aspiration or dream to do something else in addition to, or even to replace, that full-time career. That is why you are looking at part-time real estate investing and probably at the core of that is your desire to own and operate your own business.
The good news is you, as a part-time real estate investor, have found an excellent business model.
Let’s look at part-time real estate investing from two perspectives.
Let’s keep the context of a real estate investor who is focusing on buying and leasing residential real estate as rentals.
No. 1, let’s look at it from an internal perspective: “If I have this business, what does this need to look like – or how do I need to position it – to be successful?”
And No. 2, from an external focus: “If there is this great demand out there, what is this demand and how can I best satisfy this demand?”
Both of these are critical considerations, and if you put the two of these together you will succeed as a part-time real estate investor or business owner.
First of all from that internal perspective, let’s take a look at your business structure. I have seen many part-time investors succeed because they recognize this and others fail because they did not recognize these core elements.
You must have a purchasing function
How are you going to buy properties you can rent? You have to figure out where you are going to source them, you have to figure out how and who is going to negotiate the purchase. And you have to know how to navigate the complexities of closing those sales.
A finance function
Where are you going to get the capital to purchase these properties? Where are you going to get the cash to rehab them and maintain them? Are you going to use private lenders, hard money lenders, personal money or institutional money from banks?
An operations function
Once you buy these properties, close them, rehab them and rent them, who is going to manage them? Who is going to collect the rent, follow up on late rent, handle the repairs and all the other things that come about in the course of owning and renting residential real estate investments? That is your operations function that you have to account for and recognize.
A sales and marketing function
When that property is purchased, and it is all painted with new carpet and you stick that sign in the yard, who is going to manage that process? Are you going to also market it on websites or list it on the MLS? Think through exactly how you are going to do that and the resources, talents, skills and time that are required to do that.
An accounting function
Who is going to know whether or not you are making money? Are you managing your books and your income and expenses correctly? And, don’t forget taxes. All of those are accounting aspects that I see people forget. When they do all the work of part-time real estate investing at the end of the day they cannot tell you if they made money or how much they made because they forgot about, disregarded or ignored the critical nature of an accounting function in their business.
You can operate as a team of one, or hire others to help
As I mention these core functions within your part-time real estate investing – purchasing, finance, operations, sales and marketing and accounting – don’t take me wrong. I am not implying you need to hire a staff and build a team and create this infrastructure of people to support these functions. You are a small business owner. These are functions you can do as an individual.
And if you are not comfortable doing or you do not have the time, bandwidth, skill or experience to take on any of these functions, you can get others to do it.
Perhaps you need a Realtor for your sales and marketing or to help you purchase properties. Perhaps you hire an accountant or a CPA to help you maintain your books and do your taxes. Or maybe you hire a general contractor to help on the operations side of your business with maintaining properties, rehabbing properties or repairing them as things go wrong. Or maybe you hire a property manager who will rent your property for you and maintain it.
These are all examples of how you can leverage different resources to ensure you have all these functional areas covered and supported and you are prepared to execute what is necessary to efficiently run your business and meet the demands that will fall upon your business.
We’ve used the example in the past of a table missing a leg. If a table is missing a leg, it completely eliminates the functionality of that table. And it wobbles, and it is unstable, and it will ultimately fall or collapse. You do not want that happen to your part-time real estate investing business because your business was missing a leg or missing a function.
A business missing a leg cannot stand
I see it happen all the time. Someone may enjoy working on homes – they love painting, laying tile and fixing up and landscaping. But perhaps they are weak on the finance or accounting side of it. Those individuals struggle with their part-time real estate investing business because they fail to recognize those weaknesses or those things they don’t like to do. They fail to address those functions and acquire the resources or help in order to make sure those functions are covered and balanced in their business.
Don’t be the three-legged table with your personal real estate investing business. Cover all the functions so you can have a strong, stable business.
This is the greatest opportunity for part-time real estate investors that I see. But too often they fail to recognize the nature of their business and the need to treat it like a business. The irony of it is that most part-time real estate investors spend 40 or 50 hours a week working on somebody else’s business or in somebody else’s corporation. They see these functions in somebody else’s business. Or they work within these functions but when they go to create their own real estate investing business they fail to ensure and build those same functions in their own business.
Looking at things from an external focus
Now let’s look at that external focus: that demand we mentioned earlier – that core human need of shelter – safe, clean, quality, affordable housing. Let’s talk about that demand because it is the other critical component of your success. Once you have built your business and it’s positioned to satisfy that demand, you will achieve success.
Here is what that demand looks like in our country today. It has evolved significantly in the past year, and it is exciting for you as a part-time real estate investor, especially if you are buying and renting properties. First-time homebuyers rent for an average of six years right now before they ultimately buy a home. That is up 2.3 years from the 1970s. Future homebuyers are renting much longer. They are looking for your product fresh out of college or after they graduate high school. They need rental homes, and they need them for longer than they ever have in the history of our country.
They like the flexibility of renting initially. They can move around and pick communities or react to job changes. They like the freedom of staying in rental properties and the peace of mind financially that they do not have a huge amount of money wrapped up.
Second, homeownership is at 63.4 percent of the U.S. population right now, a 48-year low for our country. Not only are we seeing a delay in owning a home, but we also are seeing a decrease in the number of people who ultimately go buy a home. And that is because these people have student debt, down payments are too expensive, or maybe they have unsettled careers – there are so many reasons people are putting off buying or are buying less.
Finally we are seeing an increasing gap between home prices and median income. We are seeing people confronted with the fact that home prices are 2.6 times their income. It is becoming incredibly difficult to afford a home.
So you have an incredible demand for your product. You now have a well-functioned and balanced business. You’re a part-time investor. You’ve got a product. You’ve got a demand. You have a business, and you are ready to go out and succeed.
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