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.
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 an incredible business opportunity. I do not say this to scare anyone. If anything, that should excite you as a part-time real estate investor. A business may very well be your primary need or desire.
As a part-time investor, you have a full-time career, 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 interest 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.
Let’s look at part-time real estate investing from two perspectives
In doing so, let’s also keep the context of a real estate investor who is focusing on buying and leasing residential real estate as rentals which is how I got started and it is how I recommend others start.
- First, 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 operate it – to be successful?”
- Second, from an external perspective: “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 perspectives, and if you put the two of these together you drastically increase your odds of succeeding as a part-time real estate investor and 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 the importance of their business structure and I have witnessed others fail because they did not recognize the core elements internal to their business.
You as an investor 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 purchases.
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? This is your operations function that you have to account for and recognize.
A 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 market your property for rent and identify the resources, talents, skills and time that are required to do that.
An accounting function
How are you 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 within their business.
As I mention these core functions within your part-time real estate investing – purchasing, finance, operations, 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 and do not likely have the scale or size to rationalize individually staffing these functions, however, that does not mean you do not need to recognize the need for these functions within your business, even if you are personally wearing each of these functional hats. These are functions you can do as an individual.
And if you are not comfortable or you do not have the time, bandwidth, skill or experience to take on any one of these functions, you can always partner with others who can assist you.
Perhaps you need a Realtor for your marketing or to help you purchase properties. Perhaps you partner with an
accountant or a CPA to help you maintain your books and do your taxes. Or maybe you find 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 management company 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 the functional areas covered and supported and you are prepared to execute what is necessary to efficiently run your business and meet the external 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. It wobbles, and it is unstable, and it will ultimately fall or collapse. You do not want that to happen to your part-time real estate investing business because your business was missing a leg or missing a critical business function.
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.
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, accounted for the fundamental business functions, and it’s positioned to satisfy that demand for your product, you will achieve success.
Here is what that demand looks like in our country today. The demand for rental residential real estate has evolved significantly in the past year, and it is exciting for you as a part-time real estate investor.
Renting longer is appealling
Future homebuyers are renting much longer. Today, first-time homebuyers rent for an average of 6 years before they ultimately buy a home. That is up 2.3 years from the 1970s. First-time homebuyers are looking for your product, rental real estate, 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. That is great news for you, the part-time real estate investor.
Renting provides flexibility and freedom
Future home-buyers like the flexibility of renting initially. They can move around and pick and try different communities or quickly and easily react to job changes/relocations. They like the freedom of staying in rental properties and the financial peace of mind that they do not have a huge amount of money wrapped up in a house of their own.
Home ownership is down
Home ownership 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 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 even choosing not to buy at all.
Home prices are on the rise
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 on average 2.6 times their income. It is becoming incredibly difficult to afford a home, making renting a very attractive and sustainable financial decision for many individuals.
So, as you can see, you have an incredible external demand for your product, residential rental real estate. Furthermore, internally, you now have a highly functional and well-balanced business. You’ve got a product. You’ve got a demand. You’ve got a business, and you are ready to go out and succeed. You’re a part-time real estate investor!