The other day I was thinking about my peer investors – individuals with whom I have had long-term relationships. They too have been around awhile and they continue to grow and flourish in their real estate investing businesses.
I also thought about those with whom I no longer work. The majority of those were all part-time investors.
It made me ask why my peers who are full-time investors seem relatively stable – they don’t seem to come and go; they seem to stick around and grow and flourish. And yet there is this portion of my peers who are primarily part-time investors and seem to constantly churn. Sometimes I work with some of these individuals for several months and then, lo and behold, I don’t hear much from them again. They seem to just disappear, or we have discussions about how they are frustrated or upset or going to leave the business.
It really made me think about what is so different between the full-time and part-time investors? What makes the part-time investors so ever-changing and constantly coming and going?
What sparked this for me was yet another conversation this week with a part-time investor who was on the edge and was frustrated and preparing to quit real estate investing as a part-time investor and focus on an existing full-time corporate career instead.
3 primary reasons part-time real estate investors quit
No. 1 – Part-time real estate investing is a slow drip
It is not a get-rich-quick approach.There are gurus out there online and on late-night television who probably don’t want me to say that. But it’s not.
Instead of get-rich-quick, it’s a build-wealth-slow approach. It takes time to find good real estate investment deals. It takes time to rehab and remodel those properties.
It takes time to find a buyer if you are going to sell your property. It takes time to find tenants if you are going to rent it. It takes time to build wealth from the cash flow from those rentals or the profits from those resales.
It takes time, and in today’s society of immediate gratification, many of us do not have that patience. We want to click a button and get immediate reward. That is not going to happen with real estate investment.
Many part-time investors doing this at a smaller scale feel this frustration at a higher level because it takes them longer to reach their goals, expectations and objectives compared to a full-time investor who is “all in.”
The slow drip causes frustration and causes some to leave.
No. 2 – Real estate investing (even part-time) is work
This is active investing. It’s not passive, though we use the word “passive” to describe the income it will generate. We all know we can turn on the TV any time and can find a show where in 30 minutes they are going to find a house, negotiate a purchase on that house, close the house, rehab it, sell it and collect their profit.
We know those shows are edited for television and they only have 30 minutes to tell the story. So that’s what they do, and they do it very well. But we can convince ourselves that real estate investing happens very quickly when you watch too many of those shows.
You have to be realistic and know that was months of work condensed into a 30-minute show for the purposes of entertainment. Many people do not realize the amount of work that goes into one simple real estate investment. And that causes a lot of part-time real estate investors who already have a busy full-time life with their current career to leave real estate investing.
No. 3 – Part-time real estate investing is a commitment
It is more than investment, it is a business. You need to treat it like a business, and it will produce results like a business. That should excite you. So many part-time real estate investors want to have a business on the side – something they can grow with, or transition to full-time, or something they may hold on to long-term to generate peace of mind in the event their full-time career does not work out or ends unexpectedly for whatever reason. It is a commitment, a business; treat it like one. Many people do not make that commitment and it causes many part-time investors to walk away from real estate investing.
Realities to recognize as opportunities, not obstacles
“Good deals are hard to find!”
So many part-time real estate investors come to me and say, “Kevin, I can’t find any good deals. This is not working.” Ultimately that discussion ends the same every time. It is me questioning:
- Do you have Realtors working for you finding those deals for you?
- Are you networking with other wholesalers who can find good deals for you?
- Are you marketing on your own? Are you sending out mailers saying you buy houses?
- Are you driving neighborhoods looking for distressed properties or for-sale-by-owner houses?
- Are you researching auction properties, reo’s and short-sales?
What are you doing to find deals?
Great deals will not fall in your lap. They never will. You’ve got to work to get them, and you have to work to find them. Beware of that as a part-time real estate investor. You are going to have to do some work and have some commitment to find good deals.
I see plenty of people tell me, “Hey, I did find a good deal. I couldn’t get it rehabbed. I couldn’t get it rented. I never finished it.”
“This is difficult, time-consuming and costly!”
In many cases they simply find that they do not have the expertise, the time or the funds necessary to finish a project or successfully market, rent and manage a property.
I challenge those investors with these questions:
- Have you worked hard and found the right contractors who are dependable and affordable?
- Do you know where to get a good property manager in order to manage a rental?
- Do you have access to the capital required to fund the rehab, repair and/or make-ready expenses?
These are questions you need to ask yourself before entering into part-time real estate investing.
I have heard part-time real estate investors say they couldn’t find buyers or tenants. To get buyers you need to go out and engage in real estate investor clubs. You need to have a Realtor who is willing to market and sell your properties for you or you need to take the time to post it on the many websites where people go to find properties to buy or rent. And, by the way, you have to be willing to field the calls when they come in!
“That did not go the way I planned!”
Well the natural next question is: why? And they don’t know why. They don’t know if they overestimated the value of the property, overspent on the rehab, or if they simply overpaid for the property. You have got to keep good books. You have to track your expenses and all financial aspects of your investment so that you can analyze, afterward, where you went right or where you went wrong. I am always amazed at investors who have no idea how their investment performed because they have no accurate record of their numbers. These are things to think about as a part-time real estate investor before heading into your first investment. Your time is limited so do not overlook the most important aspect of your real estate investment, the numbers!
“Opportunity knocked, I was unable to answer!”
Finally, I hear plenty of part-time investors say, “Gosh, I found great deals. I know I can fix that house, I know I can sell it, I know I can make a profit, but the deal came and went, and I lost it because I didn’t have any money.”
You don’t go to the mall without a credit card or cash in your pocket. You don’t go shopping for a real estate investment unless you have the capital secured to go do it – whether it’s your own money, hard money, institutional money or whether it’s friends, family or co-workers willing to invest in your endeavor. Make sure your money is set and ready so that when you do find that great deal you are able to act on it and execute it quickly.
There is a theme here, which is treat your real estate investing like a business and be prepared to execute it like a business. You will then avoid these reasons to quit and overcome these challenges that you are going to face and by preparing for these obstacles, now, you will create opportunities to succeed in the future.
Many of you as part-time investors work in businesses full-time, and you know how businesses operate: they have functions and functional areas. You need to be prepared to have all the functional areas of your real estate business addressed.
- For example, you need a purchasing department. It may just be you, but you need to know where and how you are going to buy properties. Are you going to use a Realtor? Wholesalers? You have to have a purchasing function you know can generate and find good deals for you.
- You have to have an operations department. It may just be you. But that operations department needs to manage properties as rentals or rehabs. That is where your contractors or property managers come in.
- You have to have a sales and marketing team. It may just be you. Once you finish that rehab, who is going to sell it for you? Who is going to market it? Or who is going to rent it for you?
- You have to have an accounting department. It may be you or an external accountant. How are you going to track your numbers and financials? Use QuickBooks, a CPA, a family friend who does bookkeeping or a spouse, and be prepared to manage your numbers like a business.
- Finally, you need capital. You may have your own money or you may need to have a relationship with a lender, private or institutional. If you do not have your own money, go find it before you stumble on that great deal that you need to act on immediately, but cannot.
If any one of these components is missing in your business, you have a three-legged table. It’s not going to work. And your real estate investment business is going to falter. Think of your business as a business, and it will be successful.
Maintain your patience, work hard and be committed. Anticipate the inevitable obstacles and prepare for them, now, so that those obstacles are actually opportunities for you to succeed and you achieve the results you are seeking to get from your part-time real estate investing business.