Wednesday, December 23, 2009
Don't Quit your Day Job!
Keep your day job until you are consistently earning a comparable amount from investing for at least 12 months.This tip is particularly difficult to abide by when you hate your job, or you have a tremendous deal in the works, and you see a future filled with opportunity. It is unlikely that a new investor will equal the salary of a good job in the first 2 years of investing. It is frightfully common for an excited new investor to quit a job before a loan has even been completely processed. First of all, if you are not employed, it is difficult to secure loans. In general, you will need proof of 2 years of investing from a CPA to be able to get a loan, unless you have another job that insures you will be able to repay that loan. The loans that might be available to you without those prerequisites will likely be very high interest loans, reducing the potential for an income generating deal. Many investors make the mistake of calling the money made on a deal "profit" when indeed a large bulk of that money is debt, and will have to be repaid. Then the certainty of vacancies, repairs, and slow periods will quickly become death knells to the investor sitting on the margin of success. Your investing income must exceed your salary consistently for 12 months before you should consider losing the certainty of your day job's income.Some people quit their job insisting they need to close more deals, and want their success with 10 houses to be multiplied tenfold. It is important to consider that in investing in real estate, more is not necessarily better, particularly if you are a landlord. Being a landlord is fraught with difficulties and headaches. Collecting rent, repairs, unexpected vacancies, and difficult tenants may be manageable with 10 properties, but impossible with 100. Investors with large numbers of properties have to hire full time leasing agents, eating away at both profit and control. It is very common to find the owner of 50 properties making more money than the owner of a hundred because his overhead is so much less. Additionally, the more property you own, the more overhead, repair cost, vacancy rental loss, etc.- and thus, the higher reserve you must have. Cash flow is critical, particularly to the new investor. It is always preferable to have less property with a higher cash flow than more property with less cash flow.Remember, becoming a successful investor requires time, hard work, and patience. Like anything worthwhile, instant overwhelming success is not the norm. Be realistic in your expectations, and hang on to your job while building a secure reputation, knowledge base, and success rate. Ultimately, you will insure a longer more productive investing career.