Preparing for Life as a Full-time Real Estate Investor
By Rich Danby
Prior to becoming a full-time real estate investor, I spent 13 years as a TV Producer and Director. I covered hundreds of LIVE shows, which meant my mistakes were literally broadcast for everybody to see. Considering a random phone call or an email to the station from an upset viewer could get me called into the boss office, I had to really learn to minimize my mistakes. The only way to do this was to be over-prepared, which meant spending lots of time with my crews prior to a show to make sure they were prepared in their roles, as well. Just like real estate investing, creating a TV show is a team effort and many things can and will go wrong, but being prepared will certainly minimize the damage.
Nothing can fully prepare you for the transition from employee to entrepreneur, but Ive learned many lessons, some the hard way!
QUITTING YOUR JOB
After attending an ACRE weekend in Toronto five years ago, I realized for the first time there was a possibility that one day I could become a full-time real estate investor. The thought of that excited me! Freedom, financial security, more time with my family everything I had always wanted! I intently listened to the stories being shared from those who had already done it, but I loved my job and wasnt about to put my family at risk without having a plan. The message was clear: Real estate isnt supposed to be your life; its supposed to fund your life! It was great advice and I took it seriously. The only problem was that I was acquiring a lot of new knowledge and had a ton of ambition.
As my portfolio grew, so did my responsibilities. I was spending a lot more time looking for properties, negotiating deals, and working with investment partners. If I were buying turnkey properties this would have been a lot more manageable. However, I was buying fixer uppers so I could increase the value and refinance, or flip for a quick profit. I had essentially created a full-time job for myself even though that was not my intent. Something had to give! I was a victim of my own success, which forced me to either slow down, or quit my job. Only three years after attending my first REIN event, I made the tough decision to walk away from broadcasting to become a full-time real estate investor.
REPLACING YOUR INCOME
Yes, I quit my job and admittedly, I could have prepared for it better. I quit because I was making more money flipping properties part-time than I was working full-time at my job. My wife came to me one evening and she looked me in the eyes and said, Rich, its time! I was hanging on by a thread trying to find the time to manage both, but I was burning the candle at both ends trying to wait until I had enough experience and profit to replace my income.
If you havent accomplished that yet, then its probably not a good idea to quit your job. Its also best to wait until you have enough cash or equity available to cover your expenses until youre profitable.
Unfortunately, you cant feed your family with equity so, unless you own a significant number of cash flowing properties, youre going to have to figure out a way to replace your income. Flipping properties is the most common strategy used to generate a lot of profit in a short period of time. Having said that, its also a lot harder to get approved for a mortgage when you work for yourself, especially when youre just starting out. This is a difficult dilemma to be in when you need the mortgage to create the profits. The way around this is to visit your bank or mortgage broker prior to quitting your job to see what your options are. If that doesnt work, youll need to learn how to raise capital or attract partners who will go on title for you.
MULTIPLE REVENUE STREAMS
Flipping homes was how I planned to replace my income, but what if something went wrong? This was my first big lesson learned after quitting my job! Relying on one income stream is risky! When I first started investing in Hamilton, Ontario finding flips was easy, but that soon changed as Hamiltons market started to soar and demand for housing increased. There were now more buyers than sellers and many of the good deals ended up in multiple offer situations. As an investor, its impossible to compete on price against a homeowner who doesnt need to make a profit today. If youre thinking about becoming a full-time real estate investor, ask yourself what other skills or interests do you have that other people could benefit from, as it relates to what youre already doing, or want to be doing, in real estate?
Many full-time real estate investors become real estate professionals as a way of creating additional revenue streams. This completely makes sense, considering youre already looking at properties on a regular basis and understand where to buy and why. This knowledge is of value to others and also provides you the opportunity to further brand yourself as a real estate expert.
THE RED PILL
In the 1999 film, The Matrix, Neo, played by Keanu Reeves, was given a choice between the red pill and the blue pill. You take the blue pill, the story ends. You wake up in your bed and you believe whatever you want to believe. You take the red pill, you stay in Wonderland, and I show you how deep the rabbit hole goes. This analogy perfectly describes what its like going from an employee to an entrepreneur. Typically, when you work for other people, at the end of the day you can leave your work thoughts behind until you show up the next day. Unfortunately, as an entrepreneur, it doesnt work that way! Thoughts of work flood your mind all the time, even at 3:00 am. It can be challenging to be fully present when spending time with friends and family because youre always thinking about what you should be doing. Here are a few things I did that helped; hopefully theyll work for you too.
1. Headspace Prior to becoming a full-time real estate investor, I had never meditated in my life! In fact, I thought it was a waste of time! It wasnt until I shared my struggles with a friend of mine who recommended I try meditating to calm my mind. Ive always been committed to self-improvement so I thought, why not? What do I have to lose? Headspace is an app I downloaded on my phone. It offers 10 free sessions, which you can listen to over and over again. After that you can decide whether or not you want to upgrade. I still havent mastered it, but it certainly has helped and I do it because it also helps me be a better father and husband.
2. Delegate Theres no manual to becoming a full-time investor so when youre first starting out you may find yourself wearing every hat; sourcing deals, working with
investors, marketing, administration, tenant relations, and so forth. It can quickly become overwhelming where you end up becoming an employee to yourself.
Its nearly impossible to scale when you dont have time to work ON your business because youre too busy working IN the business. You also run the risk of burning yourself out or neglecting the important relationships in your life.
Most people have a hard time delegating when theyre first transitioning into life as a full-time real estate investor because they think they cant afford it. Its actually quite the opposite, you probably cant afford not to! Think about whatever your income generating strategy is or will be, then determine how much per hour you would earn doing it. Once you know the dollar amount per hour, delegate any tasks you can hire somebody else to do for less.
3. Prioritize I was having a hard time getting through my daily task lists and was left feeling frustrated, wondering where all my time was going. Why cant I get my big tasks done? I decided to buy a few books that really helped me prioritize my day and focus my efforts only on the important tasks first. The three books I read that had the biggest impact on improving my time management were:
a) Eat That Frog, by Brian Tracy
b) 4 Hour Work Week, by Tim Ferriss
c) The One Thing, by Gary Keller
In my office I have a hand written postcard taped to my lamp that sits on my desk. It reads, Until my ONE THING is done, everything else is a distraction!
4. Struggling with Food One of the perks of my previous job as a TV Producer were the crew meals sponsored by a local pizzeria. I had an unlimited amount of pizza available every week for 13 years of my life! Thats a lot of pizza! It did save me a lot of money on food, but my body paid the price. What I didnt realize was the effect it was having on my mind and my productivity. I adapted to feeling lethargic towards the end of the day and became accustomed to waking up every morning feeling groggy. I lived like that for so long that it just felt like a normal part of life. As a full-time employee, I only had to make sure I was being equally or more productive than my coworkers. As an entrepreneur, the productivity of others is irrelevant! Its your business and you have to make it profitable! It wasnt until after I went to see a nutritionist I realized all the foods I was sensitive to and the impact food was having on me. Im now able to sleep a lot less and get a lot more done without zoning out like I did before. This has had a tremendous positive impact on my business and personal life.
5. The 6:00 am Club People often ask me how I manage everything in my life considering I have four kids. First of all, my wife is Supermom, which helps a lot, but I also wake up early every day. I use that time to work on me, which consists of meditation, reading, and exercise. I refer to that time as The Power Hour. I prefer to do this in the morning because my body is well rested and my cell phone isnt ringing yet. It also sets up my day for success! By the time everybody is awake Im feeling great and ready to take on the world!
They say you can never be too prepared, and thats definitely true when youre thinking about leaving the security of a steady paycheck! Speaking with people who have been there before you is the best way to prepare. You may also want to consider hiring a coach or mentor to listen to your ideas and help guide you. Everything Ive shared with you was passed down to me from somebody else who was once facing these same obstacles. If you follow this advice, youll be able to create a plan, massively increase your productivity, and start moving yourself closer to the success you deserve!
Rich Danby is a full-time real estate investor, an accomplished public speaker, a real estate coach and the owner of Rich Ottawa Investments Inc. In 2015, REIN awarded him Joint Venture of the Year and a Top Player Award. Rich is also an REIA and graduate of the Dragons Den Business School.