Real estate is probably the best way for achieving financial independence which is defined as when your passive income exceeds your monthly living expenses.
It has great cash flow, great appreciation, and a relatively low risk compared to other high yield assets.
So you get to earn enough cash flow to live on without dipping into the principal balance or having to sell the asset. what’s there to not love?
But, you don’t want to give up your job or your life to become a full time real estate investor. That’s where 90% or more of investors stand. They want real estate, but they don’t want to give everything up to get it.
So really the question is how to invest in real estate while being an employee and keeping a full-time job?
There are a ton of ways to do this and we’ll get into that, but first, I want to tell you how I got started in real estate as a full-time student.
Getting Started in Real Estate as a Student
It was 2009 and the recession was in full swing. There was an $8,000 first time home buyer housing credit, and I figured hey, I want $8k. So, I bought a property.
I couldn’t qualify for a single family home because my income was low, my debts were high, and I had 3 part-time jobs instead of a full-time job.
But, I discovered that rental income could help push me over the line. So, I bought a 3-family property and 2 of the units could add their rent to my income and help me qualify.
It’s a bit more complicated of a story that I want to get into here, but the point of it is – you do not need a lot of money or a great job in order to get rental property.
And the second point is – you can be a real estate investor even if you have 3 part time jobs and are a full-time student. The time commitment to being an investor can be small, if you do it right.
So, here are a few ways to reduce the time requirement of investing so you can focus on your job and your life.
1. Outsource Management
Receiving calls, filling units, doing repairs, maintenance, inspections, etc are all related to the business side of real estate.
It’s also the most time-consuming (and frustrating) part of the business.
If you want to do real estate part-time but still maintain total control over the property, simply outsource the management. Then you can focus on the rest.
You can spend some time up-front finding and analyzing deals, making offers, etc. Then, once the property is purchased you can hand off everything to 3rd party management. Most property managers will help you oversee major renovation projects, and deal with everything on the property for you.
You can maintain total control over the deal because you can hire who you want and fire them at any time. It’s your deal, your property, your tenant, and your money.
Property Management Software
We generally recommend a PM software that is free to start. The features are perfect for a new investor and the price is low, which is perfect for the new landlord.
2. Outsource Deal Finding
You’ve already outsourced property management (smart move), now it’s time to have other people bring you the deals.
While property management is probably the most difficult, in a hot market, finding deals can be the most time-consuming (though most fun!).
Here are 3 easy ways to outsource this.
This is kind of on a sliding scale. You retain the most control with the first option, but by the last option you are starting to give up more and more control, but spending a lot less time in real estate.
Find a wholesaler
Wholesaling is a term used for any time a person puts a deal under contract, then sells that contract to someone else for a fee.
Basically, a wholesaler uses direct mail marketing, a real estate lead generation website, social media marketing, or strong personal relationships to find motivated sellers. They lock the deals up under contract then turn around and sell it to someone like you.
Wholesalers, by and large, have a terrible reputation.
It’s really not their fault, but the vast majority of wholesalers are very new to real estate and are using it is a low-cost way to break into the market.
I have nothing against that, and I think wholesaling is a great way to make money, but you need to really know the wholesaler and see a history of success and accurate number before you jump in and buy from them.
Using a wholesaler is going to give you the most control but also require the most time/effort screening wholesalers, analyzing deals, etc.
Partner With an Active Investor
The next way is to partner directly with an active investor. It will be a little more passive than using wholesalers, but you can still be actively involved with the projects.
There are a lot of ways to structure a deal like this. In general, a very active investor will have a lot more deals than money. You, being the new investor, will likely have a lot more money than deals.
You will give up some control because an active and successful investor won’t want you telling him/her what to do every step of the way. But, you’ll be partnering with someone with a proven track record and be joining in on the upside potential.
You’ll also retain some control since it is a partnership after all.
Work with a Syndicator
With this, you will give up the most control as you cannot be actively involved in management, but you can still be involved in deal selection, screening syndicators, etc.
A syndication is any deal where money is invested passively with a group of sponsors who are managing members.
The general partners accept the most risk, spend the time finding deals, securing financing, managing, etc. The limited partners can choose which particular deal they want to invest in which lets you create your own portfolio based on your own risk tolerance and objectives.
I put this last because it’s the closest to totally passive without giving up total control.
3. Outsource Everything
The only way that I’m aware of is either investing in an exchange-traded REIT or investing with a crowdfunding platform.
As a little caveat, crowdfunding platforms are bringing you 506(c) syndication or Reg A+ REITs which means you are either investing through a REIT or through a syndication, but they’ve added another layer of diligence.
A REIT, also known as a real estate investment trust, is a pass-through entity where the vast majority of returns are passed through to the shareholder and almost none is retained within the entity itself.
They come in two general varieties – Exchange-traded and non-exchange traded REITs. As the name implies, an exchange-traded REIT is listed on the stock exchange and you can trade its shares freely.
A non-exchange traded REIT is a bit more complicated as its shares are not liquid. Additionally, some may be open-ended, meaning you don’t actually know if/when you’ll ever get your principal balance back because there is no strict end-date.
REITs are a good way to get some exposure to real estate in your portfolio without actually being involved in real estate but they carry some risk unless you only invest in exchange-traded REITs
This is a really interesting topic because people have been “crowdfunding” privately for centuries. Over the last century or so they’ve been called syndications, but these were always structured privately due to regulations.
With the passing of the JOBs act which spawned the new 506(c) exemption and regulation A+, old-fashioned syndications became “crowdfunding” if/when done online.
To participate in a crowdfunded syndication, you need to be an accredited investor. This is how the SEC chose to limit risk to investors. Basically, anyone can openly advertise a private equity as long as the investors are all accredited (make over $200k/year or $300k if married or have over $1m net worth excluding your home).
The idea was little ol’ gramma wasn’t being suckered into giving up her last $20k by some online ad she saw.
This is good and bad. The great part is you can choose exactly which deals you want to participate in and how much to put in every deal. The drawback is you already need to be relatively well off and have a lot of cash or a high income.
A great company for investing deal to deal is EquityMulitple. They’ve also got a very thorough library of articles about investing in real estate, especially with crowdfunding, so if you want some more info about that you should read it.
For reg A+ styled funds or REITs, there are no accreditation requirements, but they are pretty heavily regulated in how they can operate.
A great company for investing in funds is Fundrise. You can get started with as little as $500 which is the lowest in the industry. You cannot choose individual deals, but your money gets spread out across a lot of deals which lowers your overall risk.
It’s amazing because these private offerings can now be available to a huge group of people that never had access to these comparatively high-yielding investment vehicles. But, you do not decide how money is allocated.
Instead, you have to choose them like you would any other fund or REIT and hope the managers do a good job.
The More You Outsource The Less You Earn
It’s fairly obvious but it’s worth saying – The more passive the investment is, the less it will probably pay you.
It makes sense though, right? The less effort you put in and the less risk you take, the lower returns you can expect.
But, It makes sense to take a lower return if your time is more valuable spent doing your day-job. You can focus on earning money and investing it on the side while others take care of the details.
On the other hand, if you have a lot of knowledge or time, you may want to be more involved. You can earn a bit higher returns then leverage that extra money into even better future returns. By doing this you can retire sooner, but you need the spare time to do it.
Take a good look at yourself and your life and decide how much time you can spend in real estate. Do this before buying anything. Then choose how passive you want to be in your investments.
Trust me, you don’t want to be stuck in some deal that’s stalled which needs a ton of your time/effort. Especially when you can barely find spare time to finish your day-job.