“Find a mentor” is common advice. Or “surround yourself with people who have found success in what you are trying to do”. Then we think “ya ya good idea, but in the meantime I’ll just keep doing what I’m doing.”
It is easy to stay in our own little world. It is uncomfortable to put yourself out there and expose how much of a beginner you really are. Yet often what is uncomfortable is the most valuable thing you could be doing.
Last week I went to my first meet up – San Francisco Real Estate Investing Out-of-State. Here is what I learned.
People Want to be Active, Hands-On Investors in Order to Replace Their Job
This is something I already knew, but I expected the out-of-state investor meetup to have more passive investors. Wrong. It was still mainly people who want to be extremely hands-on, just do it out-of-state because there are much better deals.
By hands-on, I mean going out and finding off-market deals (which the presentation was about this month), negotiating, wholesaling, and managing repairs.
This is essentially a part-time job where they are their own boss. They want to get good enough at it so that they can replace their day job.
Real Estate Can Be Applied Creativity
I was really impressed by the creativity of some of the experienced investors. There are so many different ways to find and close a real estate deal. Here are some examples from the meeting last week:
- Finding leads by going to the courthouse and getting a list
- Finding leads with newspaper adds in small towns
- Finding leads with targeted Google adds
- Finding leads through contractors who find a house with expensive repairs necessary the owner isn’t likely to want to pay for
- Investigating leads by hiring someone on Craigslist to take photos
- Investigating leads with a local wholesaler, sharing the deal
- Seller financing – “I can offer $50k now or $60k paying $1k per month for 60 months”, basically a 0% loan for 5 years
- And much more…
But My Goals Are Different
I want to put my money to work to earn a passive income. I don’t want a part-time job on the side*, nor want to do it full-time one day.
Ideally I spend as little time as possible on my investments. Yet I realize in real estate there is a function between time spent and investment gains. My goal is to find the sweet spot – how can I get 80% of the benefit for 20% of the work?
The goal of passive income points me to owning rental properties. Not flipping, not wholesaling.
This narrows it down, but there are still a lot of ways to invest in rental properties. At one end of the spectrum are REITs – basically stocks representing companies who invest in rentals. This is maybe 1% of the effort for 10% of the benefit.
At the other end is doing everything yourself – finding a deal, repairing the house, renting it out, and handling the on-going management. This is 100% of the effort for 100% of the benefit (but there are some big risks while you are still learning).
In between is everything else. This includes participating in pooled investments (which really varies in terms of time and returns) and notes (maybe 5% time and 30% benefit).
What is my current approach to get 80% of the benefit for 20% of the effort? Purchase turnkey properties where someone else finds the deal and does the rehab. Pay for a property manager to deal with the tenants.
Sure, it still requires time on my part, but not a whole lot. Even with conservative projections, I believe I can return 20-25% per year when you consider all the components of return. The fact that I’m ahead of projections, at 29% per year after 5 years, is great. I’m happy with that, I don’t need to chase greater returns with greater effort or risk.
What is your goal? To replace your job by being an active investor or to put your money to work and be passive?
*I do think it is really important to create a situation where your effort directly controls how much you make. Most people have no ability to change their income through their day-job, so the only way they can save more is spend less. They forget about the other side of the equation of increasing your income. This could be as simple as driving for Uber part-time or running your own business (whether real estate or otherwise).