Chapter X: Leverage Your Full-Time Job
If you are anything like me, you will manage to get a job that will pay more or less after your graduation. If you are brave and jump straight into entrepreneurship, or more like a solopreneur during this period, congratulations! You can skip this chapter.
Like my advice earlier, continue to be the best at your job. A little extra money doesn’t hurt when you get that year-end bonus. But do leverage to the maximum that stable income you are getting from your job and start buying income-producing property.
At the time of writing this book, cash flow-producing properties are definitely challenging to find, but it is certainly not impossible. If you follow the advice of this book, you should already have access to the MLS by now and have instant access to all the deals listed on the MLS. There are now many ways other than traditional rental, such as short-term rental and mid-term rental, corporate leasing, Section 8, 4plex, or four homes on one lot (giving you a lot of ideas here) to certainly make the home cash flow positive. If you are telling me you can’t find any cash flow-positive properties, you either 1. work with the wrong agent 2. are looking in the wrong place 3. are just plain lazy.
Remember, you have an unfair advantage of getting that beautiful 30-year fixed mortgage at the lowest rate possible compared to anyone during this period to further increase the cash flow rate. I would personally max out this benefit before moving on to the next chapter of your life.
Most major employers offer a matching 401k plan. Most people sign up for it. I don’t because I want to put every penny I have into real estate. It just does not make sense for me that you have to contribute your money to a plan that will later penalize you for taking it out before you are 65.
I am not even sure if I will live until I am 65, so I opt out. Real estate investing offers the same tax benefit, if not better, than a 401k plan, and nobody will penalize you for refinancing your house and getting the money out. I will leave this decision up to you.
I don’t like 401k. I think it is Wall Street’s biggest scam. I am out.
I would also personally max out my unfair advantage as a real estate agent during this period. Of course, you need to be 100% focused on your main job. However, last time I checked, most Americans have a side hustle! Let real estate brokerage be your side hustle and broker deals for people around you. The key is to save this extra commission. Spend a little, then save it for your next investment. No creative investment strategy will beat the old-school way of saving up and buying the next investment home using his or her hard-earned money.
Work your 9-to-5 job, show some houses or go to listing appointments from 5 to 7. Work on Saturday or Sunday for a period of time. You will be proud of the extra income that you bring to the table.
Personally, this was a period of growth for me. The majority of wealth in my asset column is still contributed to the homes that I bought during this period and still own. Some of them are paid off, some I refinanced, and the homes are now sitting on an infinite return (I refinanced all the down payment out). I would strongly suggest you start putting away part of your income during this period, stack it up, and start buying income-producing properties. This will give you a strong foundation in real estate investing and propel you into more advanced strategies later in your investment career.
Looking back, I recall I missed so many good deals during this period of my life because I was simply afraid of the rehab. I recall when a home was once listed for $60,000 with a pool, and all I needed to finish was the bathroom. I told Jenny it was too much work (back then, Jenny was not into real estate yet).
Let me just take the time to remind you that there is no such thing as a “full-time investor.” Investing is simply understanding the market, making a few right decisions, then leveraging people and systems to manage your investment. You don’t have to quit your job, unless you want to, to invest in real estate. If you “invest full-time” in real estate, you are doing something wrong, or not understanding something correctly about what it means to be a real estate investor.
There is a full-time real estate agent, a part-time real estate agent, but there is no such thing as a full-time or part-time investor. You simply invest, or you don’t.
This period personally lasted about 10 years for me. I recall working at UH for 3 years after my graduation and buying my first rental house leveraging the income at UH. Then I moved on to HP for 1 year, then Schlumberger for another 4 years. I continued to work hard, save money, and acquire properties during this period. I did sell some cash flow houses during this period (I had partners in it) to lock in the profit that I later realized was the wrong decision.
That just opens up another can of worms: partnership in real estate. I will briefly go over this: when you raise money for a deal, there are two types of money: equity and debt. Always go for the debt first, even if you have to pay a higher interest, especially for smaller deals.
You can always pay off the debt, but it is harder to pay off equity partners in the deal. It’s better for you, and it’s better for your partners. The thing with having equity partners in a smaller deal, like a single-family house, is that the deal is too small to have partners in it, and the asset management task is the same as the big deal. You will end up with a lot of work, little money, and be more inclined to sell and exit the unit soon.
I am lucky to have exited all the deals with more than expected returns on all of my partnership deals. But if we had known to hold onto the properties for a couple more years, we would have tripled or even quadrupled the equity.
Chapter Summary:
Leverage your W2 income. Get the best mortgage rate possible and cash flow the home.
Max it out. I believe the limit is 10 loans per person.
Study different strategies other than LTR, such as STR, MTR, Section 8, etc., to further enhance cash flow.
Don’t be afraid of big rehab. You don’t do the work; you hire the right person for the job. Get good at hiring and firing. Don’t get good at repairs.
NEVER EVER sell any cash flow-positive real estate. If you need the cash, refinance.
Go for debt first, equity later when raising capital to fund a deal.
Don’t quit your job, unless you hate it.