I often tell people I am a full time real estate investor. The reality is that is a lie. There is no such thing as a full time real estate investor. You see, “full time” implies you are doing work. Investing implies your money is working for you. Working is not investing.
Since this is my only job, I guess I have to call it full time. Flipping houses, rehabbing, wholesaling are all work. If you ever managed a rehab and tried to keep your contractor on schedule you know what I mean. But how many people, who want to invest in real estate, watch “Flip This House” on TV and decide to rehab houses? That is not investing, it’s a job. It may be a very well paying job. You may make more on evenings and weekends than you make in your 9 to 5, but it’s still a job. I am not saying that is a bad thing. Making big bucks doing a rehab is a good thing. Investing is what you should do with you big checks when you get them.
I guess I am as guilty as anyone about calling the entire real estate field “investing.” Many people think they are investing when they really have a part time job. Take rentals for example, that is investing. Oh, unless of course you manage them yourself. Now we are back to it being a job. Many people manage their rentals themselves because there would be no money left over if they paid a management firm. What that means is their cash investment in their rental provides NO CASH FLOW. The only reason they have cash flow is they are doing the work of managing the property themselves. Heck, they could manage rentals for other people. They wouldn’t have to buy the property and take the risk of owning real estate.
Don’t get me wrong, there is nothing wrong with managing your own rentals. Just recognize that the money you invest in the property should have a return AND the time you spend managing should also have a return. If the only return comes from managing the property, that means your cash investment is giving you no return.
My ultimate goal is to have enough passive income so I can sit on the beach drinking Pina coladas while waiting for the checks to roll in. That is why I am moving in the direction of Commercial real estate – this is truly passive income. Single family rentals can be passive too if you have good management in place. But if you manage them yourself, don’t fool yourself, you have an extra part time job.
See you at the beach, I’ll be the one under the umbrella with a drink in my hand.
Ned
beach image© Mark Rasmussen | Dreamstime.com
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10 responses so far ↓
1 Sue Massey (1 comments.) // Aug 26, 2008 at 7:01 pm
A friend of mine just emailed me one of your articles from a while back. I read that one a few more. Really enjoy your blog. Thanks
2 Ned // Aug 26, 2008 at 11:39 pm
Thanks Sue, I checked you blog out too., nice
Ned
3 Ania (1 comments.) // Aug 27, 2008 at 4:51 pm
Great Blog and Great point!! We currently are involved with wholesaling, lease-options, and fix and flips. You are correct in saying fix and flips are a job, but they do bring great benefits!! Look forward to meeting you on the beach!!
4 Upstart Agent (1 comments.) // Aug 27, 2008 at 8:15 pm
You’ve got a great point here…there is a big difference between investing and a “job”!
5 Jay // Sep 12, 2008 at 8:29 am
Hi Ned, your blog is awesome, particularly this post. Keep up the good work!
6 Ned // Sep 12, 2008 at 1:09 pm
Thanks Jay I appreciate the comment.
Ned
7 John @ Curious Cat Investing Blog (1 comments.) // Nov 28, 2008 at 12:41 am
You are right that for many investors it is both an investment and a job. The return on your work is the price you would have to pay someone else to do the job. And to me the price for property management is very high. Both the up front charges and the companies do not seem very focused on keeping costs down, rather they want it to be as little work for them to get a pretty hefty payday.
8 Ned // Dec 3, 2008 at 12:29 am
Thanks for stopping by John.
Yes, I don’t trust management companies. Nobody watches your money or your properties like you do. But investors have to make sure they are not kidding themselves and are getting a return on their own work.
9 Richard DeBadts // Feb 15, 2010 at 9:01 am
“Nobody watches your money or your properties like you do.” How true this is! I own a 2-family home located in another state and for years I managed it myself from whatever remote locatation I was in (my job always had me elsewhere). I was very lucky because I had good tenants, but overall it was very stressful because I never knew when something “big” might happen. Recently, I hired a property manager and almost immediately felt that level of stress disappear. Now however, when there is any kind of issue with the property the labor cost is usually more expensive than the actual fix! That’s one thing I have very little contol over. On the flip side though, my property manager did show me how to get an EXTRA $115 per month in rent which, very conveniently, covers my management fee!
10 Ned // Feb 15, 2010 at 3:31 pm
Richard,
Thanks for stopping by and sharing your story. I hope to see you here regularly.
Your comments points out how a good property manager can be golden but bad ones can cost you a fortune.