There are many of us who hope to acquire our freedom through real estate investing. The truth is, there is no one particular path for getting to this destination. There are many ways to get there, however, we are going to identify two paths that we find people commonly take. One we will call the traditional way and the other we will dub the non-traditional way.
The traditional way is having a day job and using your disposable income to invest in income producing assets. For those who choose the traditional path, there are a few required prerequisites to make this path smooth and simple. These include: stable income, usually in the form of W2, moderate to high credit score and minimal to moderate experience with the balls to take a risk.
Your day job is actually a pretty significant asset when it comes to real estate investing.
Investment income can be fickle in the beginning, so it is important to have a source of cash for if (when!) you have to feed the monster. Persons on the traditional path are typically eligible for bank financing.
Banks have very strict standards that potential borrowers must adhere to. The more attractive you look to a traditional lender, the easier it will be for you to get funding for your project. That alone should calm your urge to jump ship from your day job and instead, opt to be an agent in disguise building a war chest of resources preparing for your exit.
In the non-traditional path, on the other hand, you’re ambition heavy but usually have limited access to bank financing. This route typically requires you to be willing to do a lot more hands on work. Self employed persons and entrepreneurs often fall in this category. This isn’t to say that the people on the traditional path are not willing to put in hands on work, but on the non-traditional path, hard work is the standard, not the exception.
Persons on a non-traditional path, you will have to consider alternative funding sources such as private and hard money lenders.
For those who are serious and take the non-traditional path, please be aware that it often takes longer to scale because of reduced access to investment capital. For example, if you find a multi family property that could pay you solid cash flow, you may only have enough to purchase the property but not enough to rehab it. Without proper access to cash for renovations, your property could sit vacant for a long time. This means it takes you longer to get cash flow as you incur more holding costs that sink you deeper into the hole. A project that would have taken only 6 months could end up taking a year or longer.
While few people will admit it, some of the largest opportunities require A+ financing. Unfortunately without solid income on your tax returns, hitting your passive income goal with real estate will take longer. This doesn’t mean you can’t do it, it just may take a bit longer and require a bit more effort.
We don’t want to be all doom and gloom though.
One of the key benefits of the non-traditional path is that it forces you to be more creative.
It’s easy to make money when you have a pile of it (or access to a pile of it). Being scrappy requires you to be very careful on what you spend money on, and forces you to focus on profit above all else. This can be a hidden advantage to keep you focused. For example, you wouldn’t necessarily spend money renovating a unit when the current condition is good enough to generate cash flow.
Overall, the key point we recommend is patience. Slow and steady really is the best route to make sure you can stay in the game long term. Real estate is a marathon, not a sprint. It’s better to go slow and be able to cover all the expenses that come with property ownership than to get caught up in acquiring more property than your wallet can maintain.