It is the dream of many real estate investors—leave your job and become a full-time investor. It can be done, and you will learn how in this chapter.

The good news is the path to full-time investing is well worn. Many have preceded you and blazed a trail. Like any journey, you need to make certain provisions to be certain of reaching your destination.

There are many things to consider before handing in your notice to your boss. There is nothing wrong with dreaming about leaving your job to work full-time as an investor. Your dream can soon become a reality.

Moving from being someone’s employee to becoming self-employed is a big step. Moving from the security of a job with weekly wages earned and benefits provided, to the lonely, scary ranks of the self-employed is a leap into a different world.

As an employee, you have that weekly paycheck. You can count on it, month after month. As long as you show up on time and do your work, the paychecks keep coming.

Suddenly need hospitalization? You reach into your wallet and pull out an identification card. The insurance, provided by your employer, includes payment for all of your services, except perhaps a few dollars for a co-payment.

You receive paid holidays, some sick leave, and a couple weeks of paid vacation. Maybe you even get some life insurance and disability insurance coverage.

Are you sure you want to give all that up for a career as a real estate investor? Your job sounds almost too good to give up, especially when you look at your salary and benefits.

Before making the leap to self-employment, you should know what it will cost to duplicate or replace the benefits that you have now. The greatest cost will be health insurance. Tips on obtaining insurance appear later in this chapter.

One benefit often missed by novices contemplating self-employment is the employer’s contribution to payroll taxes. Employees pay 7.65% of their gross wages in Social Security and Medicare taxes.

What you may not have known is that your employer also contributes 7.65% toward these taxes. Together, employer and employee pay 15.3% of the employee’s gross wages in Social Security and Medicare taxes. The self-employed person pays the entire 15.3% tax on his or her own.

The following is a summary of costs you should consider:

All of these items cost money. Your employer has been paying for them. Now it will be you.

As you plan to move to the ranks of the self-employed, start gathering information. Find out what it will cost for own health insurance, dental care, and other coverage such as disability insurance.

You should also build a war chest of cash—for up to six months. This should be liquid cash—in a savings account or some other easy-to-withdraw reserve. This is more important for the real estate investor working flips—as you could go longer periods before finding and closing your next deals. For real estate investors with established positive cash flow from multiple rental units, a lower cash reserve may work.

After assessing your true requirements for going full-time, you may discover the goal is more distant than anticipated. Don’t become frustrated. There are a number of interim steps available to help bridge the gap between where you are now and where you need to be to go full-time.

A property manager maintains a client’s property in order to produce the highest possible financial return over the longest time. They are responsible for protecting the owner’s investment. Managed commercial properties are likely to be large office buildings and shopping centers. Residential properties might be apartment buildings, apartment developments, condominiums, or groups of homes owned by a single investor.

Becoming a property manager is a strategy that could be played out either as a career change or as an interim step toward full-time investing. You could simply go to work for an existing property management company. True, this isn’t full-time investing, but this step would allow you to get further experience and connections in the real estate industry while you add to your own portfolio.

Another way to employ this strategy is to take on property management clients yourself, essentially becoming your own property management company. This isn’t as complicated as it sounds. You already are a property management company, by virtue of managing your own real estate. You can extend your skills and talents to other investors who may be struggling.

Finding property management clients isn’t complex either. Remember those dilapidated buildings you called on, hoping to buy them? Not every one of those owners was willing to sell, were they? Say hello to your new property management client!

Acquiring real estate is capital intensive. Building a portfolio of real estate with sufficient cash flow to enable you to become a full-time real estate investor could take years. However, it may be possible for you to attain a stable of property management clients in order to speed you toward your goals.

Another benefit to property management is that you will be perfectly positioned to buy these properties when the owner decides to sell.

Some investors are good at sniffing out deals. So good, in fact, that they can sniff out more deals than they can ever hope to buy for themselves. Have you already been referring your surplus deals to your friends? It may be time for you to become a real estate agent.

Each state has their own requirements for licensure, but after completing the required education and passing the examination, you are ready to work as a real estate agent.

A job as a real estate agent is one of the easiest jobs in the world to get. Assuming you have your license, you will probably even get solicitations in the mail from different agencies encouraging you to work for them. The reason this is so is that as an agent, you will be working on 100 percent commission.

As an agent, be prepared to work long and irregular hours for a sporadic income. You can almost be assured that as a newly licensed agent, you will work many Saturdays and Sundays.

One way to beat the evening and weekend working responsibilities of a residential agent is to specialize in commercial real estate. Logically, you should become an agent specializing in the type of property that fits the niche you have been or would like to be investing in.

Training you to be ready for all the nuances of life as a real estate agent is beyond the scope of this book. The main point is that if you have been successful in identifying a steady stream of good real estate deals while working part-time as an investor, you may be able to build your real estate empire faster while earning a living as an agent.

There are other real estate careers you could consider as a bridge from your current employer. You could work for a title company, learning to search courthouse records.

Another possibility is to work as a loan officer for a lender or mortgage broker. Often these are commission-only positions, but might include some benefits.

A great but little-known real estate career opportunity is to be involved in the building trades. Many real estate millionaires started out as electricians, plumbers, or painters. By learning principles of construction and through connections gained at work, some individuals have gone on to acquire huge real estate portfolios, both by buying existing properties and by building new.

Dave knows of one investor who started out as a humble building supervisor for an office building. Today he is a super office building investor and owns an empire of properties.

As you further consider moving into self-employment, consider some the problems you will face:

As you read earlier, employees contribute 7.65% of their gross income under the present tax code for Social Security and Medicare taxes. The employer also contributes an equal 7.65% of the employee’s gross income in payroll taxes. Because the self-employed have no employer, self-employed individuals must pay the entire 15.3% tax on their own.

The tax is computed and reported on IRS Schedule SE (Form 1040).

Another issue a self-employed individual faces each workday is isolation. Most self-employed real estate investors work from a home office. This is one of the benefits, but it is also one of the detriments.

Working in isolation is a change. There are no friendly meetings at the water cooler, no one to talk to about Sunday’s football scores, and no one to bounce ideas off when you get a sudden brainstorm.

It takes an adjustment. Sure, you can work in your pajamas, and you can get coffee whenever you want. That independence is the lure of the self-employment dreams that are tugging at your heartstrings. But be prepared for the cold, harsh reality of working alone on your own.

Isolation isn’t only a matter of inconvenience in working conditions. There is a real danger of losing touch with breaking trends or developments in real estate investing. You should plan on networking with fellow investors, bankers, real estate agents, and others in order to keep a fresh perspective.

One option available to many employed persons moving into self-employment status is to continue their healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act, better known as COBRA. This law gives workers and their families who lose their health benefits the right to choose to continue group health benefits provided by their group health plan for limited periods under certain circumstances, such as voluntary job loss.

You are required to pay the entire premium for coverage up to 102 percent of the cost of the plan. Many times, this coverage is less expensive than what you can find on your own.

COBRA requires that group health plans sponsored by employers with 20 or more employees in the prior year offer employees and their families the opportunity for a temporary extension of health coverage. COBRA defines how employees and family members may elect continuation coverage. It also requires employers and the health plans to provide notice of available continued coverage. COBRA may not be your cheapest alternative. Often the plans provided by employer coverage are more extensive, and offers more benefits. You may not need all the extras, and might be able to find less expensive health insurance coverage on your own.

Another way to continue coverage is to find it through your local Chamber of Commerce. Many times, because the Chamber is supported by small local businesses, group health insurance is offered. This source is often less expensive than an individual policy. You might also find reasonably priced insurance from a local insurance agent.

It is often a matter of shopping, and not giving up. Before making the leap into self-employment, get quotes for your insurance coverage.

You should check with your accountant to determine if you should consider forming a corporation, and then become an employee of your own company. While you will be required to file more tax returns, it is often beneficial for self-employed persons to use this strategy. Often, there are tax savings to gain. Only a competent tax professional can analyze your individual situation. Seek assistance to determine if this is a viable option for you.

Before making the jump to self-employment, you may want to experiment by going part-time. Although it may seem like you already have one part-time job managing your own real estate, you may want to consider starting part-time, if you are contemplating one of the career-change options. For instance, if you are thinking of becoming a real estate agent or getting involved in property management, these are both career moves that you could try part-time. Many agents have started this way and there are plenty of weekend or evening leasing agent positions available in property management.

Another way to experience self-employment is to take vacation time working in your new self-employed capacity or to arrange a leave of absence from your current position.

The day you make the decision to leave your employment for the great unknown is a big day for you. You give your notice, work until your last day, clean out your personal property, and officially enter the world of the self-employed. It’s scary out there!

Make sure you leave your present employer under positive circumstances. You may need to go back if things don’t work out. If you have planned properly, making the switch will not be a leap into the unknown but a confident stride into an already thriving business plan.

The main reasons you should become self-employed are that you can be happier and at least eventually make a lot more money working for yourself than working for someone else.

No boss is holding you back. It’s up to you to make your first dollar, or as many of them as you can. And so, now it’s up to you—from emptying your trash can to making all the executive decisions.

One of the biggest problems you will face is developing a budget and sticking to it. Too many small business owners overlook this important issue.

Using a simple spreadsheet, identify your ongoing monthly expenses. These include such things as your business telephone lines, Internet service, accounting service, etc.

Also determine what your major expenses are likely to be over the next three years, and plan for them. This does not include real estate you will acquire, but rather items of $500 or more that you need for your business. In a three-year period, you will probably experience at least one hardware and software computer upgrade.

Developing a budget is tricky. Most beginners greatly underestimate the costs of running their own office. Entire expense categories can be omitted. For instance, you should probably budget something for continuing education, seminars, or conferences. What about the travel expenses to attend these conferences? Then there are professional dues, extra phone lines, perhaps a pager for emergencies, auto expenses, office supplies, subscription services, and more.

Review your budget against your actual expenditures. Common accounting software programs can help make these comparisons with just a few simple clicks.

By now, you realize the importance of properly handling money. Budgeting allows you to keep track of what you are spending, and where you are spending it. Becoming self-employed, you will have additional expenses that need to be paid each month, such as health insurance premiums. If you are going to control your expenses, you will need to track them carefully.

You must maintain sufficient cash reserves when you are self-employed. Money management is an essential skill. Being able to maintain a cash reserve is important for your survival.

You should have several bank accounts, one for your operational funds. You should also have another account to deposit your quarterly estimated tax payments—the money you need to send to the taxing authorities.

You should have another account—one for your emergency reserve cash. This should have three to six months of your monthly personal expenses (your home mortgage, utilities, food, etc.), as well as your regularly monthly business expenses. It is okay if this account fluctuates from month to month. Always maintain a minimum of three months of funds in your reserve funds.

Your emergency reserve cash does not include additional funds you should set aside in anticipation of needed capital improvements at your properties. If the furnace or the roof looks like they are at the end of their effective life, begin saving now. Remember, sometimes even newer equipment fails unexpectedly.

If it is a matter of passing up a deal versus taking money out of your reserve funds, pass up the deal. This money is your lifeline. Protect it and keep it sacred. It will also allow you to sleep at night. You need this money when nothing goes right—for whatever reason. You can’t afford to skip payments insurance or other important expenditures.

Before you leave your job, there are several things you need to do. Here is a list:

The Least You Need to Know