Why is your full-time job critical to the expansion of your real estate portfolio? Why should you keep it? People who want to start doing business in the real estate world tend to say that they cannot wait to quit their full-time job to focus just on real estate. But, is that really convenient?
Having a full-time job is good because we continue developing different skills while we work on our real estate properties. Furthermore, when you have a normal job during the beginning of your investment, you feel more comfortable with the idea of taking some risks, just because you know there is a full-time job as your backup.
You have to be careful when you are in the middle of this process. Don’t let your emotions drive your decisions and here you will understand why.
The W-2 form
The W-2 form contains extremely important information like the salary you receive and also the amount of federal, state, and other taxes withheld from your paycheck.
Banks love W-2s. If you have ever applied for a mortgage, you will remember that at some point, the first thing they ask for you is copies of two W-2s, whether it was the last two or the last three pay stubs or maybe the last 30 days of your W-2. Why is it that lenders love W-2s so much? Because it means that you are stable.
We have to remember banks are in the business of making money. They’re not in the business of taking your house away from you. The expectation is that if they’re lending you money, they will want that money back in return plus interest rates.
Importance of your Full-Time Job
Let’s say you decided to quit your job and you are doing real estate only and exclusively, however, assume the scenario where you are making some passive income from your real estate investment, but you’re not quite there yet in terms of making the same amount of money you used to make in your full-time job.
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Assuming you have a rental portfolio, and every month, you’re making $1,000. If you’re making $1,000, and you multiply that by 12 months, the most you’re going to get in a year is $12,000 in one year. Depending on your situation, lenders can lend up to three to four times your annual income.
So, $12,000 a year, and assuming that your credit is perfect and everything is great, the bank is willing to lend you up to four times your income. We multiply $12.000 by four, and that means the most the bank can lend you is $48,000 for a mortgage. Do you see where this leaves you? You have only $48,000 to invest.
The other possibility is that you decide to keep your job. Let’s call it a short-term sacrifice, maybe for the next two, three, or even four or five years depending on how much you actually want to grow your real estate portfolio and also depending on the type of responsibilities you have. For example, you may have a family with children, and therefore, you have to worry about feeding your children.
In your full-time job, you make an average of $80,000 a year. This is your annual salary, and then, to this number, you’re going to add the $12,000 that you would’ve received in your rental income on a regular basis. $80,000 a year plus $12,000 from your rentals. This is your rental, and this is your J-O-B. In total, you’re actually making $92,000 a year. Out of $92,000 a year, assume that you have great credit, and the bank decides to lend you up to four times your annual income. You’re going to multiply this number by four, and what you’re going to get is $368,000. Sounds great.
You do need some money to expand your real estate portfolio
You hear people saying “you don’t need money to invest in real estate”. Guess what? you do.
You do need money to pay your bills because you still have to eat. You do need money to pay for the internet because you still have to do some market research. Even if you were to invest in real estate with zero money down, zero money whatsoever, where do you think that money comes from? You still have to repay that money back to the lenders or to the sellers who decided to do some creative financing with you.
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Chances are you will need this full-time job. It’s not so bad. You’re getting a job with benefits, you’re getting a job that is allowing you to expand a lot faster as opposed to not having one. The advice is to keep that decent job that is giving you a stable income.
If you don’t have a job, that’s fine. Feel free to find a part-time one that will allow you to accumulate enough income so you can bring this loan up to this much in mortgage loans. You definitely would like to get more buying power and you do not want to be limited by your income.
Your Real Estate Portfolio
A real estate portfolio is a collection of the different investment assets that are held and managed to achieve a financial goal. Your portfolio is going to grow so big and maybe, at that point, when you get enough passive income that’s going to be either equal or higher than your actual income that you’re getting from your job, then, that’s the time for you to actually take a step back and make the analysis and ask yourself, “does it make sense now for me to continue to work in my full-time job?, or should I just simply quit my job? and now work on expanding my real estate portfolio?
Let the numbers talk to you. Just like you will analyze the number in real estate and have the numbers be the deciding factor for you to make up your mind whether you want to move forward or not with an investment, it’s the same thing with your full-time job.
Does it make financial sense for you to let go of something stable in hopes that you may or may not get a deal today or tomorrow? Even if you get a good deal, you still have lenders that you need to repay.
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