Why Keeping Your Job Makes You Richer (Quicker) in Real Estate

0:00True or false, you need to quit your day job to scale a real estate portfolio. A lot of people will tell you that you have to quit your job and go all in on real estate if you want to reach financial freedom. But I'm telling you, that's wrong. I believe it's not just possible to invest in real estate with a day job, but keeping your W-2 is maybe the secret to building a portfolio as fast as possible.

0:27Hey, what's up, everyone? I'm Dave Meyer. I'm the host of this podcast, plus the head of real estate investing at BiggerPockets. that's my day job. I've been working here at BiggerPockets for almost 10 years, even though I've been investing in real estate for even longer. And I've kept my job even as I've grown a real estate portfolio because I believe that's the best path to building wealth. This can be a contrarian opinion in the real estate space. So today I'm going to break down why I think having a nine to five can make you a better investor over the long term. And to help me do that on the show today is Paul Novak.

1:02Paul is an investor with a full-time job from Sheboygan, Wisconsin. And you can hear his full story from his previous appearance on the show, episode 1123 from May 19th. Paul and I are going to talk about the hidden benefits of keeping a W-2 job while investing, some of the under-discussed downsides of quote-unquote going all in on real estate, and even share a few tricks like 401k loans that are only available to people with full-time jobs. Let's bring on Paul. Paul, welcome back to the BiggerPockets podcast. Thanks for being here again. Yeah, super excited to be on. You have been on before. We talked a lot about your investing journey.

1:43Today, we're going to talk more about the decision you've made to stay as a W-2 employee because I think this is a huge decision for most people. But before we get into that, maybe for people who didn't catch your first episode, just give us a quick background, who you are, how you're involved in the real estate investing world. Yeah, my name is Paul Novak. I live in Sheboygan, Wisconsin. Kind of how I got started is got introduced to FIRE, really started off by paying off a lot of debt. Once the debt got paid off, it was like, OK, we were kind of in that habit of all of our money is going to debt.

2:16There's no debt left. Time to start investing. pivoted into like stocks and started doing that and really just wasn't seeing the returns on the dividends that I was hoping in the beginning. And during COVID, I got introduced to real estate through reading books, watching Bigger Pockets. And when I was looking at the returns that we were getting in cash flow from the money that we had invested in real estate, it was kind of a no-brainer. So we jumped in then around COVID and really we haven't stopped. We've just continued with real estate. And what does your portfolio look like today? Yeah. So today we're up to six properties, eight doors.

2:51We've got two multifamily, small multifamily duplexes and the rest are single family homes. So you've been doing this for a couple of years. You got six properties. Could you retire if you wanted to, if you wanted to leave your W-2 job? Is that an option for you at this point? Yeah, I don't think it's an option yet. I mean, maybe if we lived like a very minimalistic lifestyle, but we've got to keep going in order to kind of hit our goals and get to where we want to be. And what are your goals? Yeah. So I think for us, we want to get to about 11 ,000 a month in cashflow coming off the rentals. And, you know, if I look at what we have with the six properties, we could get to that goal.

3:30I think with just regular rent increases over the next couple of years, if we paid off the portfolio. So we're kind of pivoting right now in our strategy from just acquisition mode into kind of paying off some of that debt to increase the cash flow. You have decided, from what I understand, to like keep working at your W-2. And I'm curious, first, maybe just tell us a little bit about what you do for work and why you're taking that approach instead of going all in full-time real estate investor. So what I do, I've been at my employer for 20 years, customer satisfaction manager for a local manufacturing company.

4:07and honestly you know my wife too has been at her career now for seven years before she worked where I did for 13 it just it provides us a lot of stability and the other thing is like I don't think there's any way around it if you want to be in this real estate game you have to have money coming in right so like what that would do if we didn't work our w-2s it would significantly like stunt our abilities to grow, our abilities to pay off these properties. So I think it really lowers the stress level for where we're going. And our game plan isn't to live off the cash flow now anyways. So, you know, whether we're buying new properties or paying properties off, I still look at we're in the growth phase and having that additional income.

4:52I mean, that makes a big difference for us scaling. I want to reiterate and stress what Paul just said, that in order to grow a portfolio, you need cash coming in. This is just the reality. Real estate is a capital intensive business. You can't just go out and start with a couple of bucks. And even if you start with a decent amount of money, after you acquire a couple of properties, you're going to run out. And although some people dream of taking the cash flow from their first couple of rentals and using that to reinvest into new rentals, it takes a long time. Like the math of that is not the best.

5:29If you're making a couple hundred bucks every month off of a rental property, it could take years between acquisitions, which is why for pretty much every person in their first, I don't know, five or 10 years of investing, you got to focus on how to bring in income. Now, there are different ways to do that, Paul, right? Like curious, did you ever consider bringing in money through real estate? Because a common option that people in the BP community pursue is maybe they become a flipper because that's a way that you can generate income or you become a real estate agent or you become a property manager.

6:07Has it ever appealed to you to get your active income from a real estate type job? So let's say hypothetically that our household income from our W-2s is 200 ,000 a year using a hypothetical number. If I jumped in and became a real estate agent, right, I'm not going to start off with the same level of income I'm at today. And I do think that, you know, I've got the personality, I've got the mentality with us being in real estate and liking it. I think I could get back to that, but I don't know if I want to take those two or three years to catch back up to where I'm already at. Yeah, that that makes sense to me.

6:45I mean, you've put in you said 20 years into this career, you know, and even if you're good at it, going into a new career, you're gonna take a pay cut in almost every single instance. And there's a learning curve too, I would imagine, where you're going to have to spend a lot of time getting good at that, where I don't know the details of your existing job. I'm sure you work hard, but you know what you're doing. You understand that industry. You're probably very good at it already. And so you don't have to invest that extra mental energy. And you can probably use that mental energy to invest into your real estate portfolio because you're not trying to learn a new skill of being a real estate agent.

7:22Yeah, I agree with that 100%. And with us doing, we do everything ourselves, right? And I like that. We do our own bookkeeping because we've only got eight doors. We manage all of our own properties. So there is time. I mean, just the other week, small thing, but we had a slow leaking faucet that we had to go replace at one of the rentals, right? So my wife and I go over there. It took us maybe two hours to rip the old one out, put the new one in. But all of those things, that cuts into time. So if you're trying to learn a new skill in a new industry and then also layer on those things, it just adds complications with two small kids at home that we haven't wanted to take on right now making that pivot.

8:02People ask this question a lot. I think it's a really good question for real estate investors to ask themselves, should Should I stay in the job that I like or should I consider making active income through real estate? Because as Paul said, you have to have that active income to be able to get passive income in the long run. You need to have money coming in. And the way I think about it, Paul, I'm curious your opinion. The way I've thought about in the past is like you have to look at two different dimensions. One is do you like it? Because certain people, maybe they don't even earn that much, but they just love their job.

8:39There are people who are super passionate about it. They're purpose driven. They're just very connected to their work. And if you're in that, honestly, that's a gift. Not a lot of people have that. And so if you do that, I would stay with that job. The other thing, though, I think is where it gets a little bit trickier is where people who don't like their jobs are thinking, like, should I just grind it out in my existing career? or do I make the switch? Because not only could I potentially make the same amount or maybe even more money, but then I get more personal fulfillment out of that. Because I think that's what a lot of people are attracted to is they just find real estate fun.

9:16I do, I think it sounds like you do too. And so I'm curious if like, if you think about that in a similar way or how you would counsel our audience if they are facing a similar question. You know, the other thing that I'd look at is how old are you and where are you in life? If I would have learned all this, being honest with you, at a very young age, when I started at my company, even though I liked my company and everything about it, the risk wasn't as high to pivot into something else because my income wasn't as high. The benefits weren't there. I didn't have the kids and other people relying on us.

9:50So I think, you know, two other things that I just add to what you said is understanding what your goals are. And I think they'll change over time. But trying to find a way to define what is enough, like where is my end point? I think if you know what that is, it's easier to kind of make that decision. And like I said, I know that's going to change as you get into it and learn more about the business. Those goals will change with time. but I think that's a big one. And then just where you are in life and how much risk you're willing to take on from a employment standpoint. All right, guys, we got to take a quick break, but Paul and I will be back right after this break.

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14:14Welcome back to the BiggerPockets podcast. I'm back with investor Paul Novak talking about the benefits and trade-offs of working a W-2 job. I think the benefits to going into real estate investing full-time are pretty apparent to people. You have some level of independence. Most of these jobs are sort of independent. Like if you're an agent, yeah, you work a lot, but you have a little bit of control over your schedule. You can hopefully master that skill, make a lot of money, same things if you become a loan officer or whatever. And I think the benefit that a lot of real estate investors look at and say, I can learn the industry super well.

14:51And that's true. If you become an agent, you are going to accelerate your learning, your ability to underwrite deals, your deal flow. You're going to be able to network in a way that most W-2 employees can't do it. Those are real benefits. But I think the benefits of staying in a W-2 job are less known or less talked about. So can we talk about some of those things? Yeah. So I guess, you know, some of the stuff that I look at is from a positive standpoint is you have that reliable income. And one thing that I've learned in doing this is when you're going to the bank trying to get mortgages to continue to scale, they like reliable income.

15:31So, you know, I've even reached out to some people and talking about paying off my portfolio on the BiggerPockets forums. And some people have said, hey, the cash flow is great. All the tax advantages on my cash flow with depreciation and all that stuff are great. But now on paper, my income is so low that I'm really struggling to continue to scale to buy my next property because I'm not as lendable to the bank. So even though my money looks good, my situation, a lot of it's just deferred through taxes and I'm not showing that I'm making that much money. So I think that's something that people need to keep in the back of their mind.

16:05It's not just having the money. Most people, when they scale, aren't going to buy all these properties in cash, right? You're trying to use leverage when you're scaling. So the reliable income part is a big, I think, win. And I also think for me, you know, another big benefit through working, how I'm able to manage all these properties and run a real estate business, given it's small, all those skills I built up through work, understanding KPIs, drafting work instructions, having tough conversations with people, project management. Like, I think people, if you're going to do this business right, it's not just buying a house and I collect a rent check, right?

16:47You want to make sure that you're upkeeping the properties and, you know, taking care of the tenants and handling things in a professional manner. I couldn't have done that at 18 years old. And I think maybe I could have learned some of that from the real estate business too. But I feel like specifically like supervision and leadership and manufacturing has really set me up to be able to do a lot of those things. That's a great point. I haven't really thought of it that way. Because when I started and I bought my first property, I was 22 and I was terrible at running my business. It was just so bad.

17:23And I've gotten so much better and I've often credited that to just being a real estate investor longer. But I think you're right that at least half, maybe even more of me being a better real estate investor is that I've worked in a career. I've worked in an office. I've had employees that I manage. I've had different bosses who manage me and you learn to deal with different personalities. You learn new software. You learn new skills. Like you are constantly learning and performing and challenging yourself. And those are really valuable skills as a real estate investor, even though it doesn't seem so obvious.

18:00Like what I do day to day outside of hosting this podcast at BiggerPockets is more like a traditional corporate job. But the stuff you learn in a corporate job is actually applicable to real estate. You know, another thing that just kind of popped into my head is having the cash flow. So I think a lot of people, you know, they think about like, oh, I run the numbers on a deal. And while you're running the numbers, everything is linear, right? Like even if you factor in capital expenditures and all those things, you're assuming a certain percentage each month, which means you're going to get this cash flow and make money every single month.

18:35It doesn't work that way. When the hot water heater goes out and it's$1 ,500, it's not, well, here's one twelfth of what the hot water heater is going to cost and the rest of it you'll pay over time. Like, no, these expenses hit you when they hit you. And I think now that we've scaled up to having the eight doors, all that really happens is instead of your cash flow being$5 ,000 a month, maybe it's$2 ,000 a month. And it's like, well, I wish it was higher, but it's kind of an inconvenience. If you have one property and something breaks, like you're going to feel that. And if you don't have a job, you are really going to feel that.

19:11And, you know, I'm only talking about stuff breaking. You'll have vacancy in there. Well, if you only have a single family home and you don't have a multifamily, it's one door and that's your only property. I'm still telling you get in like it's a good thing to do. But you're going to feel that if you don't have the job. And I think having cash reserves is good. I'm probably not the best person to speak of there because I don't have a lot of cash reserves for the rentals. But that's because our savings rate is so high from everything in the W-2 that if anything happens, we can cover it. It's more of an inconvenience than this is going to break us and we have to sell.

19:47That's a very good way of thinking of it. And it makes a lot of sense. I feel, as someone who also works a W-2 job, a lot of calm. It's honestly just a mental thing that I want cash flow. I'll take it all day, but I don't need it. I don't live off of it. I live off of my income from bigger pockets and then some. I don't spend all of that either. And so this is an amazing benefit as a real estate investor. And I'll just give you two examples that I'm going through right now. My best cash flowing property. It throws off$2 ,500,$3 ,000 in cash flow a month. It's amazing. And I've had repairs so bad over the last one month that it's going to eat all of that cash flow for a year.

20:35So I have$20 ,000 in reserves on that property. I'm facing costs of$50 ,000,$60 ,000. But this is an amazing property. I want to hold on to it. I'm going to keep it forever. I actually had to come out of pocket and spend about$5 ,000 on that property just because this was more than even my cash reserves, which was 20 grand, which was a lot. And honestly, it's frustrating. It's annoying. But like you said, it's not breaking me because this isn't the income I need every month. And then I could just sort of mentally categorize this not as like, oh, my investment's not doing well, or I am upset about this cash.

21:10I'm like, oh, business expense. You know, this is a business expense. I'm reinvesting into my property. It's not really impacting me on a day-to-day basis. and I just only get that because I have a W-2 job and live within the means of that W-2 job. Another example is I have another property that tenants just moved out and like I wanna do a renovation and it's gonna take two or three months and I'm not gonna have the income from the property for two or three months and it's fine. You know, like that's another just example. I'm able to invest in my property. I'm able to make the upgrades that the property needs that will generate me more rent in the long run because I don't need, you know, it's going to be probably 4 ,500 bucks, you know, maybe more in vacancy costs, but that's worth it to me because I can do the math and plot that out.

21:57But if you're relying on that income too early in your investing career, that's where you can really get in trouble. So I think what Paul's saying about sort of this, this consistency in income actually gives you a tremendous amount of flexibility and peace of mind as a real estate investor that I personally find very valuable. Yeah. And I don't know how to quantify this, but you know, I've got some other friends that are in the game to doing real estate and they are very hungry for cashflow. They're more reliant upon the money. And honestly, some of the repairs and upgrades that they do, they're just lower in quality, right?

22:38Because, Hey, why buy the better faucet when I could get one that works for cheaper, right you start nickel and diming some of those things just because you don't have the cash or you're you know focused on that and I will tell you and I think they would tell you too the quality of tenants that I have and the amount of people that stay in my properties versus they turn over is night and day different now how to put an exact dollar figure on that I don't know but again it's like you said right like if you if you're not relying on that money right you can stick better things in because you're not just focused on that cash flow.

23:14And I do think like one of the biggest things in this is having good tenants, having somebody that's going to partner up, that's going to take care of your property, that's going to pay every month. And when you can get that, that makes this whole thing so much easier to do. I've actually talked about this with my property manager too, because he said to me, you know, at first he was emailing me, I hired a new property manager in the Midwest. He's emailing me. He's like, oh, do you want to put in this faucet or this faucet? Or like, we're going to redo the floors. Like, should we do this one? It's like the cheapest one and the next one.

23:47I'm like, dude, you don't need to ask me these$200 questions. It's like buy something that's going to be really good quality and it's going to last forever. And he was like, most people don't think like that. They want to maximize, they beat them up, the property manager about spending$400 in repairs. For me, because I have a job that I plan to keep working in for another decade. You know, I think about my investments on that 10 year time horizon. I'm not like, oh, am I going to get 200 bucks this month? It doesn't matter to me. I'm like, how do I make this house rock solid so that when I stop working, I'm not going to be hit with a bunch of repairs because I put in the right flooring.

24:28I bought the right appliances. I did the rewiring of the electrical the right way. I did the replumbing the right way. And so that this is going to last me to 20 years, 30 years, instead of just until the next thing breaks. And then I just slap some cheap thing on it again. I think it's just allows you to sort of take a different mindset. Yeah. Like we, we want to be known in the community. I mean, cause I want to get, I'm not going to say that we have the highest rents, but I want to be able to get decent rents and pass along rent increases. And I think being known as a landlord in the area that like goes above and beyond helps.