There are close to 12,000 professional athletes in the United States. The vast majority are not multi-millionaires and will have short careers and long retirements. At any moment, they are at risk to be waived or injured, so having a Plan B is critical.
Recently, we sat down with three former professional athletes to learn how they made the jump from pro player to real estate entrepreneur. More importantly, we uncovered three insights to help anyone transition from their current career leveraging real estate.
Pro Athlete Profiles
Terrence Murphy was a second-round draft pick of the Green Bay Packers in 2004 — the same year they drafted all-pro quarterback Aaron Rodgers. Terrence even roomed with Aaron during training camp. However, in his rookie year, Terrence suffered an injury that not only cut his season short but ultimately ended his career.
Sunitha Rao was a professional tennis player who competed at the 2008 Beijing Olympics. She began playing tennis when she was 4 years old, became a pro at 14, and retired at the age of 23. With just a sixth-grade education, she had to figure out what she was going to do for the rest of her career.
Alan Ball defied the odds as a seventh-round NFL draft pick, scrapping his way to a nine-year professional career. He started as a practice squad player making only $3,000 per game, so he knew he needed a backup plan.
Each of these athletes turned to real estate as a second career with various levels of savings and resources to make the transition. They each followed a three-step process to transition from professional athlete to investor. And the good news is this approach works both for athletes and the athletically challenged.
Learn While You Earn (and Save)
While Terrence and Sunitha had to overcome a few hurdles before they arrived at being real estate entrepreneurs, Alan started his transition while he was still in the league. Alan’s rookie year forced him to be frugal with his income, even though he yearned to have something to show he had made it. He was an avid saver and educated himself on finances and real estate investing before acquiring his first deal.
When the money is rolling in, you may not feel the urgency to plan for your eventual transition (forced or planned), but extraneous circumstances can be out of your control. You may not suffer a freak injury like Terrence Murphy, but other health issues, burnout, and shifts in the marketplace can abruptly change your situation.
When I worked in the automotive industry, we went through multiple rounds of layoffs and many of my colleagues found themselves unemployed sooner than expected. Many were unable to take distributions from their retirement accounts without incurring an early withdrawal tax penalty. Watching my colleagues go through these challenges made me realize that real estate investing was a great hedge against a W-2 income.
Before you invest, you need to educate yourself to avoid common mistakes and pitfalls. It also helps to save a portion of your income. While you may want to splurge on a house, car, or jewelry to show that you made it, educating yourself and saving your money will give you greater long-term flexibility.
Devise a Game Plan and Mitigate Risks
While saving money is a good first step, the ultimate goal is to put that money to work. Many athletes rely on the advice of financial advisors who focus on stocks, bonds, and mutual funds, but real estate can be a sound investment when done properly.
New development deals can be lucrative, but they also come with risks. The process can be impacted by local government, construction issues, and market changes. This should be left to those who have the experience, partnerships, and liquidity to navigate the process.
Many investors focus on smaller residential properties. These are more readily available and the cost to get in is more accessible. However, lesser experienced property owners may run into costly issues, as Sunni experienced with a house she bought in Indianapolis.
“There were plumbing and electrical issues and the last quote to get it fully fixed was about $40K,” said Sunitha. She ended up selling the house at a discount but still managed to make a profit. She realized she needed to either plan for renovations on these residential properties or scale into larger multifamily properties.
Commercial real estate is a great option for professionals looking to make an eventual transition. Income-producing properties like multifamily apartments, self-storage, or mobile home parks provide an excellent blend of cash flow, appreciation, and tax benefits. Partnering with syndication groups is a way to minimize your exposure while taking advantage of the scale that comes with these assets.
In this scenario, an experienced general partnership team oversees the day-to-day operations. Investors are passive and get the perks of owning real estate without the headaches of being a landlord. Typically, passive investors have limited exposure and no personal liability for the overall deal.
There are a few downsides, including the loss of control, since you are leaning on the operating team to make keys decisions. Another is the illiquid nature of these investments as many deals have three- to seven-year hold periods. Also, the minimum investment threshold is often between $25K and $100K, with $50K being the most common.
Run the Play
Once you have educated yourself and selected a strategy, it’s time to find a deal and run the play. Even if you don’t plan on being a full-time real estate entrepreneur, you should look to hold real estate in your portfolio. You can buy residential properties and build a personal portfolio or invest in commercial apartments, alongside an experienced group.
Sunitha began investing in out-of-market homes and developed a personal portfolio. Now, she helps investors learn how to invest anywhere on a special segment of the “Afford Anything” podcast.
When Alan retired from the NFL, he already had investment properties in Detroit. Today, he helps others through a lending program he created to facilitate homeownership. In addition, he seeks out affordable investment opportunities to provide quality housing in underserved areas.
Terrence started as a real estate investor with a capital group before building his own portfolio and becoming a realtor. He now has 22 companies that he runs and is invested in another 30 firms.
Similar to Terrence, Sunitha, and Alan, you can utilize real estate to transition from your current role. Taking the time to educate yourself and preparing for opportunities is critical. Then you can select a strategy that suits your goals and investing style. Last, you find an opportunity and run the play. Whether you are a professional athlete or preparing to leave a corporate role, these tips can help you make a smooth transition.
About the Author:
John Casmon has helped families invest passively in over $100 million worth of apartments. He is also the host of the #1 rated multifamily podcast, Multifamily Insights. Prior to multifamily, John was a marketing executive overseeing campaigns for Buick, Nike, Coors Light, and Mtn Dew: casmoncapital.com