One common mistake that we see many real estate investors make is not knowing the financial side of their business. They’re so focused on getting as many deals as they can and they either avoid or abdicate their financials, so it gives them a lot of problems in the long run.

In today’s episode, we have David Richter to help us learn what we need to do to stop living from deal to deal and actually create a business that’s profitable.

David Richter is a published author and a Profit First expert. He wrote the book Profit First for Real Estate Investing and he’s telling us why this system is something we all need.

Key Talking Points of the Episode

[00:00] Introduction

[00:55] Who is David Richter?

[01:17] How did David become a Profit First guru?

[02:23] Bringing the idea to Mike Michalowicz

[03:00] How did David get involved in real estate?

[04:19] Working with a company in NW Indiana

[04:59] Coming to the Collective Genius as a service provider

[05:56] Where the cash eating monster comes from

[06:44] Your responsibility as the business owner

[07:19] The biggest problem of most investors

[08:10] The pay cash, close quickly mentality

[09:14] The Profit First formula

[10:35] Profit First as a discipline

[11:30] The big difference in Profit First for Real Estate

[12:45] The other accounts you should be opening

[14:05] Reserves can help grow your business

[15:17] Making profit a habit

[16:26] Why is it so hard to make profit a habit?

[17:25] How important are the right people in the right roles?

[19:55] 1-800-sell-now

[20:34] David’s biggest mistake in real estate

[21:41] 3 critical points in owning rental properties

[21:57] Partnering with clients as a CFO

[23:17] Who are the people who need Profit First?

[25:26] Profit First for Real Estate Investing

Quotables

“95% of the time, I would say it’s like that, where the number one mistake we see is just avoiding the financial side or just abdicating the responsibility of the financial side to someone else.”

“As an entrepreneur or business owner, you at least have to have that control over your cash, and know where your cash is flowing, where your cash is going.”

“As the business owner, you have to be savvy but you don’t have to be an accountant or a bookkeeper, and all that.”

“No one’s really taught you this side. I get it, you’re not the CPA, bookkeeper, or accountant. You haven’t been taught just basic money management at a high level at all.”

“With this “pay cash, close quickly” mentality, there’s a tendency to use all their cash in the next deal and as you scale and grow, inventory expands, you pour more money into the assets so your balance sheet is heavy, but you can absolutely be very very cash grabbed.”

“You might be doing 100 deals a month, but you still gotta be able to live and eat and pay your people the next week.”

“It’s income minus profit equals expenses, so it’s just switching the profit and expenses. So you make a sale, you collect income, then you take your profit first and what you left over is expenses in the business.”

“We’ve heard that over and over and over again, but I feel like it hasn’t hit home until you see money in accounts and you’re making profit a habit in your business.”

“I love the formula, I love that shift in mentality, but I love that it has teeth behind it too in the practical side.”

“Making money is a skillset, but retaining money is a discipline.”

“I teach about reserves and how it’s peace of mind for you. You don’t have to live from deal to deal.”

“Lenders love reserves. They love to be able to see those reserves in your account.”

“The whole point of this system is making profit a habit inside your business, not just this one time event at the end of the year, hopefully, that you have money leftover to take at the end of the year.”

“You gotta get into some kind of rhythm for you that you know you can do for your business.”

“There is this stigma that I hear the words CPA, bookkeeper, accountant, and I automatically shut down.”

“You have to have the right people and trust them to get the bookkeeping in place and to do the taxes right.”