00;00;05;19 - 00;00;25;29

Unknown

You're listening to the Profit First for Real Estate Investors podcast. This show is all about helping real estate investors and entrepreneurs bring clarity and structure to the financial side of their business. In these sole episodes, we focus on practical financial strategies that real estate investors and business owners can actually implement, whether it's profit, cash flow forecasting or mindset.

00;00;26;00 - 00;00;49;18

Unknown

The goal is simple to help you run your business with more confidence and less financial stress. Enjoy the episode. If your flip isn't profitable before you buy it, it won't magically become profitable later on. Real estate can be forgiving. I understand that, but you need to give yourself the best chance out of the gate. So that way you won't have this big mess on your hands.

00;00;49;19 - 00;01;11;03

Unknown

Oh my gosh, the stories I can tell here. I was part of a company, a real estate investing company, where in my early 20s, we were doing about 25 deals a month at our highest point. Boy, did this one hit us right between the eyes. We had some stinkers where we acquired a property, and later on, oh man, do we just.

00;01;11;07 - 00;01;32;07

Unknown

Not only were we not profitable, we were going to lose money. But we didn't have a good process up front to make sure that we were building that profitability in. No matter what, sometimes we took slim deals. Sometimes we thought we built the profitability in, but we didn't build a big enough buffer up front to be able to weather some of the things that just happened with flips, especially if it's not a new build.

00;01;32;09 - 00;01;57;14

Unknown

You're walking into these houses and you don't know what you're going to uncover. So one of the big things is making sure you build enough profitability in upfront before you even acquire that deal. And how do you do that? What what what is that practice? A lot of people out there teach different formulas, right? It's ARV times a certain percentage minus repairs, a major, you know, all that stuff to give you your profitability and like how much you could offer for a property.

00;01;57;17 - 00;02;18;10

Unknown

But I would also say to it depends on where you are in your business journey. If you are starting out, I don't want you to start to do deals that are slim deals or that could set you backwards before you even put yourself into the real estate game. I just talked to a lady last week. She is newer to the real estate world.

00;02;18;13 - 00;02;39;01

Unknown

She bought her first deal and you know she did ran all the numbers. She thought she built enough profitability in on the front end. But then, you know, she had a foundation issue. And of course, that just blew the budget out of the water. They weren't expecting it, but it came back on a report and she's like, yeah, my first deal was a loser deal.

00;02;39;01 - 00;03;03;00

Unknown

And I lost money on it. But she still in real estate, is still trying. But she said, like that set me back. I'm not able to do as much now, and I just don't want you to be in that position. Now, if you are also a real estate investor and you're down the road and you're in the middle of like ten flips, sometimes it's even easier to lose money when you're doing more because you can't give it the attention like you could when you were doing one deal.

00;03;03;03 - 00;03;31;09

Unknown

So it's even more important that you build that profitability in upfront. I also need to tell you, obviously you say, well, David, I need to be able to get the deal. And if I build too much of a profitability, then I'll be one of the lowest offers in a competitive market. If you have a system in place to make sure that you are keeping the cash that you're making, I highly recommend the profit first system as that system to be able to keep more of your cash.

00;03;31;11 - 00;03;53;13

Unknown

But if you have some system like that, and let's just say you're down the road as a real estate investor and you've got some reserves on hand, number one, you can be one of the lower offers and not need every single deal that comes through your door. You only need the deals that are actual deals. Lots of people trip themselves up because they're like, well, I have to get this next deal or I don't have any reserves.

00;03;53;13 - 00;04;22;16

Unknown

And if I don't get this deal and I don't close, I don't know what I'm going to do. Like, how am I going to put food on the table? Or how am I going to go after the next deal, or put money into marketing, or hire this person, or get an assistant or whatever it might be? So I want you as a business owner to build, yes, that buffer in upfront, but I also want you on the back end to know, okay, if I do close this deal and I get the profitability from this deal, how much should I put into my different bank accounts?

00;04;22;16 - 00;04;52;25

Unknown

Like if you're on profit first and if you're doing profit first, you know that that system is all about bank accounts and knowing that you're giving every single dollar a name. And when a deal closes that way, you're making sure your money gets named, whether it be profit or owner's compensation to pay your taxes. I want you as a fix and flipper, especially if you are fixing and flipping, and you need to build enough profitability in to pay yourself to put toward some tafur towards taxes to put towards reserves, especially if you don't have reserves.

00;04;52;25 - 00;05;20;23

Unknown

That would something I would aggressively go after, making sure that you have money also to put back into the business. So you're like, oh David. That might change my offer some. And I get it. It's like, I want you to not have the same business that you have right now if that business is physically hurting you, because if you're buying deals and you think that, oh, even if I don't take this down as a fix and flip, but I put it into my rental portfolio, that'll be my backup option.

00;05;20;25 - 00;05;39;04

Unknown

Well, that's what was happening with us doing all those deals, doing $25 a month, spent 26 worth in some of those properties that became buy and holds were not our best buy and hold, because we didn't have a ton of equity in them. We couldn't really, like, lose any money on them or have any major repairs, or we'd be losing our shirts for years.

00;05;39;07 - 00;05;55;22

Unknown

It's like, this is where those were our slimmest deals and they didn't have the best equity when we got them. So and that's where it was hard for us to even weather those storms as like, okay, the fix and flip didn't work. Do I just make it a buy and hold it? I don't want you to get yourself into those types of situations.

00;05;55;29 - 00;06;16;20

Unknown

So going into it, knowing I'm not just looking at this deal from, oh, I want to make 25 K, it's I want to make 25 K. But what does that 25 K represent or what does that 50 K represent. Whatever your your lowest number that you would take as profitability for a flip that you're doing. I want you to be able to say okay what does that 50 k mean.

00;06;16;20 - 00;06;34;25

Unknown

It means that I put x amount of dollars to pay myself X amount of dollars in the business to make sure it's growing, exit down amount of dollars towards reserves. I want you to have a plan on the back end, not just building a buffer on the front end, but knowing that you have enough on the back end to spread out that money as well too.

00;06;34;27 - 00;06;54;15

Unknown

And a lot of people just don't think of that. They just think, I'm going to go, I'm going to run. I'm going to do the deals being I'm going to just build in the profit margin that I'm at the lowest. You know, denominator of making sure that I have at least X amount dollars coming in as profit from these deals, but is that really getting you what you want from the dollars that hit your bank account?

00;06;54;19 - 00;07;11;23

Unknown

So it's like maybe you have to raise that threshold of like, I thought I could just do a 25 K flip, but 25 K is not enough. I'd has to be 35 or 40 K, which changes your numbers. So it's really reverse engineering and understanding how much do I want to end up with buy and where is that money going to go?

00;07;11;28 - 00;07;39;29

Unknown

Versus just, oh, someone told me a formula and this is how you get X percentage on this deal. And that would give me around $30,000. And that sounds good. That's a recipe for disaster and not really going to give you the buffer you need. Because usually if you know where the money's going to go on the back end, you're already building a buffer for some things that might be like the the foundation issues that come, that creep in or, you know, the things that you weren't expecting, that there's termites or that there's all these things that can happen inside the fixing flip world.

00;07;40;06 - 00;08;12;23

Unknown

I don't want you to be caught off guard, especially on the money end, because that's the part that really matters it. At the end of the day, you're in real estate, but you're just trying to acquire the money that the real estate provides. That is your widget. That is the thing that you're selling. We have to be good at knowing where the money should go and how to build that in from before we even make that offer on this deal, and how we make sure that as a business owner, we build all that profitability in upfront and we know where every dollar is going to go once the deal closes.

00;08;12;25 - 00;08;27;19

Unknown

That's where I want you to have that confidence, even before you take that deal down or put that offer in. It's like, how much do I really want from this deal and how much do I want on the back end? That will give you more confidence. Then when that deal closes, you'll be able to say, okay, here was my plan.

00;08;27;19 - 00;08;41;04

Unknown

Here's how much I made. If I made more great, I'm going to put more towards the reserves or more towards paying myself. Or if you made a less, it's like, okay, at least we still had the buffer. Now we're just going to have to adjust how much we put in the certain accounts. I want you to have that confidence.

00;08;41;09 - 00;09;00;03

Unknown

I want you to know that you close the deal. Where is that money going to go? Where did it come from? And I want you to make sure that as a business owner, especially in the fix and flip world, that you can weather the storms that a lot of fixing flippers face, you might face the cash crunches, you might face the things where of like, hey, I'm going out there.

00;09;00;03 - 00;09;16;22

Unknown

And now I've got several flips in a row, and maybe you're in a cash crunch because you're putting all your money towards those flips and you're not sure where all the money has gone. I want you to build enough of that buffer up front, because if you don't, that profit, like I said at the beginning, is not going to magically appear.

00;09;16;22 - 00;09;35;18

Unknown

It's not going to magically save you the different exit strategy if you keep doing that over and over again, is also just going to shoot you in the foot as well too. So really, having a game plan upfront, how much profit do I want to make and what does that profit really mean to me, will go a lot further than here's a the X percentage of what I'm trying to build into here.

00;09;35;21 - 00;09;53;09

Unknown

And man, I hope I make this percentage at the end. I hope I make this certain dollar amount, because if I do, I'll just put it back into the business and I'll be able to keep going. You need a better plan. You need to know where every dollar is going even before you put that offer in. And then from there knowing on the back end, hey, were we able to make that amount?

00;09;53;14 - 00;10;18;16

Unknown

And now I get to allocate that money and then you're in control of the money versus your fix and flip company controlling you. Thanks for spending time with me today. If this episode gave you clarity or a new perspective, be sure to like, subscribe, and comment below if you're ready to apply what we talked about today with real guidance and accountability, visit Profit Recom to schedule a free discovery, call with us to create your path to financial clarity and freedom.