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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.

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Unknown

The goal is simple to help you run your business with more confidence and less financial stress. Enjoy the episode.

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Unknown

Owner finance can help you build cash fast, but it can also destroy you if you don't have a plan for the cash flow. I want to help you here because so many people think that owner finance is the answer or like sub two, or like going out there and doing a deal on terms. I would agree we have people that we work with that do owner finance on the regular.

00;00;54;04 - 00;01;12;04

Unknown

They teach people, they do a great job, but they have a plan for every single deal that comes through their door and what the cash is going to look like. Here's the benefits, right of doing the owner finance deal. You could get money up front. You could get the money down. Sometimes you could get more than a rental or a lease option.

00;01;12;04 - 00;01;32;00

Unknown

If you're doing it on terms and you're selling on terms, you can get money up front. You could get cash flow during the deal, and then you could sell on the back end. So it's like you have multiple chances to make money on a deal. But at the same time, if you don't go into the deal knowing what's my what's my threshold like, what is my for like how much cash do I need from these deals.

00;01;32;00 - 00;01;44;09

Unknown

And then on the back end, like how much do I need in the income on the day to day or like on the month to month, like, what is the cash flow that I need on a monthly basis? Then on the back end, what do I want to be able to sell this for? Or what am I selling?

00;01;44;09 - 00;02;07;06

Unknown

And like, what do I as a business owner, what's that cash burden of that cash hit that's going to, you know, that I'm going to get maybe down the road if I don't know from the very beginning. So owner finance the dangerous part of owner finance as well too is not just about okay, what if I buy something subject to and they call it alone or the other dangers of owner finance?

00;02;07;06 - 00;02;29;12

Unknown

Maybe you don't set up the terms correctly and the paperwork's more complicated, and, you know, someone takes you to court or someone falls on the property and they don't know, like, who's the owner? But if you're the bank basically, and you're selling these properties on seller finance or even acquiring them on seller finance, it's knowing and making sure that you have the right cash projections, the right cash flow that you really need.

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Unknown

Because a lot of people, they just go into owner finance and they think, well, if I take this deal down and even if it's a slim deal, I'll wait out the cash flow or I'll wait out the equity or I'll wait out like all this stuff and they'll be paying. You know, the person that's in the property is going to pay down the equity for me, and then one day I'll have enough, you know, wiggle room in order to get some cash flow or maybe win if they ever cash me out completely or if they, you know, and whatever it might be, I don't want you to go into a situation owner finance where it's

00;02;58;15 - 00;03;19;08

Unknown

already a little bit more of a hairy situation in the owner finance world and then be unprepared. On the financial side, this is where I'm still I'm still I'm a I'm a one trick pony here. But profit first and having a very clear plan for your cash, knowing exactly where every dollar is going. It's the same thing even for owner finance.

00;03;19;08 - 00;03;40;16

Unknown

Knowing do you have enough money to pay yourself? Do you have enough money for the taxes? If you're going to have a tax liability for profit or reserves making sure you have a reserve account? Do you know where your money's going like to be if you're if you're growing and scaling for payroll, but owner finance can't afford you cash and can afford you cash fast, but it can also destroy you if you don't have the right systems in place.

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Unknown

Whether it's from the contract point of view, the cash point of view. I'd also say to on the book end of things like the QuickBooks side. Oh my gosh, I personally, I remember this years ago where I had to input an owner finance transaction, and it was one of the most complicated things that I had run across in my short time here, like the in the finance world, because in I was in my early 20s and I went to the CPM.

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Unknown

Like I do not understand this because that one entry someone paid us a payment from owner finance. So in QuickBooks that's usually like if it's a rent payment, there's income and it's like there you go, it's rental income. But for an owner finance deal, it's way different. It's like you have to make sure that if they're paying off a mortgage for you, or if you're paying off a mortgage that you have on that property, or if you set up a note and mortgage for that person to be able to pay down that one entry into QuickBooks can be split out into like five categories, because they're so complicated.

00;04;40;21 - 00;04;55;27

Unknown

Depending on how you bought it, did you buy on terms, then sell on terms then? Do you know how much you're really making on that deal? And like from the cash flow, do you know if you're able to go out and do more of those terms, types of deals. You know, do you know exactly where every dollar is flowing?

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Unknown

So I just remember that it's super complicated on the back end. So here's also a plug for making sure you have the right bookkeeper that understands owner finance, whether it's you're acquiring or selling or both. On owner finance, I want you to have the right people in place. They need to know real estate, but honestly, they need to know owner finance, and they need to know that seller finance or whatever, land contracts, all the different things that you can do that are creative deal flow and creative deal structuring.

00;05;24;06 - 00;05;39;27

Unknown

Have they done that before? Can they explain to you, like how to input a transaction like that or how they would because you might not even know if it's right, but do they even have the wherewithal to or the knowledge to be able to say something like, okay, I know that it's going to be split up into transactions.

00;05;39;27 - 00;05;58;14

Unknown

It's really going to be depend on how you bought it or how you sold it. So owner finance can be really tricky in lots of different ways. But I want you to know that at the end of the day, when it comes to cash and cash management, it's really the same. It's really understanding what do I make spending keep what's what am I really making off these deals?

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Unknown

Where am I spending the money, you know, in order to get more of this deal flow? And then what am I keeping at the end of the day? And that's why profit first to me is that answer to make sure that you can keep more of what you're making. And I want you to have that, even if it's if you're selling on owner finance, the key thing to really track on owner finance is, is everyone on time?

00;06;18;07 - 00;06;37;12

Unknown

Are they paying? But not only that, but how about the mortgages? Do you know how much equity you're gaining each year inside the properties that you own on owner finance, or that you've sold on owner finance and being able to really understand? Is there a day that you wake up that maybe that you have a free and clear portfolio because they've been paying it down?

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Unknown

Or like, do they own it? If you hold it for 30 years, it's being able to understand if you go into the owner finance or if you go into more of that creative type of deal structuring. Do you understand the cash and the cash management point of view, what's really yours versus what is not like, did you get in a deposit upfront or did you get a nonrefundable payment and that is yours that you can actually use and utilize and be able to have as part of your cash flow?

00;07;02;22 - 00;07;18;15

Unknown

Because if you don't structure it the right way and you don't call it the right thing, someone could come after you, sue you, and then take that money back and then take a lot more than just that upfront money that you took from someone in order to get that money in the door. So now I don't want you going out there and being scared of doing owner finance.

00;07;18;15 - 00;07;40;25

Unknown

You just need to know exactly what you need to put in place. But at the back end, you need to know where every dollar is going, where it's flowing, making sure that you can realistically understand. I just got $1,000 from this owner finance person. Out of that thousand, how much could I realistically put in my pocket? For lots of people it's like minus the mortgage that you have to pay minus everything minus taxes.

00;07;40;25 - 00;07;56;03

Unknown

And then what's that cash flow at the end? But really understanding then how much, how many years did you build that owner finance deal. Do they ever. Are they ever going to pay you off? Because if they're going to pay you off in 5 to 10 years in a balloon payment, are you going to be prepared for your potential tax hit from there?

00;07;56;03 - 00;08;30;01

Unknown

And like knowing like, okay, you might get a big chunk, but how is that going to be handled from the tax side? Or if you sell on land contract up front, are there going to be phantom taxes? And going into all that? That's a lot more than I need to go into right now. But having a good financial team that understands these types of transactions are going to be your lifeline, because I can guarantee that if it took you a lot of time to understand how to even close a property on owner finance, it will take you ten times as on to understand what's happening behind the scenes of the finances.

00;08;30;01 - 00;09;03;13

Unknown

On owner finance. That's why the best advice I can give you is really look for people that understand the owner, finance or the creative side of real estate. Don't just go with some virtual assistant out there overseas that has never done a real estate deal or doesn't understand real estate, but oh, they were a good price. Make sure you get someone who understands real estate investing, and especially if you're doing a more advanced or a more complicated type of transaction, because then you need not only the bookkeeping to be handled, but you need the taxes, and you also need the day to day management handled as well.

00;09;03;13 - 00;09;21;19

Unknown

And you need someone who understands that. Now, of course, we understand all of it and we've done it. And that's where I've been part of over 800 deals and lots of those we did on terms or lease options or seller finance or, you know, a fix and flip became a rental, you know, and it's like being able to do creative things with the deal flow.

00;09;21;19 - 00;09;44;05

Unknown

So if you need someone, we can at least talk about it. We can at least know where you're coming from. But I want you to be able to ask those types of questions. Have you understand? Do you understand owner financing? Do you understand land contract? Do you understand creative deal structuring? That's what the key question that you need to ask a bookkeeper, CPA, CFO, if you're going to go that route and get that help on that side.

00;09;44;06 - 00;10;03;16

Unknown

But at the end of the day, if you set a profit first, you'll at least know, where's my cash? What am I making? What am I spending? What am I keeping from the owner? Finance deals. 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.

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Unknown

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