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From Zero to 850 Deals: David Richter’s Real Estate Journey

From Zero to 850 Deals: David Richter’s Real Estate Journey

Profit First in Real Estate – From Zero to 850 Deals: David Richter’s Real Estate Journey

This time, Sharad Mehta, the CEO and founder of REsimpli, was thrilled to welcome an esteemed guest, David Richter, founder and owner of, successful real estate investor, and author of the renowned book Profit First for Real Estate Investing.

In this valuable call, David shared remarkable knowledge and expertise to enhance your understanding of the financial aspects of the business, enabling you to take charge of your finances and attain success in real estate investing.

Want to make more profit in your business and live life on your terms? We can help!

Show Notes

We believe real estate investing can be a rewarding profession, but wait! Going alone in this field without crucial knowledge can be daunting. So, it’s always a better idea to listen to the leading experts from this field and then implement their tested strategies.

One such shining name is David Richter. So don’t miss out on this opportunity to gain valuable knowledge from a real estate investing expert (brought to you by REsimpli – all-in-one real estate software)!

David Richter is an active real estate investor based in Florida, United States. He takes pride in closing more than 850 deals, including wholesale, rentals, BRRRR, turnkey, lease options, owner finance, and what’s not! He also helps people know their numbers, automate their profit, and maximize their profit.

To explore more, listen to this video or read the transcription below!

Key Takeaways

  • Inspiring journey and achievements of David
  • What is the significance of profit first for real estate investing?
  • How to understand the financial side of your business?
  • How to become a wealthy owner in real estate?
  • What is that golden trio, and how it can help you?
  • How to retake your pen from your business with 3 simple steps?
  • How to establish and manage a profit account?
  • How to target allocation percentages for businesses?
  • Insights into David’s tax account and calculating estimated taxes
  • Which system will help you unlock your purpose?
  • How to achieve financial clarity through understanding your numbers?
  • How to set up a business budget and manage the owner’s compensation account?
  • Know-how of ownership salary and taxes
  • Best flipping business tax advice
  • Should we have an OpEx account for Fix & Flip?
  • How to manage paper checks on Relay 2.0 accounts?
  • How to RSVP for the live broadcast?
  • What are the best practices for paying contractors in your real estate business?


Sharad Mehta 00:01

I’m a huge fan of Profit First and, like, other accounting systems around it. And I think it’s such an essential thing for real estate investors because, like, our business, you know, if you’re aware that you work with hundreds of investors across the country, is such a cash flow, basically, it’s a business of the way I look at it, managing your cash flow. So I’m really excited to jump into it!

Sharad Mehta 00:28

Hey, guys, welcome to our weekly Mastermind Call. My name is Sharad. I’m the owner and founder of REsimpli. I’m really excited about today’s call. I used to be an accountant, so I geek out about numbers. So super excited about today’s call with David. He is the author of Profit for Real Estate Investor. Sorry, man. I flew in this morning and I have a flight later today, so running a little bit low sleep.

But David and I connected at Collective Genius a couple of months ago, and he and I talked, and I think he would be a great guest to come on the call and just share his knowledge, his experience on some of the drawbacks that real estate investors run into. And cool. Hey, you have a (1:13 inaudible). And Aaron said he just bought the book. Can’t wait to dive! Amazing book!

I’m a huge fan of Profit First and other accounting systems around it. And I think it’s such an essential thing for real estate investors because, like our business, you’re aware that you work with hundreds of investors across the country. Such a cash flow, basically, it’s a business of the way I look at it, managing your cash flow. So I’m really excited to jump into it. Yeah, man, if you just want to give a little bit of intro about yourself and then we can jump right into it.

David Richter 01:49

So a background about myself. I’m actually from the Northwest Indiana area where Sharad is right now and have a real estate investing background. Read ‘Rich Dad Poor Dad’ in college. And that was game over was a part of a company that Sharad knows.

The people there, we were doing like, 25 deals a month at our highest point back in 2000, and probably 16, 17 we were doing that, but we were spending about 26 worth of deals out the door. So that doesn’t really math well, you don’t have to have an accounting degree to know that you’re bringing in 25 and then spending 26 out the door. It just was not fun.

So that’s what kind of got me kick started here of, like, I bet you a bunch of other people have this issue, like, we’re making money, but where’s it going, just living deal to deal, that type of stuff. That’s where I got around other investors and just other people that I knew that were also in the same predicament on different scales.

Maybe they were doing a couple deals a year, but spending more than they were making. And it’s like why did I get into this? That’s what got me even interested in Profit First. In that message, I actually said, hey, I want to just help investors and help them know the numbers and all that. And then a mentor of mine, Gary Harper, said, you should read Profit First.

So he’s the one that got me into the Profit First system. And then from there I was like, okay, I want this to be a part of the company because the Profit First system really clarifies where your cash is going from an entrepreneur’s point of view.

Don’t have to be an accountant or anything to use this system. So that’s where I really dove into it. And then a year into it, you know, was implementing it with a lot of people, and then reached out to Mike Moskowitz, the original author of Profit First, and got the Profit First for Real Estate Investing Greenlight to write that book, and then now just getting that message out.

So that’s a very high level overview of my background and where I am today, because now I am the author of that book and have a small fractional CFO company helping people in the real estate investing world implement Profit First and do stuff like that. So there you go, Sharad. There’s my background. And I have a presentation ready if you want me to go right into that….

Sharad Mehta 03:41

Yep, go ahead, man. Whatever you think what’s best…

David Richter 03:44

Let’s do it.

Sharad Mehta 03:45

Go ahead. If you want to share.

David Richter 03:46

Can you see my screen? All good here?

Sharad Mehta 03:47


David Richter 03:48


Sharad Mehta 03:48

Yes, sir.

David Richter 03:50

So Profit First. So, Aaron, I really appreciate you shouting me out, know buying the book, because for me, the Profit First book, when I first read it, was life changing. And then with a heavy background in real estate investing, I saw that if you’ve never read Profit First, it’s all about the cash management system.

We’ll go over the fundamentals today. But then I saw that, hey, it’s not just about managing it. We need to know from the real estate perspective, if you’re doing rentals or if you’re selling or wholesaling or flipping, how do we know where the money’s going? So that’s what it’s about.

I want you to keep more money without having to close more deals or becoming a financial wizard. I do have to throw in a disclaimer because we’re talking about financial stuff, which it’s hilarious.

Sharad has the accounting background. I’ll be very honest with you. I run a fractional CFO company. I have zero accounting background. I’m not a bookkeeper, I’m not a CPA. I’m a real estate investor who’s dangerous with the numbers, but has a very good team now who are much smarter than me that has all those degrees and stuff. But now it’s like, I just want to make sure that you know that this is someone that I speak the language.

I know where you’re coming from as a real estate investor, and that’s why I have to put this on there because I’m not your person. I’m definitely not your CPA or tax attorney or anything like that.

Sharad Mehta 03:57

Yeah, I think I want to say, because you’re not from an accounting background, I think it makes a huge difference in a positive way, because then you’re speaking the language of real estate investor. You’re not coming in from an accountant point of view. You’re just coming straight from a real estate investor point of view, which is, I think, great, because I used to be an accountant, and I’m a real estate investor now, so I always have that influence of accounting.

When we have an accounting software, people reach out to me, like, just my default is going into debit credit, which is not useful. So I appreciate that you share that, and I think it makes it incredibly useful because everything is from a real estate investor point of view.

David Richter 05:33

I appreciate that. And I’ve lived this. I’ve lived exactly what we’re talking about today. If you feel the pain of what I’m talking about here, like the stories that I share, I’ve lived it too.

So I understand. I understand what’s going on. I’m not just poking the bear here. If you feel that, because I always get people like, how did you know I’m going through this? Because I’ve been there. So here we go. I hate fix it flipping.

Joey English came to me 2019 and said these words, and I’m like, that sucks because this is, like, your main source of income, so tell me what’s going on.

So he says to me, Sharon might have even been there. This was 2019 sharper event. And Joey had came to me and said, yeah, I hate it. And so I said, talk to me. So he said, okay, it’s 2019.

I started to scale up. Instead of doing like, a couple of deals a month, we started trying to do three to four deals. So I went into overdrive mode. I started going to all the houses and just 100 hours weeks, like 80, 90, 100 hours. It was getting crazy.

His wife started working in the business. It was getting crazy. And then at the end of the year, he goes into his CPA’s office and he says, okay, tell me how we did. Well, the CPA says, well, looking at your books, I’d never get into real estate investing.

So he felt like, oh, my gosh, there’s all the hours wasted. But then she gave the kicker, which really, like, give him a kick in the teeth. She said, you lost $70,000 this year in 2019. Then he felt like a huge gut punch because then he had to go home and tell his wife, who was starting to work in the business.

She was having seizures that year because it was so stressful. It was a crazy situation. And he’s like, David, I did more deals this year in 2019 than I’ve ever done, and I’ve lost more than I’ve ever lost. I’m like, oh my gosh!

I could feel his pain. You know why? Because we were doing that in our business, doing all those deals every month, but then spending more than we were making, it was like, why are we doing this?

So I knew exactly where it was coming from. So when he said now I understood. When he said, I hate this, what I’ve created here, it’s because even though he was doing a lot of deals, he wasn’t feeling like this was where I should be. I feel successful. I feel like that real estate was worth it. So I’m like, okay. That to me was a lot of people’s story. It was my story.

So that’s where the pay we feel most owners know we make money but feel broke. I don’t know if you’ve ever been there as a real estate investor. If you’re wholesale, I don’t care what you’re doing.

At some point if we don’t button down the financial side of the business, we’re going to feel this way, that we’re making money. But where’s it all going? Like, I just closed on another deal and now I don’t see any of that money in my account. It was like a great deal that we just closed.

So we all feel that pain and that’s something that every one of us experiences as an entrepreneur. This is not just real estate investing industry. This is if you have any type of business, that’s where a lot of people feel that. But the root problem is we think that income, more income or the next deal will solve our problem.

That’s where a lot of people get off the rails because they think they’re trying to attack the root problem and they’re not. They’re going after something. Just like if you have in your personal finances and you say, okay, if I just make more money, then I’ll be able to do the things I want to do.

We think it’s the same thing in business. Like if we just have seven figures in a year, all of our problems will go away. Or if we just close that deal and then we wonder why in the world that doesn’t happen and our problems get bigger.

That’s where if you’ve ever read Keith Cunningham’s books, he’s a great business author. He says if you scale cancer, the tumor grows. And that’s really how a lot of us work in our business. We just think that if we just get more deals in, that’s going to solve everything.

And then you’re ten years into it wondering what in the world happened or Joey doing more deals but feeling broke and going backwards. The CPA even said to him, would have been better for you to work at McDonald’s, like if he wasn’t feeling bad enough already. It’s like that’s where I don’t want you to feel like that.

I don’t want you to ever be in Joey’s position if you haven’t been there if you are there or have ever been there, there’s a way out of it. That’s where I felt the prop first system came into play.

But there’s three simple numbers that I want you to take away from this and a framework that, if you get this down, will help you as a business owner and entrepreneur, knowing what you make, spend and keep. Do you know how much is coming in?

Do you how much is going out, and are you keeping any of it? Like, if I can give you a simple framework for that, with what I’m talking about today, I’m going to give you practical steps. This is not all fluff, not all stories. This is all about want to give you the tools to be able to know where is your money going, the clarity that that brings, and the clarity that that gives you to make the better decisions.

And if you don’t have this, if you don’t know these numbers, a lot of people don’t in their visit. They think they do. They think that they’re keeping it on a spreadsheet or that they know the average profit. And it’s like, we have to know the numbers.

And that’s why I love Sharad, because whenever we get together, he’s all about the numbers. He’s built everything in his systems around the numbers, the KPIs. That’s where I want to make sure that you have a simple system on your back end to say, here’s where my money’s going? This is where every dollar is going.

I want you to have a simple system to know, what am I making, spending and keeping? Because up until now, we’ve been conditioned not to be the business owner. I think we can all agree, if you went to a traditional school, you’re a failure. If you fail, you’re a failure. If you don’t do this thing, if you raise your hand and you’re called on and then you give the wrong answer, you feel like a moron. Never want to do it again.

We got all these bad ticks, right, growing up. Then if you had parents who said, money doesn’t grow on trees, no, we can’t go there. No, we can’t do that. No, we can’t blah, blah, blah, fill in a blank. So we’ve got in all this conditioning, okay?

Then you go to college, grades, the same thing. W2 job. They definitely don’t condition you to be a business owner. Then you get the money, and then you’re like, okay, do I want to trade my freedom for the money? And then you jump into real estate and you’re like, where’s the freedom?

But that’s where we’ve been conditioned not to be the business owner. Then you jump into real estate and you’re like, yes, this is where it’s going to be. I’m going to have the freedom I’ve always wanted. This is it.

Then other owners are conditioning you because it’s a blind leading the blind at that point where a lot of people don’t have the background like Sharad, like they know the numbers, they’ve got the accounting degree. It’s like a lot of us just jump into it to say, I can do the deal.

I know what the deal. As long as I get the deals in, everything will be all right. And then that’s how we save ourselves that it’s going to be okay. And this is the formula that they give us. We love our formulas, right? As real estate investors, we say it’s sales minus expenses equals profit, meaning I make a sale, I pay everyone else and their mother, and hopefully at the end of the day, I have something left over.

If we just do enough in sales, we can pay everything, and then there will be enough. And then that day never comes. This is some event that’s always in the future that is never coming to fruition.

So what happens from there? You spend money to make money. You reinvest everything back into the business, which is just code for like, I have no idea where my money is going. Then you build your business on the hope and pray plan. You’re hoping you make enough, pray that you have some leftover at the end of the year.

That’s how most people run their business, even if they’re doing a bunch of deals. That’s how Joey was. He was just hoping that the deals were going to cover everything that he was pouring into his business in 2019. Then at the end of the year, guess what? He did more deals and lost more than ever.

That’s what happens. What really happens is you become an accidental nonprofit. He loves giving. Joey’s a big giver and he wants to give to the charities and organizations. But at that year, he was like his own nonprofit. I don’t want you to become an accidental nonprofit just because we don’t have a good system for the cash in our business. So that’s what really happens.

If you’ve never played this game, it’s a great game. Robert Kiyosaki’s Cash Flow 101. But you know, if you’ve played it, you play literally in that circle for probably 90% of the game, trying to get out of the rat race because you’re trying to get your passive income to exceed your expenses.

But we think as a real estate investor, when we jump into real estate that we’ve jumped out of that circle and straight onto the fun track, because real estate was supposed to give us our freedom, right? That financial freedom cover all of our dreams.

Then with our current habits around money, because we didn’t realize we’re not really playing the real estate game, we’re playing the money game, and we’re failing at the money game. So that just keeps us in that little circle going around and around. And we thought, oh, man, I thought I was going to be on the fun track, that outer track where it’s a lot of fun.

And that’s where we’re trapped now. Instead of paycheck to paycheck, we’re living deal to deal, month to month. I don’t want you there. If your current habits are putting you there or those current beliefs or like the conditioning that we’ve had, there’s a better way to get out of this.

I don’t want you there. And that’s where more is not always better. Better is better. I don’t want you spinning your wheels thinking, if I just do one more deal, that’s going to be it. I wind down that little green space, get another house, all my troubles will be over. And then it’s just off to the races again.

I want you to become better. Better with your money, better with knowing where it’s going, better at, knowing what you make, spend and keep, making sure you have a simple system to track the money and to make sure you know where it’s going and you can keep more of it.

Keeping more equals the freedom that you want. That’s what it boils down to. So that’s where I want to give you the wealth formula. If I’m going to show you the crappy formula that we’re pretty much spoon fed by everyone else who doesn’t have a system like this, then here’s the formula that can help change it and become better.

The wealth formula

Sales – Profit = Expenses

Meaning I make a sale, I take my profit off the table. Take my profit first. There’s the whole profit first mentality. Then the expenses are what’s left over to grow the business, you still need that. You still need to grow the business, still need sales too. You still need to be closing deals. But this is being intentional with the dollars and making sure that every dollar has a name and that the first dollars go to profit.

So how do we do this? Because this is also something we’ve heard before. If you’ve read Rich Dad Poor Dad, he says in Rich Dad Poor Dad a billion times, pay yourself first like he just beats that in with all of his different books, Richest Man in Babylon. Portion of all I have is mine to keep the seven habits of highly effective people. It’s like place first things first. Different books like that have put this mentality into us, but they haven’t given us a system.

And as a real estate investor, an entrepreneur, this is why Profit First resonated with me at the beginning was that not only are they giving me the formula, there’s also steps to take that I can take, like practical, back end things that I could do with my money. That’s a system that’s repeatable that from every deal. Going forward, you can be profitable. That’s what I want for you today. And that’s why I want to give you three steps to become the wealthy owner and avoid financial room.

The number one reason companies go out of business is they run out of money and there’s no more money to be lent to them. So that’s where I want you to make sure that you don’t get to that position and that you can actually get from what you want from the business. So if you’re going to be in this community where I’m sure Sharad talks about the numbers, talks about the different things, talks about bringing in the deals, or has people come on to say, here’s how you can generate more deals or whatever, or this is how you can get your contract conversion rate shield better, like all those things. If you’re going to spend your hard earned time and dollars in the real estate world, I don’t want it all going out the back door.

And you just saying, okay, I’m a year into this. What the heck happened? I’m five years into this. Where’s all the money going? Or Joey, he was several years into real estate in 2019 and this was not worth it. So that’s where I want to give you these practical steps. So number one, find what you need to keep. I want you to find what you need. Why do I say this? Because one of the biggest mistakes people make on the financial side of their business is they build their business on the hope and Pray plan. What I was talking about, I hope I make enough. I pray there’s some left over versus knowing, knowing what you need from the business.

Let me tell you a quick story around that. Crucial Conversations is a great book. Pick it up if you’re a reader. In chapter ten, it’s called retaking your pen. It’s a metaphor for your pen is like your self-worth. So when you’re born, you’re born with your pen in your hand. You’re writing your story. It’s very easy to write it when you’re a kid. You don’t care what people think, what you’re wearing. My daughter left this morning with red pants on and a red shirt. She was just all in, like, she doesn’t care. She’s six years old, she’s got her pen in her hand writing her story. Nothing’s deterring her.

But then you get a little bit older, junior high, high school, you care. What are they wearing? How are they acting? How do I fit in? How am I accepted? Well, you’re giving them your pen and they’re writing your story. Then you wonder why as a teenager, you feel crappy and like, what the heck is happening? But as a teenager, unless we have good role models, no one’s telling us that that’s happening. They’re writing our story, and then we’re all out of sorts.

Then if you’re on this call though, you probably at some point took back your pen and said, you know what, I don’t care what the world thinks. I don’t care what anyone else thinks out there. I am going to start this real estate company, I’m going to wholesale deals, or I’m going to flip or I’m going to do whatever, I’m going to go out there and create something, make an impact on people, I’m going to write my story. And then you took back your pen and it feels good, right? Feels good to do that first deal. You see that check and it’s like, wow, this is not just something fake people post online.

Like, I actually got money into my bank account from this deal that I closed and it feels good. But then you get around a group of people or you hear someone like me say, oh, we did 25 deals, which sounds amazing, but not when you’re spending 26 out the door. And they don’t tell you that at the masterminds at the events and stuff like that of like they’ll say the gross. But not a lot of people talk about the net because they’re embarrassed either number one, they don’t know it or number two, it sucks, there is no net. They’re in an accidental nonprofit.

But then you listen to someone like that or the gurus out there in Facebook land and they’re saying do all these deals. Then you get caught up like Joey did, and then you’re saying, OOH, I should be doing more deals, I should be going bigger, I should be hiring more people, I should be doing this stuff. You get a case of the shoulds there and then you give up your pen again. So even though you took it back to start your business, now you gave it up in a different form and fashion to be able to someone else. And now you’re trying to write their story but they’re really writing yours and they’re saying you should be doing this much.

And then you’re trying to do three to four deals like Joey in a month or like 20 or 25. And then from there you say, I hate my business, I hate fix and flipping like Joey did. I want you to know what you need from your business because that’s the greatest form of taking back your pen and making sure that the things that you are actually trying to attain are for you and for your family and making sure that you have your pen grass firmly and are not just trying to compare yourself to someone. Otherwise you’re going to be in your rat race that your entire life never really attaining what you’re trying to go after and what you’re seeking out there.

So take back your pen. You did it to start the business, you might as well do it again. Take it back and say, I know what I need from my business. So what do I really mean? I’m going to talk about this as owner’s compensation. Owner’s comp, this concept that you need to pay yourself what you need on a monthly basis and that your business needs to provide that for you. And you need to know that number. And what is that number for you and your family?

Because preprofit first, you’re either doing one of two things. You’re either starving yourself or starving your business. You’re either saying, I had a call with a guy this morning where he said he point blank told me on this call, I have a scarcity mindset. Like, I’m scared to spend the money because I want to make sure that my people are paid, that the marketing goes out and all this stuff. And he had zero clarity of where his money was going, so he was starving himself. He’s like, I’m not really paying myself what I need. He’s like, I’m just trying to make sure that everything is taken care of. But he has no idea if he can take more out or not. He has no clarity.

So a lot of people are there. I did a podcast with a client, and he said, like, hey, I used to stand up in front of my employees and say, I’m not taking a paycheck for you. And that was supposed to be motivational to them. And his mindset has completely shifted from that. But that’s where the employees literally were during those meetings, looking at their phone, looking down, and like, on indeed. Is this company going down? It’s like, that’s where a lot of people are there in the starving themselves situation. They’re scared to spend the money.

The other one starving your business, that’s the one that might not happen as much. That’s where it’s like your first $50,000 check comes in, and boom, I’m getting that Lamborghini. It’s like, Wait a second there. You just closed one deal. Like, what’s going on? So it’s like, don’t do either extreme. I want you to take what you need without hurting the business or hurting yourself. So that’s what this is about, making sure you know what you need and then aggressively attacking that number.

So how do you actually know what it is? Number one, find your keep number. At the end, I’ll give you a form. It’s a simple six question form. Like, of, here’s how you know what you’re keeping. I could do a whole section on that. I’ve recorded a video, too, of a walkthrough of like, here’s how you find what you need to keep and start taking back your pen so you know what you need. Then you build your business plan around the keep number. So it’s not the Hope and Pray plan anymore. It’s what do we need to keep from our business that will make sure that we get what we really want instead of what other people are telling us we should do?

Then talk about it with a business partner or spouse. So if you’ve got someone who’s close to you that the money affects. So if you have a business partner in your business, you probably have two different keep numbers. You need to talk about that. What does each person need at that level of the business where you are right now? Your spouse, also, if you have a spouse, talk with them. I don’t want them asking you over and over again. It’s probably getting annoying, like, when can we go out to dinner? When can we buy groceries? When can we do this or that? It’s like, let’s get a plan in place so you can be very conscientious of what’s happening on the home front and what you can take from the business as well, too.

So this is the first point. This first one is more just you taking back your pen, making sure that you as an entrepreneur, as a business owner, know what you need, and then go after that number and make that your first real goal no matter where you are right now, a lot of people have these big nebulous goals. Oh, I want to hit seven figures. Why? Give me a good reason. Is there something that will keep you fighting if you don’t hit seven figures? Or does this sound cool? Versus, no, I need seven figures because of this for my family, this that I want to give or this that I want to do and travel or whatever. If you could give me that, that’s a lot better than just pulling something out of your so, like, what do you need from your business?

That’s the first thing to get you on track, so that way it gives you your first goals. That’s where with down. I sat down with him and said, okay, here you go. The concept. What do you need to keep? He went home with his wife, filled out the form and said, okay, David. I came back, but I went a step further. I said, this is what I need to keep. He told me the number. Then he’s like, this is how many deals I need to do. He’s like, guess. And I said, I don’t know. Back to one to two deals a month? He’s like, no, five. I need to do five flips in 2020, and I will be able to cover what I need for payroll for the fix and flip company, and I won’t need to steal from my rentals, like, take the cash flow from there to fund the fix and flip company.

And I’m like, that’s powerful. And he said, yeah, it’s very clarifying to know what I need from these flips in order to float this company without having to hurt the other stuff that I have going on. So that’s where just having that clarity for him was a big just a mental lift off his shoulders, like making sure that you know where every dollar needs to go for you and for making sure that you know what you need from your company. So there you go, that’s number one.

Number two simply is create your wealth system. How to know what you Make, Spend and Keep. This is the point here where I’m going to give you some practical steps. What you can literally set up from here that will help you. I’ve been on enough calls. I’ve been doing this long enough. Now where I’ve come back and spoke to different groups like this, where I’ve spoke to them a year ago, they’ve gone and actually implemented some of this. And people are telling me this either save my business from going out of business, or like, I have more cash now than I’ve ever had. I want you to have that same type of story.

So this is how to create that type of system in your business. I don’t care if you’re doing zero deals and you’re on your first or if you’re doing 1000 deals a year. This is where now you can get a grasp around where the money is going. So if you have one big bank account, this is one of the other biggest mistakes I see a lot of entrepreneurs make in general have one big bank account. All the money goes in, all the money goes out, and you have no clarity. It’s just the money’s there. If there’s money there, I’ll spend it. If there’s not money there, I need to be a bit more frugal today. You don’t know what’s yours, what’s payroll, what’s marketing, where there’s no clarity whatsoever, no clear decisions can be made, then you feel guilty if you ever do take money out.

I ran into this today as well, too. I had on a call with another lady and she’s like, I am scared to take money out of my business because I don’t know if that’s going to hurt the rest of the business as well, too. A lot of people feel guilty, but they don’t know they have just one big bank account at where’s all this money going? Is it mine? Is it profit? Is it tax time? And I have to pay taxes. A lot of the things to plan for as a real estate investor, business owner. So that’s where I want to attack this one, because this one’s an easy one to overcome.

I want you to set up the modernized envelope system in your business. If you know the envelope system, that’s where you put different envelopes for different expenses in your personal life. So you know when that money’s gone, can’t spend anymore on that expense. Same thing here. If the word budget scares you, this should help you a lot because this is way better than a budget. This is helping you know where the dollars are going and giving you a system for that without it becoming this huge monster and nightmare.

So I want you to do the modernized envelope system because as a business owner, you don’t need to be stuffing envelopes. You need to be leveraging what you’re already doing. I guarantee almost 99% of the people on here have a phone that has banking apps on it. And you check it on a daily or at least a weekly basis versus unless you’re Sharad and have a background in accounting, checking a QuickBooks software or something like that or REsimpli, you know on a daily or weekly basis of where your money’s going, that’s where I want to leverage what you’re already doing. This is what spoke to me as the entrepreneur.

So what spoke to Joey like actually having bank accounts? Because I’m going to look at them anyway. I might as well know what the dollars are assigned for, where I’m going to be spending them and what I want to use them for. I’m sending my soldiers to battle versus just going out there, haphazardly, just shooting in the dark. So here we go, the golden trio of accounts. This is the first three I want you to set up. And I get it. I get my mo. I look like the numbers guy and I look like I would like Harry Potter and Star Wars. But here I love this epic sagas because they have three main heroes, right? The ones that you get attached to. Harry, Ron, Hermione. Luke, Han, Leia. Your business is your epic saga, okay? It doesn’t get any bigger than your life, than what you’re going to pass on your business.

The things that you are building right now is either going to be sold off one day, passed down to the next generation or something. I don’t want you to go out of business or ruin everything because you don’t have a simple system. So that’s where the golden trio are there to make sure you win in the end that the Emperor is defeated or that Voldemort is taken down. Like making sure that at the end of your career, your tenure as a real estate investor, that in your mind you’ve won, whatever that means to you. The financial freedom you want today, that’s where I want you to have a golden trio.

So what is that golden trio? These three accounts help you keep more of the money because this is where most people struggle with is actually feeling like the business owner and is it worth it. This is where Joey’s struggle was. The first three accounts profit, owner’s comp and owners tax, profit and owner’s comp. I get the question all the time, what’s the difference between these accounts profit? The difference is frequency of when you take it out and what the money is earmarked for.

Profit is taking out quarterly up to 50% of what’s in that account to use for whatever you want. Pay down debt on your portfolio, go out there and spend money on a boat, I don’t care. The profit is why you started your business and helping you fund that dream. The owner’s comp account is what we talked about from number one. It is my favorite account because it is the one that the light bulb turns on the most when we work with people. Owner’s comp is where how much do you need to pay yourself consistently to make sure you’re not in your own rat race in the business.

So that way it’s like, okay, how much do we need to keep then? The owner’s comp is how often can I fill that number up enough on a monthly basis to take that from the business. And if you’re like, well, I’m sorry, I’m just getting off the ground. Well, then good, then you have a goal to get to of. I need to be able to fund this account and see that or if you’re down the road and like, I’m not paying myself enough, what do you need to pay yourself and how much can you put towards owner’s comp right now? Then, owners tax, that’s also the frequency for owners comp is like weekly, biweekly monthly. That’s more frequent owner’s comp than the profit.

Profit is more like icing on the cake. Owner’s comp is getting you out of your rat race. Owner’s tax is like if you’re going to owe taxes at the end of the year, you don’t have a bunch of rentals, you’re not doing cost segregation, you’re not doing the depreciation game, and you can’t go down to zero every year. You need a tax bucket, a tax account, so that way at tax time, you’re not running around like a chicken with your cut off. What? It’s April right now, so most people won’t be due to September, October-ish there because you’ll file an extension because I know all you all.

So that’s where even if you are filing the extensions and such, you need to make sure you have taxes at tax time if you’re going to owe. So don’t have that be another financial strain when it doesn’t need to be, when it’s something we can plan for and be intentional about. There’s your golden trio to help you keep more of the money. There are other foundational accounts because it’s not just all about keeping, it’s about growing the business and making sure you know what you’re bringing in. And it’s the third account there that number six is keeping you out of a Ponzi scheme, but I’ll talk about that in a second. Income is separate from OpEx.

OpEx, everyone has it’s the bad guy of the business. It’s the Voldemort or whatever. It’s the one that’s the outflow of money goes from. It’s the one that’s constantly going out. Income is separate from OpEx, where now you probably have your money coming in and out of the same account. Right now I would set up an income account as like a deposit account where all deposits come into that income account and sit there until you transfer them to first the golden trio and then to OpEx. So making sure you’re funding your keep accounts and then funding your spend account, that OpEx account.

So, you know, do I have enough to keep the business going and fund what I want from the business? What I want to keep? OPM is specifically for the real estate investing world, other people’s money for the real estate investing world and anyone who borrows money. Because if you borrow the money and you’re getting the draws directly paid to you, or you get the lump sum at closing when you purchase the property instead of lumping, that all in with all of your other money and feeling really good that you have a big bank balance and giving yourself that false sense of security.

Put it in a separate account. So that way when you do rehab projects and things like that, you’re not touching your OpEx money or you’re not touching their money for your OpEx, like the OPM and the other people’s money. Because now you have a very clear view of I have this many projects, I have ten projects going on and I need 500,000 to complete all of them.

Do I have 500,000 in the OPM? So it’s very clear to see, do I have enough to finish all the projects that I still have going on? It’s just giving you that clarity. Plus to know, hey, I’m not touching that money. This is for the projects that we have going on. Because it’s very easy for Project A, the money’s gone. Then you go to lender B on Project B and then he starts funding Project A but he doesn’t know about it. And then it’s like, oh great, we’re in a Ponzi scheme because now other lenders are funding the previous deals.

Don’t get to that position. That’s a horrible position to be in. If you’ve been there, I don’t want you there. If you are there now, there’s a way out. Set up this system. Get yourself back on track. The Profit First system is the greatest system, if you’re not profitable, to become profitable, to help, you know, how unprofitable are we now versus where I want to be? Because I get that question a lot too. Should I set this up if I’m not profitable? That’s why you should is because now if you aren’t profitable, we need to get on the track of the habits of people that have profitable businesses.

There’s the six accounts that I would set up and if you’re like, oh man, that’s a lot of accounts. First of all, there’s a bank that’s Profit First Center that I’ll give you at the end as well too, that helps set this up very easily online. But then also as well, I want to make sure that you at least have a simple system. Go out and set up one account. Name it. Profit transfer 1%. It’s more about the habit of profitability than it is necessarily the bank accounts or anything. I’m trying for you to get to live in why you started your business. And that’s where a lot of people fail on the financial side because they just don’t know what to do. This is to give you a clear overview of where all your money is. Then from here the biggest question I get is how much percentage should I put in the different accounts?

Here’s, targets Tap stands for Target Allocation Percentages depending on the size of your business, which is this first row here, zero to 250, all the way up to 10 to 50 million. These are the suggested percentages. If you’re going, the end goal is to sell the property. These are the suggested targets for the different size of businesses. Down here is the rental company. So if you’re buying hold, seller, finance, whatever, these are the percentages to shoot for as buying a hold investor. These are not set in stone. These are more like, what are the healthy businesses doing at these levels, and how much is going to profit paying themselves? Like here you can see owners pay is a lot more at the beginning because you probably don’t have a lot of employees when you’re starting out.

But when you get bigger, that owners pay percentage goes down, but you’re making more. And then you have to pay the team, but you’re still getting paid what you’re worth. It’s just now a smaller percentage of a bigger pie, but this just gives you a good target. So if you’re like, I’m nowhere near that. When we start analyzing this with people, so many people are like, very they’re way out of whack. Usually their operating expenses are like 80%, 90%, and they’re probably paying themselves 10% or less, but they just don’t know.

 They don’t know where they’re spending it. They don’t know where the money is going out the door. This is a target where if you are that upside down, it’s giving you okay. Over the next quarter, how much can we go from 90% OpEx down to can I go down to 90, 85, 80? Just start to slowly scale down the expenses while increasing what you’re keeping so that’s the taps everyone’s getting this sheet too. So if you’re trying to take a picture, saw some people doing that, it’s like you also get this at the end.

As for Joey, I’m a very visual person as an entrepreneur. At the beginning, he was like, I’m not setting up all those accounts. I’m like, you’re setting up all those accounts? Or do you want to be in the exact same place where you were a year ago? So then he set up all the accounts, and then he sends me a screenshot every year. He’s like, I would never go back to one account. Look at this. I know how much is coming in, how much is going out, how much is for my taxes, for my profit income from the other business, my OPM, rehab. What can I pay myself? Like, it’s all there in black and white. Like, I at least know the dollars that I have designated for the different areas of my business.

Then on the left hand side, on the top, he sent me this picture in 2020. This was the first vacation he took from his profit account that he didn’t have to worry about. Was it touching any of his other accounts, or could he take this and feel bad about, like, that was a guilt free vacation. That was why he started the business, was to spend time with the family, and he was able to do that a simple three day weekend. If you’ve read Profit First, the original Mike Moskowitz talks about his first profit draw was, like, $10. So he bought an ice cream cone and said it was the best tasting ice cream cone ever because it was his money and he didn’t have to worry about that. He was robbing from other accounts or from other things inside of his business, from his payroll or marketing.

That’s where I want you to get to that point. You have a Profit account, and it’s serving you. And on the bottom, this is what’s great to bring the story full circle with the CPA, he walks in the last three years to her office and says, okay, how are my books looking now? First year and every other year, she said, what in the world happened? Like, looking at your books, I would get into real estate, and you’re actually profitable even with your rentals, with your other stuff that you’re doing and the sales that you have from your wholesale and fix and flip, you have enough profit that you owe taxes. So he’s like, tell me the number.

The first year, she told him the number, and he’s like, let me look at my phone. He pulls up the little bank accounts like that, and he has almost down to, like, he’s $100 within the range. Like, he has $100 extra. He’s like, where do I send the money? She’s like, what? And she has to pick herself up before for this time. And she said, okay, send it here. He’s like, good. I don’t want to talk to you for another year. So then he goes back the next two years. She tells him the number. It’s the same story. But then the next two years, he has over 10,000 extra that he saved because he was able to take more depreciation or bought more rentals. Like, just from his estimates, he was overestimating.

And that’s where he was able to, the first year, buy an RV with the extra profits and then the second year from the tax account he gave to a camp for kids, which we’ll talk about at the end of number three and what he did there. But that’s where I want you, instead of worrying at tax time, potentially giving yourself a tax refund. I’ve done that. A lot of our clients do this. We even did this this year. We overestimated.

So that way I’d rather have more money in my account than less than be at there. Oh, shoot. I got to do two more deals just to get this done. That’s where the power of the system, knowing where the dollars are going. He told me, David, I did less deals in 2020 than I did in 2019, and this is the least I think I’ve done because in 2020 he did five deals. He did what he was projecting and he said, I have more money in my account than I’ve ever had before. And I’m like, Boom. That is the power of the system. That is what I want for each person on this call here, is like just to see the power of the clarity. You, if you have clarity around the numbers, what it gives you.

That’s why REsimpli is such an awesome platform too, because it gives you a lot of that clarity for a lot of the different KPIs in your business. But I want you to have that as well on the back end with your cash and the money, because a PNL is 100% different than the cash in your bank account. So I want you to have a simple system that makes sense for you as the entrepreneur. What’s the final point here to combat all that? Build wealth habits. I don’t want you to go out of business. I want you to be building the wealth habits that no matter what happens in the marketplace, you’re secure. I don’t care if it’s another 2008 or 2009 or if it’s a COVID or whatever it is, another giant scare like that, unless America goes down, then I want you to be secure in where your money is going.

So I want you to build wealth habits and keep more of what you’re actually making. So how do we do that? I want you to build some actual things, routines and rhythms into your business. So that way I’m talking a lot about the money here. And like, Sharad took a big gamble because usually when financial people come on, it’s probably not as fun to talk about it’s like the marketing and the sales and that type of stuff. But what I want here is you to have consistent habits that you do in your business so that you’re building these into those routines. So that way you don’t have to think about the money. Even though we’ve been talking about it a lot, I don’t want you to have to think about it all the time like it might be consuming your thoughts now.

So every week, move the money every week, get into the rhythm of it, comes into the income account and then I transfer it first to the Golden Trio and then to the OpEx account. So making sure you get into that rhythm and you say, well, I don’t close a property a week. Well then what do I do every week by Friday? Make sure the money goes from income to the other accounts. So if you say like Joey, Joey is a great example, did five deals that first year. So that first year we did about one transfer a quarter order. But when you sold a property by the Friday of that week, no matter when it fell, we were moving the money.

So that way it wasn’t just sitting that way you don’t have to think about the money as much. You’re in a routine, a rhythm. Money closes by Friday. I’m going to transfer it from income to these other accounts. Then every month review it. This is something that a lot of people don’t like to do is review the money because they don’t know how to do it or it’s too complicated. They’re not the financial wizard or the guru on the back end, the accountant. But if you follow this system and you set up the income account, you saw I put the little parentheses make next to it so you know which is coming in.

How much are you making the OpEx? What are you spending, what’s going out of that account? If that account now just has every single outflow of the business now lets you know what you’re spending, then the keep accounts, how much did you transfer from income to the keep accounts? So that way you can clearly see on a monthly basis what came in, what went out, what did I keep. You can at least have that clarity, which gives you a lot better decision making process than how much is in my one big bank account today and can I spend the money? And if I do this, is it going to hurt me or not?

This gives you more clarity to direct those dollars and then every month review it to know how much came in, how much went out. Are we at least above break-even and then growing, or was I able to keep enough, do I want to keep more? What’s happening in the business at this point? Then every quarter, take the money. This is it. This is the whole reason of this presentation. You got into real estate to break out of the mold and to become the entrepreneur and to have financial freedom.

For the love of God, every quarter use an account to attain that freedom, whatever that means to you. I don’t care if that’s taking trips, if that’s going on vacations with your family, if that’s going to different mastermind events and syncing up with real estate investors, whatever it is for you, every quarter take the money up to 50% for profit and use it for what you want. Celebrate your success. This is how for Joey, it went from being a drudgery to like and saying I hate the business to I’m excited about I not only am I paying myself, but I get to invest in things like an RV or in a camp for kids or something like that.

So take the money up to 50% and use it for what you want. The only other reason to use the profit account is if you have really bad debt, credit card debt, that’s keeping you up at nine, unsecured loans that you had to get to keep your company afloat, whatever it might be. Use the profit account up to 90% to start wiping that down. Give yourself a debt pay down plan like that and just say, any extra dollars are going toward debt, so I don’t have to worry about it anymore. But this profit account is really why you started your business. That’s the big thing for you, is making sure every quarter, no matter what it is, paying down properties in your portfolio.

There’s a million reasons why you get into real estate for financial freedom, for whatever it might be. But this is where every quarter, take the money and use it for what you want. So recap, find what you need to keep. Take back your pen. Okay, you did it. At one point you said, I believe in myself enough to start the business. Do it again to say, I want to stay in business and I want to be insanely profitable.

Number two, create the wealth system so that way you can keep more. And then build a wealth habit so you can use the profits for what you want and to go out there and attain that financial freedom and then build it as a habit into your system versus an event that you’re trying to get to one day in the future. So that’s why with Joey, he sent me this picture on the right hand side. I’m like, you want me to show that? Yeah. He’s like, 2019. That was me in the big orange shirt. And I couldn’t work out, I couldn’t do anything. I was just trying to go, go do more and more and more versus the things that really benefited my life.

So instead of working out, doing the stuff that he wanted to do, then, I mean, he took it to the extreme. He did like, four triathlons last year. I’m like, okay, man, good for you. But that’s where it gives you the other benefits as a real estate investor. But these next two slides are my favorite of the whole ones because profit unlocks your purpose. The purpose of the business is to be profitable. That’s where I’m just trying to give you the system that helps the business be profitable. Because you know why? Your purpose is not just to be profitable, it’s for why were you put on this, like, your purpose? Unless a lot of people say, well, it’s to make a lot of money. But why? Why do you want to make a lot of money? What are you trying to do here?

For Joey, it was spending more time with his family. Last year, he called me in June and said, David, I have filled up all my profit at first accounts for now to the rest of the year. So he used the money from the previous year, the tax account, to buy the RV. And in June or August of last year, took a three week road trip with his family, with his four little kiddos there, god bless him. But it’s like, that’s what he wanted to do. So he spent three weeks not in this business, not doing that stuff. The money was still there. He knew where it was and was able to take that time without any guilt or any worry. He’s texted me later on and said that was the best vacation I’ve ever taken.

You know why? Because I didn’t have to worry about the money. He’s like, yeah, my kids were uphill and doing this stuff like normal on a vacation and a trip, but I didn’t have to worry about the other stuff that I normally have to worry about. This is my favorite slide, though, is that if you remember, in 2019, he lost 70,000. Well, last year, at the end of the year, he told me, I want to give 56,000 to this camp for kids. And then he said, in the last quarter of the year, like, I think we can bump that up to 71,000. So he sent me the picture. At the end of the year, I just wrote a check for over $71,000 to this camp for kids.

And I was like, Joey, do you understand that number? He’s like, yes. He’s like, I lost $70,000 in 2019, and this year I was able to give from one account to charity to this camp for kids without touching profit, without touching owners, comp without touching the expenses for the business, to grow it. He didn’t touch anything else, but just gave $70,000 from this one account to this camp for kids. That’s his purpose was to spend time with his family and fund these different things for his church, his community, and this camp.

So that’s the real thing I’m trying to get across here, is that I don’t want you to just have this profitable business. I want that to be the domino that unlocks why did you even start it? To be able to think about what you were here for, to be able to do things like this. It might not be charity for you. It might literally be travel or doing those things that a lot of people just dream about. I don’t want it to be a dream for you anymore. I want you to have a practical system that guides you there. So that’s where I want you to go, and that’s where I want you to be able to unlock your purpose.

That’s why if Sharad would just let me take 2 seconds with what we do, I don’t want to push our company and be very salesy at all, because not everyone fits the mold. You need a good real estate investing bookkeeper. You need a good real estate investing CPA. We’re not those things. We go in between. We’re a CFO in the middle. We are a fractional part time CFO because we make sure that you have the proper system implemented and all that and making sure that you have your system’s processes the financial side taken care of so you don’t have to worry about it.

And then we implement a dashboard at the end that just manages the cash because I know REsimpli has a great dashboard for everything on the business side. I want you to make sure you have a good one for your cash as well too. So that’s what we do. But then at the end here, I want you to have a couple key takeaways if you’re okay with this Sharad? Number one, find your keep number form so that way you know, this is what I need from my business. And then I want you to have the full profit first for real estate investing book.

So Aaron, thank you for buying. You probably bought either the Audible version because all of us listen to audios as real estate investors, or you bought the paper version. I want you to have the eBook too, so this is the full eBook, so that way you can highlight it, take notes, copy it from the PDF to Google Doc or whatever and start to outline it. So I want to give you the full copy and then you could schedule a call with our team. If we’re not a good fit, I will make sure you get connected to a good real estate investing bookkeeper or CPA in our space so you can at least have some clarity on that side. That’s what I’m trying to get across here. That’s what I want for you is to have that clarity.

We’re also getting as well too cash flow multiplier, which is a simple spreadsheet of like, okay, money comes in, where do we put it inside of the different buckets and how much the tap sheet so if that interested you, of the targets and how big am I, which column do I fit in? And what should be my percentages relay, which is actually the bank that Profit First is partnering with, if you want to set that up, it’s very simple to set up online if you’re like. What accounts or can I do this with my own bank? I’d seriously look into them. They’re a great online solution and they’re also Profit First centered, then Profit First for personal is another thing I created because so many people were like, hey, I’m keeping more of my business, but how do I do this in my personal life?

So I’m just not spending every dollar out the door that comes in as income to our home life. That’s just a very simple spreadsheet with a very simple video of walking through of like, how do I implement this on the home front as well too? Because I hate budgeting or I hate all these different systems and stuff, or I’m not a Dave Ramsey fan or whatever it is on your personal life, then you can at least have profit first for personal as well, too. That’s where you can go. And then So that way you can at least have that stuff. If nothing else, you go out and set up one account from have. I feel like I have succeeded here, because then you can actually go out there and get some of these habits.

So that way you’re not spending everything, you’re making. You’re actually building this into your system, into your company, and making profit a habit. That’s why I put it at the top. Make it a habit, not an event. Make it a habit. That is from every single deal that you do. Thank you so much. I see the chat with I don’t know if there’s some questions in there, but I’d love to take any questions that people have at this time. Sharad, if you want to do that, but this is your show, so I’m going to let you take over all stuff. Yeah.

Sharad Mehta 49:21

Thank you so much, man. Yeah, I want to say thank you for the presentation, and it’s honestly all being very honest. This is really the first year filing my 2022 tax return in 2023 that I feel confident that I read the book, but I’m okay with managing my cash flow. But it’s like, last year I really committed to profit first, and this year I’m like, man, I’m ready to file my tax return. I don’t even need an extension. I just want to get it over with.

And, yeah, it was because of profit first to some extent. You’re the one who kind of validated profit first for real estate investors. Previously, I don’t know, my mindset was kind of used to be like, yeah, it’s not really for real estate investors, it’s more for other businesses. And then you always think my business is a little bit different from all the other businesses in the world. So thank you for that. Mitch, I know you had a question if you want to unmute.

Mitch 50:20

Absolutely. First of all, I saw you on another call. I don’t know if it was with REsimpli or another Mastermind, I can’t remember, but it was probably three or four months ago, and I immediately implemented some things I had already read first, understood the concept, but I just never took the time to set up different accounts. So thank you, already. I do have a couple of quick questions. I’m sitting here looking at it now. I’m an S Corp, so I have to pay myself a salary. That’s kind of your keep number, I guess you were calling.

So I have my owner’s Comp account, and it automatically drafts from my Op expense account directly into that account. First question is, they’re all regarding industry standards. For an industry standard, I just pay myself, I think, 40,000 or 42,000 a year. Is that acceptable? I just kind of shot in the dark with it, honestly. So that’s the first question.

The next question would be in regards to the tax account. I have the profit account figured out. I’ve talked to some coaches. Right now I’m putting aside 20% of every deal because I’m trying to scale and the tax account is the one that I’m really curious on and I just randomly throw money into it. I really have no idea what to expect for taxes or how much to throw in there. So those are my two questions about the standard for owner salary and then taxes, what’s some good standards to go by?

David Richter 51:46

So I’m going to fall back on my disclaimer that I’m not your CPA for these questions and I have zero background as a CPA accountant bookkeeper. I just run a great business that has those people with those credentials behind them. And that’s where for the first question, you really need to talk to your CPA. Is that enough? I would think that’s enough for this industry. And it depends on the volume that you’re doing too, relative to what you’re bringing in. It’s like there’s several factors there that’s more of like talk to your CPA for the first one. But I think my initial gut is like, that’s probably okay. But like I said, that one huge disclaimer there. That’s more of a tax question for your person, the tax account. Now here we go. I get this question a lot. I have a question for you. What are you doing? Are you flipping wholesale? Have any rentals? Tell me just briefly overview.

Mitch 52:31

Primary Wholesale, I do have a few rentals, but that’s in a separate company. So I have a separate bank account for my rentals and stuff. So really just this one’s wholesaling and some flips.

David Richter 52:44

Do your companies all flow to your tax return to your personal one?

Mitch 52:48


David Richter 52:49

Okay, so that’s another question too, because it’s like okay, with those rentals and with everything else going on, can we offset some of the income that’s coming in from the wholesaling entity? So that’s one thing to question about. But you said you listened to me a few months ago and then set these accounts up. Number one, it’s going to be data that drives your decisions going forward. 20% is a great place to start. You’ll probably be overfunding the tax account at this point unless you just do over seven figures in wholesaling. 20% is probably going to be more than enough because when we do 20%, it’s like off real revenue. So like just the assignment fee portion, 20% of that, boom. But then you’ve still got some rentals and things. And a lot of people like Joey, good example, his Joey, he was doing fix and flip and had rentals. He was doing about 15% what we were helping him save for at the beginning. And he had some rentals as well too, and 15% was too much.

So we say 15% is a good starting point because that’s like off the real revenue or your gross profit or whatever. So that way after that, you still get to expense everything else from all the other line items. And then is 15 enough? That’s where, too, for some of the businesses we work with, 15% is too much. If it’s a rental company or they come to us and they’re spending a lot of money, they’re already in the hole, like, they’re spending 90%, 95% of what they’re making. Well, you’re not going to be taxed on much if your PNL doesn’t show much of a profit.

So that’s the other thing, too, is like, what are your books showing, too, as far as your profit margin and your profitability? Just some of those things to look out for. But the best is going to be when you get your first tax return done. After implementing profit first and seeing how much you overshot or undershot, that’s where it’s like you can do some guesstimates with your tax preparator of like, what do you think my quarterly payment should be as a business owner? Like, you can set some of that up and then at the end, did you have enough during the year for that? But 20% to me is more than enough to be stocking away from each deal.

Sharad Mehta 54:49

Mitch one other thing you could do is I did this with my accountant. They should have some sort of a spreadsheet to calculate your estimated tax based on you might have, like, a great quarter, and then based on that, it could be adjusted. You could just ask your accountant for that, just for reference. I do 30% because I live in Canada, and then I’m moving to California, so I just do 30% just to be safe. And this is 50%.

David Richter 55:13

Yes. Right.

Sharad Mehta 55:15

And this is really the first year I’m fully 100% committed to it. So just personally, me being conservative, I’m overestimating. But you could always have your accountant review and just give you, hey, this is based on the numbers, based on the money you made, this is how much you should be estimating.

Mitch 55:32

Okay. And if anybody else is a wholesaler in here and wants to post what they do, I appreciate the feedback, but that gives me a good start. You know.  It’s better to throw too much in there than too little, is kind of my thought, because at the end of the year, if I have some extra leftover, I just move it to my comp count. I appreciate it, man. Thank you a lot.

David Richter 55:55


Sharad Mehta55:56

Now, I was going to say one other thing. I personally noticed by being conservative with my tax account that I had less money available for OpEx. That kind of forced me to be more efficient with my running my business. So that’s another personally, the benefit that I noticed between my house flipping business recently and I own a management company, I noticed if I’m putting more money aside for profit compensation and taxes, then I have less money available for OpEx. And it gets me a little bit more creative on how we can increase our ROI on the same on less money now and still be able to make higher revenue.

David Richter 56:35

100%. That’s the added benefit of profit first. I think Mike talks about in the original book oh, shoot. It’s that principle not paretos. That’s the 80 21, but it’s the other one where it’s like where you.

Sharad Mehta 56:50


David Richter 56:51

You know what I’m talking about or something.


Sharad Mehta 56:54

Yeah, but yeah, I know what you….


David Richter 56:55

One where the work expands to fill the time that you give. So if you give a project three weeks, it’ll take three weeks. If you give it three days, you’ll take three days to do it. Same with your money. If you have a lot of money in there, you’re going to find a way to spend it. If you pare it down and say, no, this is my profit and stuff, then you have less to work with on the OpEx side. It’s a principle, it’s a rule there that that just happens in work time, money, business, everything. So that was good. Another big question I get with people, too, and I just want to address this, is if you have multiple entities.

So, like you said, I’ve got Wholesaling and Rentals with Joey, we set up the foundational accounts for his fixed for the rental company, but that’s because he has them as two separate companies. They’re two separate entities. He’s doing business in both, like trying to get his rental portfolio up and bigger, and then he’s doing the flips as well. The only time, set it up for a different… (Crosstalk) Yeah, there you go. When you get there and that’s where you could set it up at any time. And especially if you use Relay, they give you 20 accounts for free. They’re a free online system. If you want more than that, they’ll do $30 a month for as many accounts, or like 50 to 100 accounts or some. But then it’s also unlimited wire fees, too. It’s crazy.

They’re going all in on profit first and for the real estate investing side. But that’s where you could set up these accounts, have them there, could you run them through with the rental side? Makes it really easy. So I like relay. They’re trying to make profit first as easy as possible on the banking side. So that’s why I recommend them a lot now that I’ve used them for a while. But that’s where if you have multiple entities doing multiple different functions, I would set up the core accounts for those different functions. But if you’ve got Rentals and Sub LLCs and stuff, you don’t need the accounts for each LLC that you have with those few rental properties or whatever. So that’s a question I get a lot, too. Ricky has two quick questions.

Ricky 58:50

Hey, I don’t know if you can hear me too well. I’m on mobile data. Do you hear me?

David Richter 58:55

Okay. (Inaudible)

Ricky 58:58

So I’ve been doing profit first for about a year and a half now. When we have relay, I think we have about 26 checking counts total, which sounds ridiculous, but honestly, it’s given us a lot of clarity. So we do wholesale fix and flip and rental. But right now I have seven rentals. And one thing I just haven’t figured out the right way is with that diagram you showed earlier, you have the fix and flip and wholesale revenue, and then below that you also have rental revenue. With the whole taps and all that, how would you go about would you recommend two salary compensations, one from the wholesale fix and flip and one from the rental projection of it?

David Richter 59:48

That’s a really good question. I like that question. (Inaudible)

Ricky 59:53

I’m trying to think how because the way I always used to do it was, okay, if someone has a rental and the net cash flow is X after vacancy and all that, that’s what I would just send to my distribution, my Ricky Miller distribution for my personal account. But with the whole profit first. I kind of slowed down on sending money from the rental side. So thankfully we’re saving up money cool. But I stopped sending money because I really am just trying to figure out the best system for that, I guess, how to do that portion. So any feedback on that?

David Richter 01:00:29

I guess? Yeah. So that’s where if you work with us, we go into customized profit first setups for exact situations like this where it’s like, do you need the money? Okay. Joey’s such a great example for a lot of things. I promise we work with other people besides Joey. But like, Joey’s just a great example because he’s got the multiple businesses. He was stealing from one business at the Know to fund. But so what I asked him upfront was, what do you want from these businesses? And he’s like, I want them to stand on their own.

So that’s like, with this, you might want he would set up his owner’s comp just from his fix and Flip account. But like, on the other side, he kept a small owner’s comp there to make sure if he wanted someone to take over the rental management or CEO of that company or that arm that he started to build that in. So it’s like for him, he knew one day he might want to get big enough to be able to do that. So it’s like he wasn’t necessarily drawing it, but it was a good way to get into that habit. So that way on that side, he could still pour money into the rental portfolio. But a small portion was going towards more of like a future compensation bucket or a nice little buffer if something were to happen on the other side.

So that’s what he wanted. But for you it might be like, do you want both funding you right now because in the future, maybe you might step out of one or the other. This is more of where we get into what’s your specific situation and what do you want to accomplish with these accounts, if you’re like? Well, no, I would want to pay myself just from the profit first, the owner’s comp account from my fix and flip side and not take any money over there and just pay down my debt. Or no, I don’t want to pay down debt. I want to buy more properties. It’s like, then we just substitute that account.

As long as you’re paying yourself what you need and that’s not a stress in your life. I don’t care which one it comes from, but you’re getting to that. Make sure you still set up like a profit account or something for the other companies. So that way you’re just not spending every dollar that’s coming in. So that’s like I would just give yourself that buffer. Hopefully that helps.

Ricky 01:02:23

Okay. No, I think that brings more clarity on it. And then thank you, by the way, David. And then one other question. Do you have experience? Like we have the OpEx. For us, wholesaling and flipping is kind of the same system. It’s just revenue wise. So is there a decision that someone can make where, let’s say if our OpEx has, let’s say 60 OD thousand and we come across a fix and flip opportunity, should we use the OpEx account to pay the hard money? Takes care of the first lien position, but we still got to come to closing with money, maybe like 27,000? Should we use the money out of the OpEx or should we maybe make a whole nother bucket of money if we don’t raise a second lien position? Like private money? I guess I’ve been trying to figure that out. If we wanted to take something down without raising a second lien, should we just use our OpEx account?

David Richter 01:03:23

There’s two answers to that. Number one, the short answer for me would be yes, set up a separate account. That’s like property investments, like our own whatever your company name is, property funds. So that way it’s like, okay, these are the funds specifically if we need to bring money to closing. So that way you’re not touching your OpEx. Your OpEx is literally to run the business. Those are to help fund those deals you might need to supplement at closing or throughout the lifetime of that deal. Or you could go and say, I’m trying to think of the second part of that answer because that’s one way to do it.

The other way is for this specific situation, would be to go out there and make sure that you are getting the deals under contract and then saying, okay, this is what I want to get to. It gives you clarity. What you’re trying to get to is clarity of what do we really need to run the business and how much do we usually come up with to be able to fund these types of deals and how much do we do that on a regular basis? And if I were to take it from OpEx, would I still be okay?

Because now, having this system, I know how much goes out on a consistent basis for my fixed expenses, and I know the variable expenses, even with those, how much typically on a monthly basis is going out the door. So it’s like making sure if you have those numbers, that gives you more clarity to know, if I do take money out of OpEx, like on this next deal, I need to fund OpEx back to at least this amount. So that way I’m funding the business. So that way it’s not just floating out there without any plan.

Ricky 01:04:54

Yeah, because as you can imagine, if someone takes a flip down a day, they won’t get that capital back for at least maybe three months or so.

David Richter 01:05:01


Ricky 01:05:03

It probably even makes sense to make sure, whatever your burn rate is on your operating expense, that you have enough six, seven months, nine months of leeway in the event that you need exactly. I got it.

David Richter 01:05:15

This is why people get into the cash crunch in the fix and flip world, because they’re like, I love the deal, I’ve got the money, let’s do it. Oh, shoot. I’m not going to see that money for three to nine to twelve months and did I just shoot myself in the foot by going after that deal and spending my money? But they don’t know. They don’t have that clarity to one big account. It’s like, I have the money today, hopefully I still have enough money to fund everything else.

Ricky 01:05:42

Yeah, because I think that one yeah — I guess on a tangent of that, we’re looking at maybe just getting a line of credit to fund, just taking deals down, because then it would just be, I feel like, maybe easier and interest it’s higher now, but we wouldn’t be paying points and all that. Okay, well, sweet. Thank you, David. I truly appreciate.

David Richter 01:06:02

Yeah, for sure. Brady.

Brady 01:06:04

Hi, David. How are you?

David Richter 01:06:06

Hey, Brady. Good. Good to see you again.

Brady 01:06:08

Yeah, good to see you. Quick question about relay. I use Relay, wondering how you deal with the lack of ability to print paper checks on at least Relay 2.0 accounts currently. And do you have any insight on when they’re going to have that ability?

David Richter 01:06:26

Well, we use ramp. It’s a free system that’s kind of like, only a lot easier and cheaper than Bill to do checks. It’s an expense management software. Like, that’s what it’s built for. So there’s a bad echo. Sorry. So I don’t know if that’s you, Brady, but that’s where I want to make sure that if you have something like that, ramp should really be or Ramp, not Ramp. Relay should really be the banking function of it like here’s the money comes in. Here’s how we manage the cash. Where a Ramp or a or some of, you know, Divi, there’s different expense management softwares that are literally for the expense management of that business.

QuickBooks has a functionality like this, but some of these other ones were built specifically for it. Like QuickBooks Online has just tried to copy a lot of what these other things are doing and they don’t do it nearly as well. So that’s where we use with a lot of the clients that we’re working with, ramp or other things like that to do the expense management side. Like checks that need to go to a vendor or something, where it’s a contractor who can always accept a paper check versus an online ACH payment or something. You can actually put that in and there’s an approval process it’ll, send it out and then get it to them.

And that also helps you get an actual system in place versus I got to write a check like, okay, they just asked for the money. Well, no, if you get it in by Wednesday, we’ll approve by Friday. It’ll be in your account then or whatever you do for your payment processing system. But that’s how we get around it is that we use relay just for the banking functionality and then use like an expense management software.

Brady 01:07:56

Okay, great. Yeah. Part of my problem is I have some subcontractors that they want paid on Friday with a physical check. Not checks in the mail. In the mail, not ACH. Okay, thank you.

David Richter 01:08:12

Yes. I’d also say too, don’t let contractors dictate your work. I know. Unless they’re really good and you can’t afford not who have them, then you might need to bend over backwards and have an expense account that’s a contractor account with the bank that might let you do like the paper checks and just do it that way if you’re not wanting to get rid of them. But if they’re always a pain in your b*** and these are the same contractors that don’t show up to jobs. Sometimes it’s like, no, I’m setting the process for you to follow instead of them yanking you around. So there’s also that as well, too. Just want to throw that out.

Sharad Mehta 01:08:43

Yeah, we also use; I use a couple of different banks. I use Novo for my project management to pay the bills out of. So I take money from my operating Chase account, move it to Novo, and then she’s paying. And then once we’ve gotten our contractors to what David was saying, just gotten them used to our process, this is how we’re going to pay you. It’s never been an issue. I mean, some of the guys will pay through PayPal, then they’ll come up with other ways. But then we say, hey, these are the options that we have.

If you want to be paid, you submit whatever is due by this date. And we’ll send a checkout and you’ll get it. But it’s just about getting them into a rhythm of paying consistently, not so much on, hey, I need to get paid today. Once you do that, it’s not been a problem for us.

Any other questions, guys? David, thank you so much for going a few extra minutes. Any other questions for anyone? So, David, what we’ll do is once the recording is streaming live on our Facebook group, and then what we do is we’ll send the recording, we’ll put it on YouTube also, and then if you want to send over your information, we’ll put it on the YouTube video description and we’ll email it out to email list and include your contact information so know they can contact you from there.

David Richter 01:10:04

Okay, sounds good. We’ll make sure to get that over.

Sharad Mehta 01:10:07

Absolutely, man. Thank you so much for being on the call, man. I really appreciate it. I mean, this is not the sexiest topic in the world to talk about, but I feel like to me personally, it’s like one of the absolute essential things that you have to do in your business. Otherwise you don’t really have a business. You kind of have a hobby. And I also want to mention one thing, like to what you were saying. People say, I hate fix and flip business. They don’t necessarily hate the business. They hate the part that it’s just getting overwhelming. They don’t know where their money is growing.

David Richter 01:10:39


Sharad Mehta 01:10:40

It’s not the fix and flip business that they hate. They don’t have the systems and processes to manage the cash.

David Richter 01:10:48

Yeah, exactly. 100%. That thank you, everyone. Thank you for the feedback. Have a great rest of your Tuesday.

Sharad Mehta 01:10:53

Thank you. Thank you, guys. Thanks, everyone for being on the call. Thank you. Bye!