← The MORE Show
The MORE Show
The Bank Account Setup That Will Change Your Real Estate Business | David Richter
00:34:30
Download David's Free eBook 'Profit First' & Cheat Sheet: simplecfo.com/JC
Loading summary
Transcript49 lines
- [00:00]
Shopify Ad
When you think about businesses that are selling through the roof, like Aloe or Skins, sure you think about a great product, a cool brand and brilliant marketing. But an often overlooked secret is actually the businesses behind the business making, selling and for shoppers buying simple. For millions of businesses, that business is Shopify. Nobody does selling better than Shopify. With shop pay that boosts conversions up to 50%, meaning way less carts are going abandoned and way more sales happening. So if you're into growing your business business, your commerce platform better be ready to sell whatever your customers are scrolling or strolling on the web, in your store, in their feed and everywhere in between. Businesses that sell more sell on Shopify. Upgrade your business and get the same checkout Skins uses. Sign up for your $1 per month trial period at shopify.com westwood1 all lowercase go to shopify.com westwoodone to upgrade your selling today. Shopify.com westwood1 if you're running a for.
- [01:02]
David Richter
Profit business, you need to be thinking about profitability. You should be making money because without it, you won't be able to grow, scale or have people on the team or give or travel or whatever you want to do with your business. And so he's just like, here, here's a system. That's what I loved about profit. First, it went a step further than all those other books and said here's a system to actually do that. And that's what Justin was alluding to with the bank account set up a couple minutes ago. You know, it's like it literally revolves around you being intentional with every dollar.
- [01:37]
Justin Colby
What is up everybody? What is up? My science of flipping fam. This is going to be a good one because if you are in real estate, if you're doing deals, if you're making money but you still feel broke, and we've all been there, including myself, then my guest David Richter is here to help you. He is the author of Profit first for Real Estate Invest Investors. He thinks like a CEO. He helps us think like CEOs and CFOs. So, David Richter, what is happening, brother?
- [02:07]
David Richter
What's up Justin? It's good to be on here. Appreciate.
- [02:09]
Justin Colby
Yeah, excited to have you. You know, we, I had you come speak to one of my smaller group events and people loved it and I said it's about time you can come and join the podcast and make sure everyone in my world knows who you are, knows your book, read your book, but starts acting like treating it like a real business and not just a hobby, right?
- [02:31]
David Richter
Yeah, big time.
- [02:32]
Justin Colby
So tell us A little bit about your story. Where did this come from? Like, how did you develop, you know, this idea concept of making sure you're running a business with profiting first? Because obviously it seems pretty like a no duh statement. And as you know, and I know it is anything but a no dust statement.
- [02:50]
David Richter
True. It definitely came from pain. I was a part of a real estate company in my early 20s, where I jumped right from college into real estate investing. And with this company, they were doing about five wholesale deals a month when I first started there. So they were doing a pretty good amount of business outside of Chicago. But then we grew it over the next four or five years to about 25 deals a month. Between wholesaling, flipping, you know, turnkeys. We were doing rentals, lease options, like, all. All this stuff.
- [03:16]
Justin Colby
Yeah.
- [03:17]
David Richter
And were doing 25 deals a month, but spending 26 worth out the door. So it's like, who cares? Like, they were doing 300 deals. I remember we did 100 deals in a hundred days once, like over a quarter. We wanted to do something cool like that, which was like, oh, yeah, it's so cool to say. But then it's like our bank account is like, you know, cobwebs. And it's like, what the heck is going on here? So that's what opened my eyes. Because I was young. I was in my 20s, my early to mid-20s at that time, but I was learning from that business. I was like, in a bunch of different seats. So I got like a crash course in just small business and the different roles and everything, which was awesome. But then from there, I sat in the finance seat was one of the last seats I sat in, which gave me some of the knowledge just to know what I'm looking at. How do I read a profit and loss? Like, I remember asking, like, people are wondering, like, oh, I'm a business owner and I don't know this. I remember asking, what's the N stand for in P and L? And the CPA is like, that's an. And I was like, oh. He's like, it's profit and loss. I was like, oh, dang it. So, yeah, that's how I started. So, yeah, I didn't have. I wasn't the sharpest tool in the shed when it came to money in that business. Until I learned and sat down and figured out, like, how do you read the profit and loss, the balance sheet, everything that helped me tell the business story. So I hadn't known really the story up to that point. And then I saw like, we're doing 25 deals a month, spending 26 worth. Like, this story can't end well, like, not the way that it's going, unfortunately. I wish I had a great ending to that story. I wish I did, but I don't. That company kind of blew apart. People went their separate ways, did different things that forced me into other areas. I was going to other masterminds at that time. And like everyone else was saying the same thing. So, like, this was not just us, it was an epidemic. And I wish I would have had a great. I wish I would have had profit first back then. I think that story would have ended a little bit differently. I can go from there. But like, that's what got me kicked off even of knowing, like, okay, it doesn't matter how many deals you do if you're not keeping any of the money at the end of the day.
- [05:14]
Justin Colby
Well, like anyone, you had enough pain that you had to do something different, differently. And so from the pain came this amazing opportunity and amazing business that you now run. But really, just like so many of us, the pain is what created the need to like, do a deep dive, go down a rabbit hole, get understanding of finances and how to run a business, manage a business by the numbers, be a real cfo. Which, by the way, you and I both know all these people out here, there's always the presidents, there's always the CEOs, there's always the founders. No one necessarily, and I don't want to say nobody, but for the most part, many of the real estate investors that I'm aware of, they don't have a true cfo, right? And they don't know how to be a CFO and ask. That is where the rubber meets the road, ladies and gentlemen, is when you make money and what you do with the money so you're not just making money and feeling broke. I'll tell you my story because the reason we resonate is when I was introduced to you years and years ago, I had a very similar example. We had a very high performing year. Multiple seven figures in my personal paycheck was like a single digit percentage of that. And that's insane, right? In. In. To be able to make that much money, build that team, do that much volume, lose a whole lot of hair doing it, right? And to be able to look and be like, dude, I could have worked at pretty much any corporation who made this kind of money without this much stress is a very real thing that us, you know, professional, you know, full time real estate investors go through. And so let's talk a little bit about the nuts and bolts because I think first of all, everyone needs to go get his book. Where do you want to send everybody to? You know, learn more about the book. Take a look at it. I know it's called Profit first for Real Estate Investors, but I know you put together a website.
- [07:00]
David Richter
Yeah, I did. So you can actually download the ebook or audio version@simplecfo.com forward/jc like Justin Colby here. So that's where you can go and download the book. It also has like a little profit first cheat sheet. So if you like listen to this whole episode and you're like, what do I do first? I just point you there too. So that way you can at least get started. So that's where simple CFO.com forward slash.
- [07:21]
Justin Colby
JC simple CFO.com forward slash J.C. so if you're hearing this and maybe you've done a couple deals, or maybe you're doing a couple deals a month and you're like, I'm making some money here, but where the hell's my money then? This is a very real episode, right? This is one you really want to make sure you're tuned into, dialed into share with friends if you know they're going through it, right? So let's talk about the fundamentals here because I think, you know, the people want to know, right? What are the things that they should be doing, what are the roles that should be having, you know, what bank accounts should they be setting up, all those good things that you and I are both aware of. So let's dive in.
- [08:00]
David Richter
So I want to touch on what you said too. If you're going to make money as an entrepreneur, you need to actually keep it as well. And they're two different skill sets. And it's like that's where I don't need you to become a like financial wizard or like a bookkeeper or CPA yourself or a CFO yourself. But I will say, knowing some of those fundamentals, like you were saying, Justin, like right here, I want to give you some of the fundamentals that you can know as a business owner without being this financial guru wizard, you know, even bookkeeper, QBO, QuickBooks, online expert or whatever, we're dealing with cash. Because everyone that's listening to this, you are dealing with cash on a daily basis. Whether your personal life, your business, whatever it might be. Like, money flows through your fingers and it's like, what do I do with those dollars? It comes in, it goes right out. I'm making Money, where's it all going, you know, especially if you're flipping, you know, I hear that lots from flippers, like, man, I've got 14 deals on the docket and it's like it's eating me alive, you know, it's like, I've heard all the stories, so I want to help you with the just fundamentals of profit first. But good money management, like, it's just good business habits to have. When money comes in, what do I do with it? And a lot of people just aren't teaching that. So fundamentally, honestly, if you're, if you're listening to this and you've never heard of Profit first, you probably have in some form or version or other book. Like, have you read Rich Dad, Poor dad, like he says a million times, like, pay yourself first. Like throughout that book and the rest of his series. Then there's a bunch of other books that say the same concept, like the Richest man in Babylon, a portion of all you have is yours to keep. The seven Habits of Highly Effective People says put first things first. Same thing. It's the same concept in Profit First. It's like if you're running a for profit business, you need to be thinking about your profitability. You should be making money because without it, you won't be able to grow, scale or have people on the team or give or travel or whatever you want to do with your business. And so he's just like, here, here's a system. That's what I loved about Profit first. It went a step further than all those other books and said, here's a system to actually do that. And that's what Justin was alluding to with the bank account set up a couple minutes ago. You know, it's like, it literally revolves around you being intentional with every dollar. Whether you love Dave Ramsey or hate him. He's made the envelope system very popular in the personal finance space of like being intentional with every dollar. And literally he's telling you, take your dollars out of the bank and put them in envelopes, you know, and earmark them for certain things. But in business you're not going to do that. You're going to set up bank accounts. And because a lot of people, here's the wrong thing, here's what I see. A lot of people that, and just where we were and just where lots of people that I've worked with are, they have one big bank account and that's the big black hole bank account we call it now. It's like money goes in, money gets sucked out to the swirling vortex of doom, never to be seen again. And that's when you're asking yourself, where did my money go? And it's like you have no clarity. And that's where separating out the money into different bank accounts to know where your money is gives you clarity, which gives you control versus the chaos that's just ensuing in that bank account and the specific bank accounts. If you're listening to this now, this might be a time to take out your paper and pen and write these down. Because this is an actual action step you can take from this episode. You can set up the fundamental accounts from profit first. The first three are the golden trio of bank accounts. I call them the golden trio because I'm a huge nerd. I love Harry Potter, Star wars, all the big epic sagas. They've got three main heroes, right? Lucan, Leia, Harry, Ron, Hermione, like, making sure good wins along the way. And it's a fun story. And then when you get to the end, good ultimately conquers over evil, right? Your business, though, is so much more important than those. And it can take a lesson from it too. Like, we need three main heroes in our business, and that's the golden trio. They help you keep more of the money. I'm literally going to give you three bank accounts that will help you focus on the profitability of the business. The first one is profit. The second one, yeah, shocker, right? Second one is the owner's comp, which I love just as much. We'll talk about that in a second. Than the owner's tax account. I love these three bank accounts because they all focus on you, the owner. The difference between all of them, profit is more of like, why did I start my business? And it's like the big want, like, what do I really want from it? Do I want to take a, you know, crazy trips? Do I want to give, you know, a lot of money away? Do I want to go and be a part of a mastermind that I've never been part of before? Like, you know, like, do I want to jump in with Justin and get mentoring from him? It's like, these are the things of where you get to go out and do the fun things you want from life. And I would do that on a quarterly basis. Taking the money out of their owner's cop. Here we go. This is how we could have solved the 25 deals a month issue. This is how Justin and his business could have solved the 1% or whatever, you know, like the single digit percentage, you know, like Making all those seven figures that I see this over and over. Having an account dedicated to the owner to pay themselves consistently by a percentage that you decide that the owner decides at first. If you're already in the trenches, you might be like, well, I'm not paying myself and I'm not profitable. I would warn you right now, this is the exact time you need to start implementing something like this because you're not profitable. So let me just put that as a side. The other bank account would be the owner's tax. If you. Okay, when we're recording this, it's right in the thick of tax season and it's like, good God, do you have your taxes? Do you know them? Are they up to date? Are you going to pay an arm and a leg because you're only an active real estate investor? Well, if you are, this is where an owner's tax account is like a peace of mind account. These are to save from the business. Like every deal you do, you slice a little bit off, put it into the tax, you know, bank account, and then when tax time comes, you don't have to be like hair on fire. Oh, shoot, I got to do four flips right now just to cover this tax bill. Or like my first six figure tax bill. What do I do? I actually talk about one of our friends, you know, from the groups were a part of Justin, like in the book, where he got his first six figure tax bill. And he's like, it took him years to pay that off before he found profit first. And then it took him like a year, you know, to get it out the door. And it's like, that's a peace of mind account. So those are the first three profit owners. Cop owner's tax. The other two, well, you already have one of them. You already have opex the operational expenses. That was your black hole bank account where all your money flows out. Well, now instead of it being chaos, it's only the outflow. I do separate out income. That's the fifth one is income would be you get your wires in and now you can see where's my money and how much did I bring in over the last month? That's more of like what you made.
- [14:33]
Justin Colby
So the income, just for some clarity for people, right. The last one he spoke about, the fifth one, income, this is all wires from title companies, wires from closing lawyers, true gross revenue for the company. That is the only thing that goes in that account. And from there you can start to disperse into the other four, into the other one. There's A lot of people that I think when they hear opex, they think that's going to be your main bank account.
- [14:57]
David Richter
Right?
- [14:58]
Justin Colby
It shouldn't be. There should just be your main bank account that is collecting all revenue. But there you delineate or distribute, I guess, to the other four.
- [15:09]
David Richter
Yeah, and in the book, too, like, if you ever get money in, like, from a private lender or something, that's where I'd give another system for that. If you're a real estate investor, I will say, though, here's a bonus account. If you are a real estate investor, especially in the active flipping space or active side, if you're getting money from private lenders, we call it opm, other people's money. So if you take money from other people, I would highly recommend an account dedicated to their funds. And this is where people ask me, well, what if I have a bunch of lenders? Or what if I have, like five projects going on at a time? It's literally just a holding bucket for all the rehab money for all your rehabs going on to see do I have enough to finish all of them or do I need to tap into and, like, go dive into my system to see how much do I have left for each project. But it's more of just a holding bucket there to make sure, you know, this is what I have in OPM to finish my projects. The rest of the system is to make sure the business is healthy. And if you're like, good God, David, that was like five or six bank accounts that you just said. Like, what do I do? Like, how I can't do all this, you know, I'm barely struggling. I'm staying to stay afloat. I would do one. I would pick either profit or owner's cop. Pick one of those to start with, start to keep more of the money. Because that's. Honestly, if there was a magic secret sauce, that's it. And it's not. Even though it's magic secret sauce, it's doing that for a long time over a long period of time. And it's like, it's not sexy or exciting once you have it there for four years. But you know what's sexy and exciting? Taking money out and doing something sexy and exciting. You know, like going out on that cruise or going to wherever you wanted to travel to or whatever you wanted to do. That's where I would start with that. And if you're. If you are like, good guy, my hair is on fire, I can't even do this. I would start with 1% start with 1% to one of those accounts like the one of those keep accounts profit owners cap and like put the rest of it into OPEX and run the business. But every quarter, like can we do a little bit better? Instead of 1%, how about 2? Can you go to 2? From 2 to 3, 3 to 5, 5 to 10. Like we just want to build the like if you were going to the gym, like you're not going to go from like lifting no weights to like double your your weight, you know, and bench press. Like you're not going to do something crazy. You're going to start with where you are and that's where a good system like this is almost like a personal trainer like coming in and saying this is what you need to do in the system and like that's where just starting it, starting it is the habit. So there you go, Justin. There's like the overview of profit first. I know we take a lot.
- [17:35]
Justin Colby
This episode brought to you by Progressive Insurance. Do you ever find yourself playing the budgeting game? Shifting a little money here, a little there, hoping it all works out. Well, with the name your price tool from Progressive you can get a better budgeter and potentially lower your insurance bill too. You tell Progressive what you want to pay for car insurance and they'll help find you options within your budget. Try it today@progressive.com Progressive Casualty Insurance Company and affiliates Price and coverage match limited by state law not available in all states.
- [18:10]
David Richter
Time. But then also the nitty gritty of like here's the actual bank accounts to get set up.
- [18:15]
Justin Colby
Well, I think a lot of people, what they need to understand here is it, is, it is a progression. Right? So if you're not where I'm sitting and having six bank accounts or maybe even more because I do have a lot of private lenders, then I get that and, and David does too. Right. And so then you have to decide, do I need all five. Well, you may not. Right. You may not have any revenue coming in, you may not have any flips or wholesales going. Now you may be in the middle of trying to get them to go. So again, the progression of where your business is at is always going to go. The thing that I think most people aren't aware of that I think you can help them with and just the understanding of the owner's tax bank account. Yeah, I think a lot of people think just because they have an LLC and just because they might have an S corp that owns said LLC somewhere, somehow that money doesn't trickle down into their Hands and they use their corporate credit card for everything and they pay off the. They pay off the credit card with the money that hits the llc. And I think their mindset there is something I really want to touch on because many people I think do this and I know do this, and I was a victim of this in my younger entrepreneur life where I was like, oh, I made 100 grand, I spent 100 grand all through the LLC. So Justin Colby doesn't get taxed, ladies and gentlemen, that is not the case. That is all going to trickle down into actual income into me. Even though for me, owning it with an S corp does give me some tax savings because I own the waterfall owned by me, I will be taxed on all of that revenue. Okay, that is the importance of having this bank account that is owner's tax account. Now speak a little bit to that because some people might have different formats of how they own the company. Yeah, they might have an LLC owned by a C Corp or an S Corp, or maybe they own it themselves. Probably not very likely, but hopefully talk a lot about that one because I think there's a lot of people out there that just feel as if, oh, dude, I don't pay my car payment. My company does. Right, brother, you're going to pay tax on the income that pays your car payment. And I don't want you to forget that.
- [20:19]
David Richter
Yep, exactly. So, yeah, that even though I'm not personally a CPA or tax expert, so I just, there's that disclaimer.
- [20:26]
Justin Colby
This is not financial.
- [20:27]
David Richter
I'm not your. And this is not financial advice for you. So. But this is where a lot of people have that mentality of like, okay, I'm just going to put everything on the business card or I'm just going to run through everything through the business. And while there's a certain degree of like, yes, you should run as much as you can, it's also at the same time like you want the LLC to protect you. Like an LLC is supposed to protect you or like a corporation is supposed to protect you. Where if you are just like commingling everything, that's like a separate issue. Even maybe from what we're talking about. It's like, don't commingle everything because then you pierce the corporate veil of yourself. Like that, that very famous, infamous statement, you know, in American, you know, our society here, it's like, I don't want you doing that. Another thing is, that's why I like the profit first system, because usually we do percentage based transfers, meaning like if you get 100,000 in, there's going to be a percentage that goes to profit at, you know, to owner's comp, to the owner's tax and like, to the OPEX account and like, in the system. Think of it like that. If you have $100,000 and let's just say you had legitimate business expenses of 50,000, then you're only going to be taxed on, like, the. The 50,000 that's left over, that's actual, you know, profit to the business. But then you're actually taking the cash and putting it in the owner's tax account, like at 15% or whatever. And like, now you've got cash there sitting for the income that you'll be taxed on. And if you think you're going to get around it, it usually will catch up to you. I just don't want it to catch up to you in the worst way possible, like someone doing an audit on you, and then you've got to go back and pay penalties over the last few years or whatever. It might be. Like, you want to be ahead of this stuff versus behind. Like, this is a horrible thing to catch up on for multiple reasons. One, if you're playing catch up and cleanup, that's usually way more expensive from bookkeepers, CPAs, accountants like to get things caught up and all. You know where it is. But another thing is too, is, like, if you're playing cleanup catch up, like, if you haven't paid the actual taxes you're supposed to, they could come after you again for that, you know, down the road with the fees and everything. So that's why it's super important to be like. Even though you might feel like, yes, I've got my llc, it's all set up. I'm running everything through it. If you don't have a C. Also if you don't have a cpa, who knows what they're doing, like, you could be in major trouble if you are just putting that all through from not just an orange jumpsuit perspective, but, like, I'm going to have to pay again through the nose, maybe even what I already paid, you know, just in, you know, and then that'll be all the fees and stuff. So you just. That's why, Justin, I don't expect them to become a financial guru or wizard, but I do expect them to. Number one, I want them to know and be able to and be empowered to be good stewards of their money and be good money managers of like, a dollar comes in and they feel like I know what to do with it. And I at least now know where it went. Even if it's not stacked up, I know where it went and, like, I can at least pinpoint it and now make different decisions. The other thing is too, I want them to know there are people out here like me. Like, even if you don't use simple CFO and myself, there's other people that have this mentality, this mindset. They're not just your typical. What you think of maybe an elderly CPA sitting like Ebenezer Scrooge sitting at his, like, counting house, like in a dark corner, like, just being there and not actually caring about you, you know, and the entrepreneur and then giving you good steps to follow of, like, here's what to actually do. So, yes, the owner's tax account, like I mentioned before, is like a peace of mind account. It is there to make sure you have the money to pay the taxes, which you will, because even if you don't pay them today because you're doing some squirrely things behind the scenes, it will catch up to you when you get the right people in place that are ultimately there to protect you and help you. I don't think the IRS is there to protect you and help you, but we have to follow. We have to follow what their guidelines are and what. And what. That's where I also say too, then get into rentals, get into long term eventually, like, get into the passive side. So that way you can legally, literally get your taxes either to zero. Or I have multiple clients that like, they have so much depreciation and carry. They carry over losses for years because of what they're buying or like the syndications or the big deals or like, even if they buy a portfolio for themselves. So if you want to legally do it, you're in the best industry and you already have the skill of acquiring properties. Usually, like, if you're listening to Justin, you're learning that skill. Like you're. You're like pumping that muscle every time you listen to him. So it's like, that's where. Go out that and flex that a little bit because that's where the real tax savings can come into play.
- [25:00]
Justin Colby
Yeah. And there's no doubt, you know, I was definitely in a head there is. Because I believe real estate is the only vertical now. This is my belief.
- [25:08]
David Richter
Yeah.
- [25:08]
Justin Colby
That you can make a whole lot of money, you can build a whole lot of wealth. You'll never be able to pay taxes again or have to pay tax again if you do it right and you're protecting your downside. So what do I mean by that? I believe, and I know this to be true because I've had to do it when times get tough, you have equity in these assets, you can lean on that equity to protect your downside. Right? And I've had to do the very same thing. And so there's no other vertical I'm aware of. Now. You can make a whole lot of money in crypto. You can make a whole lot of money in stock and forex training. I get that. But where's all the other categories, like not paying taxes, you're going to pay a lot of tax taxes. With crypto, you're going to pay a lot of taxes with forex and stock trading, like you're going to pay taxes. Where's the opportunity to accumulate wealth? Well, you're probably making all the money in those categories and then putting it into real estate. Okay, and then where can you protect your downside? Where can you say, hey, either I need a $500,000 right now, by the way, tax free, another benefit, right? Because I need to do whatever it may be, potentially even pay your tax bill. Potentially even pay your tax bill. So what if you had 20 rentals, right? And I'll just say, hey, you have $100,000 tax bill and you lean those 20 rentals, you get a, you know, a HELOC and you borrow that money tax free to pay your tax bill and you pay it back over time. There's no other, there's no other assets, right? So this is why I lean into. Everyone needs to be in real estate, even if they're not a full time real estate investor, even though they're not acquiring a rental a month. And, and all these, who gives a statistics of, you know, how successful you are, they have to be in real estate. And if you're going to be in real estate, then you got to want, you're going to want to read the book. You're going to want to treat it like a business, even if you're doing it part time. Let's lean in a little bit more to the book. Beyond just the bank accounts in and of themselves, what are some other.
- [27:05]
Shopify Ad
This episode is brought to you by Progressive Insurance. You chose to hit play on this podcast today. Smart choice. Progressive loves to help people make smart choices. That's why they offer a tool called Auto Quote Explorer that allows you to compare your progressive car insurance quote with rates from other companies. So you save time on the research and can enjoy savings when you choose the best Rate for you. Give it a try after this episode@progressive.com Progressive Casualty Insurance Company and affiliates not available in all states or situations. Prices vary based on how you buy.
- [27:47]
Justin Colby
Golden nuggets that you can leave here with this audience. About the book.
- [27:50]
David Richter
Yeah, so another one is how to Mess up Profit first for Real Estate Investing. And the number one thing I say is just don't do anything from here. Like, just listen to it and be like, okay, that was a good. I either read this or like, that was a good podcast. Inspiring. But I don't do anything with. That's the worst way to mess it up. The second one is you set up the bank accounts and then you don't do anything with them. Like that's where I give in the book. That and specific to my book, I give what's called target allocation percentages. That's not the specific part, but the specific part is I give it for if you're selling the property or if you're buying it and holding it. And like, okay, for those bank accounts, like depending on the size of your business, how much money should go where into those bank accounts from every now, like we were saying before it comes into income, how much should I physically transfer to those other accounts? So it gives you a little roadmap in there. That's another big one. Especially if you're in the real estate space because a lot of people buy and hold, not just sell real estate. So that's another big one to mess it up. The other way to mess it up is like making it too complicated. Like, you go out there and you set up 15 bank accounts. It's like, wait a second, what are you going to do consistently? If it's one, I'd rather you do one and get it set up and start to get good habits and then have that progression where, you know, Justin is now like down the road and has multiple bank accounts. We have had people set it up and then I've had people set it up where they set it all the system up and then they come back to me at some other event like, oh, how's it going? Like, oh, I set up the accounts. Did you do anything? No. Like, I didn't real. And I'm like, oh man, I don't do that to yourself. You don't overcomplicate it. The other thing I would say is that really like derails people. And this might not be, well, this could be how to mess up profit first. But you get the wrong financial people around you that don't really have your best interest at heart, whether it's a bookkeeper. Like, if you have a bookkeeper who's. And you're in real estate and they don't know real estate investing, you could probably be looking at, like, from anywhere from a thousand to like 10 to $15,000 of cleanup down the road, because they probably don't know how to enter everything in the real estate space.
- [29:53]
Justin Colby
I just had this happen to me, by the way. Oh, that's incorrect bookkeeping. I've had my bookkeeper for years.
- [29:58]
David Richter
Yep.
- [29:59]
Justin Colby
And he got me right. My account was like, wait, what just happened? Like, did he. And they've worked together for years. So, like, even when you have someone good, there's. There's still mistakes that happen. That's reality. And I forget what it was. I think it was four tax returns that they had to re. Go back. Yeah. I want to say cost me $2,500 per tax return.
- [30:18]
David Richter
Okay.
- [30:19]
Justin Colby
I said $10,000 mistake, I guess. Who's not going to pay the bookkeeper, Right?
- [30:24]
David Richter
Exactly. That's where it's like, you got to have those right people in place that are supporting the profit first mentality. I would say, too, of like, they support that you want to set all this up and do it. But then they also need to know real estate. Like, that's the other big one. If you have a CPA who doesn't know real estate and you're buying real estate, hold it, like, good luck. Like getting the actual tax benefits from the irs, you know, because you have that CPA that's in place and we don't. You know, I'm more on the CFO side, which is more business and money management. So it's like, I even see this all the time where people have the bookkeeper cpa, which you need those people in your life. But if they're not real estate investing specific and that's the industry you're in, then that could end up costing. Like, Justin said that I could tell you story after story now of just people where they thought it was right or they didn't even know. And honestly, a lot of times people don't care. Honestly, the real estate investor is just like, let me make money. Let me do the deal, and I'll get to the books when I get to the books. And then it bites them in the butt big time. And they come back and they're like, oh, shoot. You know, like, I. Maybe I should have been paying attention to this the whole time. Because it's not just a bill. They get Slapped with. It's like, oh what, I could have done a better business, you know, I could have built something that actually served me, you know, versus like the mess and chaos that I'm in right now. So it's like hitting it from multiple angles.
- [31:43]
Justin Colby
The, the thing that I would tell everyone is first of all, go follow David. Even the simplicity of just following him all over his social medias, simple CFOs, his company, profit first for real estate investors. But don't be someone who's listening to this or watching this and doesn't do anything. You can be that person. But then be aware that like you're have, you're going to have no results. If you're even just getting started in real estate investing, this is likely one of the first books I would tell you to buy. Not because it's going to teach you how to get the deal, it's going to teach you how to set it up as a business from the beginning, even if it's a part time business. Right. And that way the financial mistakes that I definitely made in my first probably five years of business and basically just running all money in, all money out, I don't care, like do more deals, you're going to avoid that trap. Right. Like even the highlight I tried to point out about the, the taxes personally, you're not aware unless someone like myself or Davis mentions to you like, hey, the money, gross money that's coming into your LLC trickles down to you at some point.
- [32:48]
David Richter
Yeah.
- [32:49]
Justin Colby
And if you aren't set up the right way and you're not pulling out owner's taxes on every deal, on every dollar, even if you're pulling out 20% which you're going to be taxed more than that. But even if you pull out 20% of those dollars, you're going to have a good head start to make sure that the tax man is, is actually going to get paid. Right. And again David, you've seen, I mean you've worked with thousands of investors. Like you've seen it all the time. They're built on sand.
- [33:17]
David Richter
Yep. Yes, indeed. And we see that a lot of people don't, like you said, they don't have that good foundation. Which is why I'm so adamant and I love that you brought that up, that even if you're just doing your first deal, like you're in the middle of your first deal or you're about to set up your llc, the ein and all the banks, you know, bank stuff, it's like set up this system like B have good habits from deal one versus okay. I was 850 deals into my real estate career before profit first even entered my, you know, headspace. And I'm like, good grief. If we would have had this from deal one, that could have been 850deals where we had more profit and a system for it. And I'm like, please, for the love of God, if you are doing this now and getting into it, set it up from deal one. If you're a thousand deals into it, don't let your next thousand deals be not as profitable as they could be because you didn't do something from this podcast.
- [34:08]
Justin Colby
Let me. Let me tell you what he's saying without saying this. Don't just make money to pay yourself 100% of it so you can go buy the car you want or the watch you want or take the vacation. Ideally, you will have that kind of money to do those.
- [34:21]
David Richter
Yeah.
- [34:22]
Justin Colby
That is our perfect world, right, David? But he's not saying this, but it is underlying on everything he is saying is it takes time and you need Runway. Right. If you're doing a deal a month, you're going to be able to buy cars, you're going to be able to buy watches, take vacations, because you're setting it up the right way. You're accounting for the dollars. But if you do one or two or three deals and maybe you make like 30, 40, 50 grand or more, and you're like, yeah, it I'm gonna go buy my car or I'm gonna go, you know, to Vegas, or I'm gonna go, whatever, then you're just gonna get in trouble later on down the road. That's all we're saying. Right. We're basically saying, we are big brother. We are seniors in high school. You are a freshman. There's a way to play this game. So you are, you know, senior prom king at the end of this game.
- [35:08]
David Richter
Yeah.
- [35:08]
Justin Colby
Or you're the guy scared to go to prom your senior year. Right. You get to play the game however you want, but David and Justin are going to help you and be the best of the best. Right. And I just. I want people to understand where we're coming from here is I've made these mistakes. David's made these mistakes. This is why he wrote the book Profit first for Real Estate Investors. What was that website again, David? Simple CFO.com forward slash JC simple CFO.com forward slash JC he gives. I mean, there's a bunch of free giveaways on the website, right?
- [35:39]
David Richter
Yeah. It's literally My book and the profit first cheat sheet. So if you're like, here, let me distill this down into one page because I know I'm an entrepreneur. Like, just give it to me. The bottom line. What is it? There you go. You can go there and get that one page cheat sheet and the book.
- [35:53]
Justin Colby
Done deal. Well, brother, I appreciate you. I know I'm going to have you featured in a lot more of my intensives and masterminds. If you're a part of my world, you're going to see a lot more, David, because this is a. This is. It's like an epidemic, right? I mean, it really is just I, I see it all the time. People make money and they have no money. And so if you're sitting out there like, dude, this relates, I relate. I don't like, what the hell did I do? I didn't, I didn't buy the car. I didn't. But I still don't have any money. Like I didn't do it wrong. Justin, you're telling me don't go buy a car. I didn't buy a car, but I still can't find the money. I get it. David gets it. There's a way to handle this, so make sure you follow David. Go to simple cfo.com forward/jc Bro, I appreciate it. Let's keep spreading the word. Let's keep getting you out there because you're going to change a lot of lives.
- [36:35]
David Richter
Yeah, I appreciate that and appreciate you letting me spread the word and thanks for having me.
- [36:39]
Justin Colby
Bye, man. See you guys. If, by the way, if this was helpful and you think you might know one or two people who could be a better business owner, make sure you share it with those two people. I appreciate you. Make sure you give a lot of love. Likes and comments on this. See you guys on the next episode.