Welcome to the Average Joe Finances Podcast. | The #1 Personal Finance Podcast in Hawaii!
May 1, 2022

92. Profit First for Real Estate with David Richter

92. Profit First for Real Estate with David Richter

Join Mike Cavaggioni with David Richter on the 92nd episode of the Average Joe Finances Podcast to talk about profit first in real estate. David is an active real estate investor, author, and founder of Simple CFO Solutions, LLC. He shares how he brings investors true financial clarity and freedom.

In this episode, you’ll learn:

  • What Profit First for real estate means
  • Shift to pay yourself first over expenses
  • Application of the Profit First method
  • David’s favorite real estate investing strategy
  • Advice for those just getting started
  • And much more!

About David Richter:
David Richter is an active real estate investor. He has been essential in closing over 850 deals, including wholesale, turnkey, BRRRR, owner finance, rentals, lease options, and any other exit strategy. While growing and building a real estate business from five deals a month to over 25 deals a month, David realized that as much money was coming in, it was going right out. With the unique opportunity to be in every seat as a real estate investor, he found a calling to the company’s finance seat to help them see where their money was going. David has helped real estate companies completely turn around from going out of business to building cash reserves through his profit advising company, Simple CFO Solutions, LLC. He is the author of Profit First for Real Estate Investing. His goal in life is to completely transform the Real Estate Investing industry when it comes to how real estate investors view their finances and – bring them true financial clarity and freedom.

Find David Richter on:
Website: https://simplecfosolutions.com/
Profit First for Real Estate Book: https://amzn.to/3vj2Bex
Profit First by Mike Michalowicz: https://amzn.to/3xLrIIf

Average Joe Finances®
Our social media links can be found here: https://averagejoefinances.com/links
Check out: https://averagejoefinances.com
Balance Your Portfolio with Passiv: https://averagejoefinances.com/passiv
Buying or Selling a House? https://averagejoefinances.com/realtor
Interested in getting your real estate license? https://averagejoefinances.com/prepagent
Use the same Audio/Video Editing Team that I use: https://editpods.com
Host your own podcast here: https://averagejoefinances.com/buzzsprout
Social Media Management Tool: https://averagejoefinances.com/social-media
Podcast Book I’m Published in: https://averagejoefinances.com/daniel-larson
Buy an NFT of this podcast: https://ajf.uncut.fm

Free Stocks:

  • Robinhood: https://averagejoefinances.com/robinhood
  • Webull: https://averagejoefinances.com/webull

Consolidate debt: https://averagejoefinances.com/sofi-loans/
Get Life Insurance: https://averagejoefinances.com/ladder
Average Joe Finances Swag: https://averagejoefinances.com/resources/shop

*DISCLAIMER* https://averagejoefinances.com/disclaimer If you are interested in writing for Average Joe Finances or joining us for an interview on the podcast, please visit https://averagejoefinances.com/contact

See our episode transcripts here: https://www.averagejoefinancespod.com/episodes/
--------------
Tropical Sensation by Mike Leite soundcloud.com/mikeleite Creative Commons — Attribution 3.0 Unported — CC BY 3.0 Free Download / Stream: https://bit.ly/-tropical-sensation

Support the show (https://www.buymeacoffee.com/avgjoefinances)
Transcript
Average Joe Finances:

Hey, how's it going everybody? So today's guest is David Richter and David is an active real estate investor. Who's been essential in closing over 850 deals over the last seven years. This is to include wholesale turnkey, Burr owner, finance, rent rentals, lease options and other different exit strategies that you can think of while growing and building a real estate business from five deals a month to over 25 deals. He realized that as much money was coming in, it was going right out the door. So with that unique opportunity of being in every seat as a real estate investor, he found a calling in the company's finance seat to help businesses see where their money really went. David has helped real estate companies completely turn around from going out of business to building cash reserves by using the profit first cash flow system. He wrote profit first for real estate. And. This book is a derivative of the original profit. First by Mike it's specifically tailored for real estate investors. So his goal is to completely transform the real estate investing industry. When it comes to how real estate investors view their finances, he wants to bring investors true financial clarity, and freedom and help every investor stop living deal with. David really excited to talk about this, especially when you talk about for real estate investors going from deal to deal. It reminds me of people that live that nine to five life that live paycheck to paycheck. This is going to be really fun to talk about. So thanks for joining me today

David Richter:

Yeah thanks for having me on Mike I really appreciate it.

Average Joe Finances:

Hi right on. All right, David. So the first thing I want to talk about it's the same thing I talk about or the same question I ask everybody that comes on my show and I shared a little bit about you from your background that I had. So if you could dig a little bit deeper and just tell us how this all got started for you.

David Richter:

Yeah. So I read rich dad, poor dad in college. So a good friend gave that to me and that's where it really all started the mindset, shift, everything. I was just going to go to school, go to college, get a good education and go out into the workforce. But once I read that book, there was no turning back. So I bought a house, did my first deal, did my first rental deal. Fixed it up. I bought it off the MLS, fixed it up. It was a HUD house. Then put a renter in there for a few months, then actually moved into that house too. We lived in it for a couple of years, then the lease optioned it once we moved out and then the tenant was super tenant paid on time and then cash me out like six months later. I'm like, this is awesome. So that's how I got started in all of this. And then. During that time too. I was reading a ton way more, after a re rich dad, poor dad and led me to other real estate investors in my area. And that was where I started working with investors in getting around real estate investing. And that's really what kicked it all off was a book starting that's a as most real estate investors have probably read rich dad, poor dad.

Average Joe Finances:

Yeah. That's a we call that the purple Bible. Pretty much everybody that's in real estate or really anything in the finance community has heard of, or read rich dad, poor dad. And it's a it's a pretty pivotal book when it comes to just that investing mindset right now. You're, you broke off from a profit first that was written by Mike Michalowicz right to, which was actually written for businesses, to learn how to pay themselves first, then pay for their expenses. So you have a book now that shows you how to do this specifically in the real estate realm. So I'd like to talk about that a little bit because I actually had a guest on the show a while back last year. That actually talked about profit first. I don't know if you know him Rocky Lalvani. It was an awesome interview and he's part of Mike's team and everything too, which was really cool. So I really want to dive a little bit deeper into, your side here specifically in real estate. So can you explain what profit first means for a real estate investor?

David Richter:

Yeah. So this is going to hold on. So this is gonna be a little bit while on here. Cause I love this part because you know how I told you a rich dad, poor dad got me kicked off. This is another book that changed my mindset around being a business owner, being a true business owner and not just struggling, going deal to deal. That's where I felt like. Rich dad, poor dad did a great job of getting you on the right track and it tells you to pay yourself, but then profit first takes it a step further and says, here's how you do it. As the, as any type of business owner. And that's where I wanted to take it a step further for the real estate investing community and say, here's how you do it as a real estate investor, because my background's in real estate investing like like you mentioned, Mike, I've been a part of a lot of different deals. So I've seen a lot of things. I was part of a company where we grew to about 30 deals a month. And like we would have six, seven figure months, but we had six, seven figure expenses as well too. And that was like really depressing. So that's where I saw at the beginning. It doesn't matter what you're making, it matters what you're keeping and that's why. When I read profit first, that's what really struck to me was like, here's a system to actually keep the money. And I got there through a lot of different, I could tell the whole story of I started working with another guy, a real estate investor and helped him with his finances, get clarity, you know, around his numbers. He was able to, he found a lot of his money was tied up with in his portfolio and in his properties. And didn't even know it was there. Cause he didn't know his numbers and was able to like refinance a lot and out of his properties and actually get back into a really good cash position. And he said, this has been life-changing now I have my numbers. Now I have them going forward. Now I can, I feel like I'm in control of my business. And that's what got me thinking. I want to help real estate investors. It's funny that you mentioned Rocky because Rocky is one of the CFOs on our team now that helps, real estate investors. His background is real estate investing too, but that's where I wanted to help. And what just real estate investors with the number side, because it's something that a lot of people don't touch on. Like we never really touch on that side. It's usually marketing sales, the acquisitions, it's the, those, the buzz words and no one's talking about. You're going to make money. How do you really keep the money then? Like, how do you keep this money? How do you buy your financial freedom? Instead of living in the rat race and just always focusing on like more and more, because it's just, it can, you can get tiring, as a business owner, I then once I said, I wanted to start my own business to help entrepreneurs, I called a mentor of mine and he said, that sounds like a good idea, helping real estate investors with their finances it's really needed, all this stuff. But he said, have you read profit first? And I said, no, I've never read that. What is that? So I read it, this was several years ago. So I read that book that evening. I downloaded it on audible. You have to read. Mike Michalowicz it's books on audible. They're hilarious. He's a great narrator of his books, but read it on audible that night took 10 pages of notes and said, this is the framework that I want to help real estate investors. So I did, I started implementing the profit first framework with real estate investors. Start a solid start working with them too. That's when I went to Mike Macau, it's about seven, eight months later and said Hey, I'd love to write the book for real estate investing because there's a lot of nuances, like after seeing all these different types of deals, being a part of all these different things, seeing that work across multiple businesses, I think there needs to be a blueprint for. The real estate investing industry. So let me dive into the fundamentals of profit first. And then we could go into what maybe after that, if you want to ask about how it applies to real estate specifically, but I want you to at least to get the core message, because the core message is two parts, the mindset, and then the action. So first the mindset that is the there's a broken formula that we've all been fed as business. Sales minus expenses equals profit, bookkeepers accountants, just be that to us or like other entrepreneurs that don't know better, feed that to us that tell you, you make a sale, you pay everyone else. And their mother then hopefully you have profit leftover at the end of the day, or the end of the year, or whenever that event that's supposed to take place in some future, for you, you're supposed to rake in that profit, but the formula, the profit first formula says. Sales minus profit equals expenses, which is just a subtle shift there. But with two variables, the profit and expenses, meaning I make a sale, I take my profit first and then what I have left over are my expenses. And that's where the mindset can really help you get into that framework of, I don't have to. Be struggling and living deal to deal. And that's where it's like trying to get just to, to that place, kinda like Robert Kiyosaki does, he says pay yourself first or the richest man in Babylon. A portion of all I have is mine to keep, or these other books that we read as entrepreneurs, which is why I feel that. And it's a little bit misleading in those books because it doesn't give you that's how two steps. That's why I love the framework of profit first, because it's not just the mindset. It's not just that formula. It's also has here's action steps to back it up. Like, how do I actually take profit first? How do I make profit a priority in my business? How do I make profit a habit? Because that's the big, that's the nugget to take away is making profit a habit in your business. And I'm not talking about some nebulous. Intangible untouchable profit number that your CPA tells you at the end of the year, because this is how much you owe your taxes on. I'm not talking, I'm talking about true cash profit in a bank account. So how do you get to that end state? So that's where the second part, the fundamental of profit first is how to set that up, how to make it a reality. And I could go on and on about this, but I'll give you the one big step. The one big step is. So right now, most investors, entrepreneurs, business owners in general, their biggest mistake with their finances is having one big bank account where all money goes in, all money goes out and in your toss in a cash salad every single day, every single week, you have no idea what's coming in. What's going out. If if you look at your account one day, you feel like a king the next day, you feel like a popper because payroll ran in the marketing ran and like where'd all the money go, and it's that's where. You have one account you will are not in control. You don't feel that control as a business owner. And you're like, where is all my money? And what, why don't I know where it is because there's even a difference, even if you know your books really well. If you're that 2% of entrepreneurs who have the financial background or know your numbers, they don't always match up with the cash in the bank account. So that's where I love this framework because profit first is not about the financial statements, it's about managing the cash inside of your accounts. Because like I said, the biggest mistake is having that one account because you have no control. That's where the whole system is predicated on the envelope system. And if you've ever heard of the envelope system like grandma's envelopes or Dave Ramsey's made that popular, or like maybe you have an envelope for your personal finances or whatnot too, then that's where you do this for business. You set up physical bank accounts. Make sure that you have those bank accounts that are supporting you. That's where I also, so what are those bank accounts? Cause everyone always asks there's five fundamental accounts. The first three, I call the golden trio. And this is how it differs in the real estate investing book a little bit because I put my spin on it. But the golden trio is I'm a huge. You air this where people can see, but if they can't, I wear glasses used to have braces, I'm the typical, like what you would think of geek, nerd, whatever. I like embrace that fully. So I love the epic sagas, like Harry Potter, star wars, I love those big, yeah, there we go. I love it. Yeah. He's showing me his tattoo, right? Your microphone, his tattoo. But I love those epic sagas and because they've always got those three main heroes, Lou Khan, Leah Harry, Ron Harmani, like always pushing the story forward for good you and your. That's your epic saga. That is your story. That is the thing that you're going to tell your kids, your grandkids one day, and hopefully it's not going to be a crash and burn story. This is how you make it. So that way you can actually be winning in the end. So how do you do that? What are those golden trio accounts for you to make sure you're winning number one, a profit bank account. Number two and owner's compensation account and number three and owner's tax account. And I always get what's the difference between profit and owner's comp profit is something you take quarterly to feel the reward of having a successful business of having a business that's truly cash profitable. And for the blood, sweat, and tears, the time that you invest into it trading 40 hours, working something for someone else to 80 hours, working for yourself, like making sure you feel that. Then owner's compensation is something you take on a regular basis like weekly or bi-weekly or monthly, where you're physically paying yourself for on a consistent basis for the work you do inside the business, paying yourself a salary or distributions, or however you're set up right now to pay yourself consistently. So that's what that second bank account is owners tax, which is pretty self-explanatory. But I want to make sure, because in real estate, you've got property tax. This is different from property. Owner's taxes to make sure you, at the end of the year, have the money in a separate bank account to pay the IRS, especially if you're an active investor and don't have a ton of passive investments. If you're a very active, then you need to make sure throughout the year you're saving for your taxes. So that way, at the end of the year, you're not scrambling to like, do three more deals to cover your tax liability and going bananas because now you owe $120,000 and I'm like, where did that come from? So that's where making sure you get that throughout the year. The other, the fourth bank account is the income account, which is the control. I call it the control account. It's where money goes in. That's deposits, it's all income. Just go into that, holding bucket, that bank account until you transfer it to those other, the golden trio of accounts and your operational expense of cat. So that's account is literally for you now to see all money go in, but then you transfer it to those other accounts to see. Okay. I am now in control of my money. I tell where to go. Instead of it being in one big bank account is going in and out wherever it goes. So that's those four key ones. And then you already have the OPEX or operational expense account to pay your expenses from. So those are the five fundamental accounts of profit first, which if you set those. Then you'll start to see the mindset and the formula of profit first and from Robert Kiyosaki and from the richest man in Babylon and prom, every other book under the sun that tells you to pay yourself will start to make sense. It will, you'll start to see, this is how I will be profitable now for my next deal. And then a thousand deals down the road. If I still am in this habit and making profit a habit and transferring the money to those accounts, that golden trio I'll be doing it now and 10 years from now. And I'll actually be seeing an increase in my actual cash in my business to make sure that we are profitable and taking it where we want to. That's the core of profit first. And if you're like, okay, one more thing, Mike, it's the biggest objection, I get it's five bank accounts are you nuts? And it's no, if you can't do that, number one, I told you, this is your saga. Those, that golden trios for you, the business owner. But so if that doesn't convince you to make sure that you actually have profit and you're paying yourself at least set up one bank account, call it profit. Transfer 1% do that simple step, like just get in the habit of becoming a profitable business owner from your next deal. If you would do that, like we're recording this right now at the end of the year. I don't know when it'll air, but no matter what, if you're listening to it now, if you're listening to it in the future, like whenever you're listening to this, make sure that you set it up. So that way from your next deal. You become more profitable, even if you haven't been profitable up until now, just focusing on profit. I've seen businesses go from 70,000 losing and 300,000 in the hole, like in a year to turn around the next year of hundreds of thousands in the black, just because. Focused on the right things, asking themselves better questions. So if you will do nothing, but set up that one account and transfer 1% into there and get in that habit. I promise you a year from now. You'll say listening to that podcast was a game changer for my business because now I actually have more cash in my account and I don't feel chained to my business anymore. So there you go. That's the premise of profit first, I could go into the real estate side. I do. There are extra things inside of there that I talk about, but I always wanted to get the core message. I have to get this message out as much as possible.

Average Joe Finances:

And that's a lot to unpack. So I was sitting here writing down some notes and right off the bat, just from that your initial go at it, it reminded me of the conversation I had with Rocky last year, which is really awesome, man. One of the things that you had mentioned is the envelope system, right? And a lot of people are familiar with that, especially people that listen to my podcast between that and sinking funds, right? This is very similar to sinking funds. One of the things I use in my own personal life is sinking funds. I have about seven bank accounts that I use for all of my expenses throughout the year. Pretty much. So holidays are coming up right now as we're recording this. So I have a holiday and birthday fund, guess where the money for all the presents that are going under the tree and all that stuff came from, it came from that account because that's where I put that money. I have. A pet and a vet account, right? For our pets. I have a separate account for car maintenance. I have a separate account for miscellaneous expenses throughout the year. So all these different accounts that whenever I get paid, the money automatically gets distributed right away. Not automatically. I have to manually go in there and do it, but it all comes into that one account, the profit account, as you had mentioned before. So it's very similar to sinking funds, but placed into a business aspect, placed into just your business, not your personal life. Now, the, your owners your owner's account, right? Your owner's compensation. Yeah. That would be how you're paying yourself. And then you would split it into the different sinking funds. If you're strictly a business owner, I'm talking about my active duty paycheck from the Navy. I'm not even talking about my investments. So that's just that in general. So it's for those of you that are listening and thinking, oh my goodness. That's so many bank accounts. Realistically, we've been talking about that for a long time on this show, especially when it comes to sinking funds. So now you're looking at it from a business perspective which is what's really awesome about. Mike Michalowicz with his book profit first, and you taking that and turning it into something strictly for real estate investors which a large majority of the people that listen to my show are it's really exciting. And now that we've got the basics. I want to dive a little bit deeper into how this relates to real estate, but first there's, cause I wrote down a lot of stuff as you were talking. The first question I want to ask you before we get into that is, especially for real estate investors right there, they're working their numbers. They're, when you go to look at a deal, the first thing you're looking at is, okay, how much is it? What can I pay to make it where these numbers work for me? And if I can't get to that number then this isn't going to be a good deal right now. How do you make that shift? How do you make that shift from going from? Okay. I know that my expenses on this rental property will be this much. I know that this is how much I'll have to pay throughout the year. How do you make that shift of paying yourself first versus paying your expensive expenses first, especially as a real estate investor.

David Richter:

So one of the steps I left out is one of the first things is you have to know where you are right now. So you have to at least get a baseline of, okay, are my expenses like 95%? Because if they are, that's where I need to know okay, this is a red flag, that's the first thing I think most investors, we do it. I know that even Robert Kiyosaki says this, a lot of business people say is, and it's because it's so true that accounting is the language of business. It is. And knowing that language and understanding it, knowing what, where your money's going, and that's where as a real estate investor, you need to make sure you know, where your money is going and you know exactly where you are. And that's where I feel like most investors don't even want to look at. And the first step really is getting where your baseline, what is my in profit first terms? My current allocation percentages or my caps, what am I currently doing in my business? Because if you are at 95%, it's going to be really hard to do, 50% to yourself. If you need that much, on every single rental or every single deal. And just getting that baseline first, because the whole point of this system. Is to get in the habit of becoming profitable. So I would still set up a profit account, still set up an owner's compensation account. And if like you, this is a great example, your situation of maybe you're building a rental portfolio and you still have W2 income or, from the Navy or you have actual income from the Navy or whatnot, you run across this all the time. So you don't have to pay yourself as much as you're getting into real estate. And. And you don't have to pay yourself as much from the rental side or from that. And we see that a lot, but we tell people still set up the fundamental accounts and at least set up 1% to go into those accounts, at least at first. So that way, if you are heavily expensed and you've got a lot of expenses, you can start somewhere, start small, and then every single quarter can we bump the expenses down, bump those profit percentages up. And once you're ready to retire, either from the Navy or like from your W2 or fire your boss or whatever, if, if someone has a W2 job out there, then it's okay, when it's ready for that time plan out. If that's two years from now, or if that's two quarters from now, where do I need to be percentage wise in order. And how many rentals or how many deals do I need to be doing a month in order to pay myself what I need? That's where a lot of owners, I feel like, just say, I'm doing this amount, I'm doing 20,000 a month in deals, but that doesn't mean 20,000 a month to you. Like that's where most investors follow the track of you still have to pay for marketing, you got to pay, are you going to bring people on board? Are you going to hire virtual assistants? You know, it's like, that's where, but what do you need in a month? That's where a lot of business owners, we need to know first, where are we right now? Where do we want to get to? How fast do we want to get to? And then reverse engineering. And then at least being in that habit of, okay, this quarter. It might be when we first start, everything might be 1% except for OPEX. Everything might be half a percent except for OPEX, but get into that habit next quarter, we'll adjust and we'll get better. And what can I cut right now? Can I put any more towards these other accounts? So that's where I tell people start where you are and then plan out where do you want to be and what realistically can you do to get there?

Average Joe Finances:

Perfect. Perfect. Yeah. Even if you're just starting off just a little bit, like you said, just that 1% and even if you don't necessarily need to, right now, you start creating that muscle memory right. Of doing this. And, as you build your business and you get ready to say, Hey, I'm going to fire my boss or, Hey, I'm going to retire. Or, it's time to move on to the next thing and be a full-time investor. That's, you've already built the system it's already in place. And now all you have to do. Go all in on it at this time now. And, especially if you have a W2 job right now, you can slowly just build it up and build it up and build it up and get it to the point where it becomes almost its own self functioning machine and or a well-oiled machine. Because each year that you're building it up, you're adding a little more oil and you're making sure that it's good to go. So I absolutely love that, man. I do. And it's. You're putting it into a perspective that makes it more, reasonable for somebody who's trying to jump into something like this. And, I like what you said about, you have to see where you're at first and then you have to reverse engineer from that, right? Because like you said, if your expenses are 95%. You're probably this probably isn't going to work right away. So that's the problem you have to solve first. You have to get past that and figure out a good way to lower your expenses. And increase that profit margin. So you can start implementing this into your system. Absolutely awesome. David. So now. Getting more specific into real estate, right? Because now you've touched like every flavor of real estate from BRRRR to turn key to wholesaling. I'm sure there's some flips in there too. So with you touching like almost every aspect of real estate, how do you tie all of that in to a profit first method?

David Richter:

So in the book I separate out buy and hold companies like, and I want them all together. We'll use options, rentals, seller, finance, like even if they're not, the same type, like ones obviously on terms and payments throughout, and one's an actual straight rental. I want those in as the passive or the buy and hold, like the long-term strategy versus the active or the fix and flip, or the selling company, selling versus rental or buy and hold. So those are the two that I do, what is the sale of the outcome or is holding it the outcome and then hit it from those angles because then the core principles are still the same, but then the setup is a little bit different. Like for both of them though, no matter if you're a real estate investor on the active or PA or the passive side, I would have an OPM account, other people's money where if you are taking money from private lenders, hard money, lenders, banks, whatever, for projects, for fixing flips or for rentals, I would separate that. From those core accounts. So that way you're not mixing in private lenders money or lenders funds in with your operational expenses, for the day to day, those are for specific projects, make sure that you have those, as separated out. So that's one thing that covers all the realm of real estate investing. Because a lot of, no matter if you're on the passive or active side, probably going to get some private money or hard money or whatever, some type of funds. So that's one big thing. The other thing is like on the. The buy and hold side, I'd say you should probably have a PITI account, principal interest taxes, insurance, because a lot of places make you pay annually or biannually like the taxes or whatnot. And sometimes it's not always escrowed in with the property, especially if you start to grow and scale. You might not have a mortgage. You might be taking it down with a private lender first and then refinancing it later on and with a mortgage that has PITI wrote in. So I highly recommend having a PITI account because even if you have mortgages and they're already allocated and escrowed for you, you can know what am I paying out the. For my PITI, every single month, but then also, if you aren't, if it's not already escrowed for you, the tax, the taxes and insurance, then you are saving every single month inside of there. So at the end of the year, you don't have this huge property tax filling and you're like, shoot, where'd all the money go for that. So there's the PITI bucket that I recommend. I also recommend making sure tenant deposits. That's usually a standard one for real estate investing on that side then for buy and hold I also recommend like a cap. Like capital expenditures or vacancy turnover, like making sure the biggest expenses for what you need to do for the buy and hold that you have an actual account for that, because we know that's the biggest expense that you're going to have throughout their lifetime of that, of your properties and of your portfolio. So that's another thing that I talk about in the book as well. So that's how I separated out. I also dedicate a whole entire chapter of the book to how reserves grow your business. Because I don't know if there's any group of entrepreneurs and business owners that love to just not sit on money, not sit on any money and just have every dollar out there working and investing. And I get that. That is great. But then at the end of the day, if you want to grow your business, you're going to have reserves because there are going to be downturns. So whether that be a downturn in the market. Or a personal downturn that happens in your life. You're going to need to rely on what you have in your business. So making sure that's there, I also talk about this is how you stop living, deal to deal. If you see you have money in an account, that's not designated for some expense, that's coming up and it's just there for your peace of mind, even if you're that type a risk taking all the time, it gives you breathing room to make decisions from your purpose and not from fear, making sure that you're not making that deal just because it's a slim deal and like I have to have that next deal and making the decision of no, I want this deal because I know we can have this exit strategy or this exit strategy. We can make this deal happen and make it at this profit making better decisions. The other thing too is besides that, the psychological effect is a lenders, love reserve. So if you're wanting to go out there, build a bigger portfolio and can't get a bunch of just, traditional mortgages on the properties using private funds, or like just doing private funds for your fix and flip, they like to see that you're a savvy business owner and that you have money in an account or money in different accounts, so that helps you to grow your business. And it's just something that I hit in the book because I do, this is one thing where right now, as we record this podcast, the real estate market is great. It's been great for I don't know, 14 years or 13 years since 2007 and eight and nine. So it's been real. It's been getting better and better. But that's not always going to be that way. So it's this is something where if you can get in this habit, you can save yourself a lot of the hurt and heartache that the friends that I had personally, that went down during that last downturn. And one of the reasons why I wrote this book and I'm preaching this message, getting it out there is, I want to make sure that. You have those reserves and you get this in place. So that way you don't have to go through something like that. And that, because the true test of a business owner is not the good times. It's not riding out those bull markets. It's seeing if you can handle the bear markets and if you can handle the downturns and if you can handle the rough circumstances, having a system like this gets you through those times, the goal is not to get big. The goal is to create a sustainable business. The goal is to make sure you can handle anything at any time. And this is a big thing. Having those reserves. The big piece of that puzzle. It's not the end all be all, but it's the big piece of that puzzle for you. You still have to have marketing and you still have to have the sales. You still have to have top-line coming in, but you've got to, you can't have a net with, like a bunch of a bag with a bunch of holes in it. You have to have a bag that's sealed tight airlock, make sure it's titanium steel, like that way nothing can get out. So those are a couple of things that I just. Really deep inside of this book. I also talk about a whole dedicate, a whole chapter of like how to mess it up to the system and like the mistakes I've seen people try and make it too complicated. They don't start, it's they just don't get past some of these hurdles. So there's a couple of those things as well, too, that I've seen in the real estate world.

Average Joe Finances:

Yeah, David, that is all very important stuff. I tie it back into what my show's all about here too. Average Joe finances. And one of the things that we talk about is just, when we have these sinking funds and we have these different accounts, There's an emergency fund in there as well, and that emergency fund, right? That is essentially your reserves. Now, if you take this and put it all into a business perspective, and this is what I really love about what you're talking about and about what you did with your book is that this all ties into the way you would treat your own personal. Accounts and personal expenses, tying it into your business. And having that same mindset as if you know this is all your money you want to be safe, you have to take risks. You have to, at any, anytime you invest, you take risks, but how much do you keep to the side and reserves to, to mitigate some of that risk. And as you're talking about that. It's just going in the back of my head. I'm just like, wow, this is just having an emergency fund for your business. And every time I bring real estate investors on and we talk about just, the different deals that they've had and how they've, they've taken a profit from this deal or they made this flip and made this money, then reinvest that money right away into something else. Or they did a BRRRR, they did a cash out refinance, went and bought something else, dumped all that money. Well they keep doing this a hundred percent allocation or it seems like that, right? Nobody, every top ever talks about, having money in reserves. Cause that's like the unsexy side of real estate. Nobody really wants to talk about that. So I think it's important. And you shining a light on that as you're talking about. What you wrote in your book of the importance of having these reserves. Now I'm on my second page of notes already as we're sitting here chatting because you're just giving me so many golden nuggets here. It's absolutely. And you talk about how reserves are good for downturns and good for an emergency. And that is something that I guess right now, as a real estate investor, many of us are probably very complacent because like you said, the market's been good for how long. 1314 years. It doesn't seem like it's ever going to get bad. Let me knock on wood right now because you never know when that's going to happen. Right now it looks like there's a bubble building up and building up. It's just a matter of time before it pops, it might happen. It might not, I don't know. I can't predict the future. All I can look as do is look at these different indicators. And try to figure out if it looks like something like that's going to happen, we don't know until it actually happens. Cause if you think about it, some of the indicators that show right now shows that this should have popped already. It's pretty crazy when you think about all that. So it's just something you gotta be careful. You have to make sure that, yes, you're still taking care of yourself. You're still taking your profit. You're still, you still have all these other accounts to pay your expenses, pay for marketing, things like that. But don't forget your reserves. Don't forget that emergency pot of money in case there is a downturn because like you said, a lot of people back in oh 7 0 8 0 9, lost their shirts. When the market crashed and they lost everything. And then there's some people that had a lot of cash reserves and had money off to the side and they just rebuilt from the ground up and actually was able to take those reserves. And it became a huge opportunity because now they're buying. Properties for pennies on the dollar at that point. And then over the next 10 to 13 years those properties have tripled in value. And I think they're sitting pretty fat and happy right now. Reserves is definitely something that's very important. And something like I said is not talked about a lot, especially on different podcasts like this. Thank you for bringing that to. Yeah. As we go through your journey, David, and everything that you've done there's certain aspects of real estate, right? So all the different things that you've done between flipping wholesaling burrs turnkeys, I just want to know, this is just a curiosity question for me. What is your favorite real estate investing strategy?

David Richter:

For the long-term building wealth, I like lease options. I really liked those. And I've had, we had a portfolio of about over 80 of them and about 20 rentals. So we had about a hundred portfolio, and those were the ones with the least maintenance, the least headache. And I felt like we were actually bridging people into that home ownership of here we go, here's, this is someone who's a good person, but they. Their credit, isn't there to go out and buy a house. So it was like really bridging them into that which is a lot of where entrepreneurs find themselves too. If they can't go out right away, once they quit their W2 job. And they're not able to go out and buy that new house or whatnot. So it's these are good people that can do that. So I really like that. But then it's also a wealth building strategy. I'm huge on now the multifamily and like syndications things like that to just at scale and being able to the longterm wealth building as far as active goes, I liked the wholesale. That was one thing that we did and we did it well, it wasn't a bunch of headache of project management and doing that. It was finding the deeply discounted properties, getting that and helping the seller that has, that situation where it makes sense for them and then turning around and then selling it to one of the buyers that can go out and make the property beautiful. So I love that from the. The cash, ATM making that the ATM and then funding the real estate investing portfolio and then building it from there. So those are, I know you asked for one, but those are the ones that I like good. That went hand in hand for what we did

Average Joe Finances:

No. I love it. I love it. Especially what you talked about with that first one with the lease options, right? Because you're providing opportunity for affordable housing for someone that wouldn't necessarily qualify for a mortgage at this time, but it's giving them an option to essentially rent to rent, to own eventually and then take over the property and buy the property in the future. What's really awesome about that is. In the given moment you're generating cashflow for yourself and an affordable housing unit for someone. And at the same time, ensuring in the future that asset's going to sell, and then you can move on to something else. And I really liked that. You're talking about how, I guess the wholesaling was the ATM, that was how you funded to get into these other more passive deals when you start to get into multi-family syndications, which is actually what I'm involved in right now as well. I like the whole passive aspect to it, especially with how busy I am with still being in the Navy and trying to run this podcast and being a an active real estate agent as well. So my time is is worth a lot more to me than anything else, because when I have that little itty bit of free time, I want that to be with my family. It's really awesome. To just see your mindset and how you took these different investing strategies or real estate investing strategies to, work them into one, one thing that works for you. Besides real estate. Again, this is another personal question for me besides real estate. Are there any other asset classes that you invest in?

David Richter:

Besides real estate right now I build my I'm building my business too, like I've got us fractional CFO company, so that's what I've been pretty laser focused on that. And helping the real estate investing community. So besides real estate, it's also building the business because there you go, like rich dad, poor dad, again, making sure we're getting on the right side of that quadrant of the cash, the cashflow quadrant the business owner and the investor side. So making sure you have the rentals or you're building those assets on the, as an investor and then wanting to build a business as well, too. So those are the things that I'm doing right now.

Average Joe Finances:

Yeah, that's fantastic. It's one of the things that I like to say as well, too, because when people ask me like, Hey, what else do you invest in? I like to invest in my business. I like to take some of my profits and put it into growing what I'm building here with average Joe finances. And it's that, that right there is just is awesome because you do, you have to invest in your business and you have to invest in yourself, for personal growth and things like that. I'm not afraid to go buy a coaching course if I feel like I need it or to be in a mastermind. Those things. If it adds value to me, then it's worth it. If it's going to help me be better, then it's a hundred percent worth it. So fantastic. Invest in yourself, invest in your business. Now, do you have any tips or tricks that you would recommend to somebody who's just getting started investing in real estate and they're fresh. Like they just got themselves in a good spot where their, their consumer debt free and they can now. Afford to go buy that first rental property. What would you say to somebody, especially looking at it from a profit first mentality? What would you say to somebody just getting started today?

David Richter:

Two things. One make offers. Get out there, don't be scared. Like That's how you get the deals. That's your biggest metric? Or, I've heard it said different things, but that's the one key performance indicator. Like how many offers are you making to get the deals? Because that's how you're going to build it. I don't care if you want one. This next year or a thousand, that you want to go out there, you have to make those offers. So get in front of people, talk to people. I don't care if it's networking and you become in your building syndication, or if it's like just talking with actual sellers and buying one single family residence, whatever it is, make offers also. Coincide with that because you'll start making money. Once you make those offers and you start getting the houses and you start making the money set a profit first, like from that first deal, set it up, get those accounts in order, because I love what you have there behind you. Mike, it says control your future. And that's where most business owners, or no matter if they're just getting started or way down the road. They don't lose sleep at night, just because they're losing money. They lose sleep because they don't feel in control profit first in the bank accounts. And that gives you control back of your cash. That's the biggest thing people feel out of control is the money because you don't care what you just said. Invest in yourself. How many courses are there for marketing, for sales, for operations? Versus finances, like versus the financial side. So that's where I wanted to. That's why I love this message because this is a simple thing for the average, Joe, the average Joe real estate investor business owner person. It doesn't matter if you have one deal or a thousand deals. I set this up and understand it. You don't need to know the balance sheet or the profit and loss, like with profit first, you need to know cash and where's my money going. And how, where does it come into? Where does it go out? And do I actually have a profit? It's like these types of things, putting that power back in your hand. So number one, make offers, and number two, set up profit first to make sure that once those, that money starts rolling in, you're controlling it from day one.

Average Joe Finances:

Yeah, David, I love that. I love that. And it's super important, making those offers because the deal's not just going to show up on your doorstep. But one of the things you talked about when you were talking about making offers, It was like the second piece you touched on was networking. You said, I don't care if the offers come from you going around and just making offers or, just through networking. And I think that's huge. I think networking is an underestimated or under utilized method in real estate investing, not really under utilized because the people that have been doing this for a little while, they're really good at building their network up. And they know a lot of people in the same going through the same journey that they're going through. And I think networking is absolutely huge. I love building my network. It's one of the things that me selfishly as a podcaster I've been able to do is build an awesome network by bringing awesome guests like you onto my show. 'cause I love to keep in touch with everybody. That's come on my show. We, in chat and as deals come in and whatever, we, we share that with each other. It's awesome. I get deal flow in my inbox every single day. And it's because of the network that I've built, not just through the podcast, but through social media and just going out to real estate meetups and different things like that. Super important. Super huge. Especially if you want to scale and grow, you could be by yourself. If you want, if you just, if you're really like an introvert, you don't want to get out there and talk to too many people, but you're going to have to talk to people eventually you're going to have to meet people. And so big thing is go out there and meet people, go out there and network, go to a real estate meetup, go meet people like David or like me and pick our brains. I pick everybody's brain as much as I can cause I try to make sure that I am never the smartest guy in the room and always make sure that there's so many that are just, that's doing way better than me, which is pretty much everywhere I go, because I try to make sure that, I'm putting myself in situations where I'm the little guy, and it's super important to be able to surround myself with people that are doing bigger and better things. Because it helps me strive and aspire to that, that next level, that next step right. Now, I have to ask you besides your own, do you have a favorite business, investing, or real estate related book and or podcast?

David Richter:

Do I have to pick just one? Cause I have a lot, I read a lot.

Average Joe Finances:

Let's try to stick it down to maybe maybe three

David Richter:

okay. Okay. As I think I could get it to three, I love besides obviously profit first and Mike Michalowicz it's and all that. And rich dad, poor dad. It's like already talked about that enough. I would say. Number one, the road less stupid by Keith Cunningham. It's an incredible business book. It teaches the process of thinking. You will not find a greater return on your time than thinking several hours during the week, dedicated to thinking any tells you any gives great points inside there. Every single chapter is set up individually. Like you don't have to read it even straight through. You could go to a certain issue you might be having in your business or whatever. And then he gives. Here's you know, some things to do, but then here's questions to ask yourself at the end and they're deep thinking questions, so I highly recommend that book. He's got another book too, so I would recommend him and what he does and Keith Cunningham. He's also got the ultimate blueprint for an insanely successful business, which is a really great book, but so Keith Cunningham, I'm also a big Russell Brunson fan. I think he gives a lot expert secrets is another great book. If you are a real estate investor or a business owner or wanting to do anything, besides, besides a W2 job or whatnot, you're going to learn marketing. You need to learn the principles of marketing. So I would say expert secrets and Russell Brunson his podcast who is great marketing secrets. Then Dan Kennedy. He's also the godfather of marketing as well, too. If you're listening to. No matter what, if you like business, read his no BS series, you will laugh. You will cry. It is great. It is very, just direct to the point he's got I think 14 or 15, just in that specific series. It's no BS, wealth management and wealth accumulation, no BS management of ruthless management of people in profits, no BS like a bunch of different things, time management, like just things as a business owner. That will help you invest in yourself. So those are some of the ones that have really impacted me, so I could keep going on and on. But those are probably the three top, at least right now. I probably haven't read some of my favorites are probably in the future so...

Average Joe Finances:

Yeah the favorites that are sure to come. Sure, exactly. Yeah, absolutely. David that's fantastic, man. And You gave out some great information just in this short time that we've been talking from how you tied in the original profit first, right? When we talk about how to utilize that in a business with those five main accounts and then how you tied it into real estate investing and having those specific accounts as a real estate investor. Super important because one of the things, that I never thought of, because I haven't taken a hard money loan yet for anything in real estate. So I never thought about having a PITI account, which is super important because everything I'm paying for right now has a mortgage tied to it. So that's automatically done. It's the rest go? I don't have to worry about it. It is what it is. But if you're, financing a property through private means or anything else, you still got to pay that insurance and taxes on your own. So that's one of the things that I took away as being a huge thing that you need to be thinking about, especially as you start to scale and you can no longer do the normal methods of taking out a regular mortgage to, to go buy some property because you do get capped out at 10, and it could even happen before that based on your DTI. That's definitely something that's important. At least that's going in my little notes here in my wheelhouse that I'm going to keep in the back of my head. So thank you for that. Speaking of that since you put out so much good information people listening to the show are gonna want to know more about you, more about your book. So this is the most important question of all. Where can they find you? Do you have a website you can share with us your, any social media accounts and where can we buy your book?

David Richter:

There we go. I appreciate that very much. I love spreading this message. So if you go to simple C F O solutions.com, if you go there simpleCFOsolutions.com. Like chief financial officer, that's where a lot of our stuff is housed. That's where it takes you a link to our book page. To buy the book, which it's on Amazon as well. You could go to Amazon and search for a profit first for real estate investing, but that's where we house also bulk orders, because we actually can give a discount on bulk orders there on the website. Then it's also the place where we have a podcast profit first REI podcast as well, too, just a bunch of free info out there, like how to implement, how to start. People that have implemented profit first, like just giving you the shot in the arm to make sure that yes, you can do it as well too and here's the people that have seen success and seeing what it's actually done for them. So that's simpleCFOsolutions.com. That's also where if you want to work with us, we've got the fractional CFO. If you're starting to go into real estate investing because we implement profit first as well, too. So that's where I would tell people if you're looking for that, I do. If you don't mind, Mike, I'd like to give them an email address. They could email if they want some free tools as well, for implementing profit first. Cause I give like a visual overview of the bank accounts and like here's some spreadsheets to actually where are my now, where am I going type stuff. And if you email lessstressmoreprofit@gmail.com, it just bounces right back to you and it gives you all that for free and I just want to make sure. And also there's an ebook that I wrote back then and an audio book too, as well. So as a real estate investor, because I know we want our audio books, which right now, if you're listening to this and depending on when this is coming out, the actual, I did record for audible as well, too, for profit first for real estate investing. So that will be out as well which will be on Amazon. So there you go. That's what you can email lessstressmoreprofit@gmail.com. If you want those free tools. And then you could go to simpleCFOsolutions.com. That's where the book and podcasts and everything else is.

Average Joe Finances:

Fantastic. David, thank you so much for sharing that. Thank you so much for just providing all the value that you have just in this, in the short time that we spoke. Definitely appreciate it. And of course, thank you so much for taking some time to talk with me today and we'll make sure we have all those links in our show notes to make it easier for people to just click on it and go. As well as the email address so they can get those free tools. Definitely encourage everybody. That's listening to this episode right now to check out David's book, check out his website, go see what they're doing and and get these free tools. Frees my favorite price. So if you have an option to get some free tools, jump all over that. So again, David truly humbled and really appreciate you taking the time to chat with me on a Saturday today.

David Richter:

Awesome. Thanks Mike. It was a pleasure and I love spreading this message. So just, I appreciate you having me on.

Average Joe Finances:

Absolutely Aloha.