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[00:00:00] Sarah: Hello, listeners. Welcome back for another great week. My name is Sarah Karakaian.

[00:00:04] Annette: I am Annette Grant. And together we are–

[00:00:06] Both Annette & Sarah: Thanks for Visiting.

[00:00:06] Sarah: We’re going to kick off this episode like we do each and every week, and that is sharing one of you, the amazing hosts out there listening to Thanks for Visiting. We’re going to share you here in the podcast, to our email list. Who are we sharing this week, Annette? 

[00:00:18] Annette: This week, we were shared @theidyllolhouse. Again, that’s @theidyllhouse, and it’s I-D-Y-L-L. And they are a cozy, moody vibe on the gram. But the thing that I want to chat about here is in their highlights, they do two excellent things. Number one, they go through some reviews. And one thing that I love is they actually say, hey, this is exactly what David said, Kevin said, Michelle said. Really making it personal, like, those are the guests that have stayed there. These are people that you can know, like, and trust them. These are real guests, and I love that they named them by their first names. 

[00:00:59] And then the next part that I really, really love, in there highlights is they tell their backstory from their first visit. It’s in Sugarloaf, California, which is Big Bear, and she just talks about her first trip there. And it took years to purchase this property, but it goes through the whole story of the first visit to looking all over the country for short-term rentals, and then ending up there. And I know the whole story of the house now. And it probably took me 60 seconds to read, but the story helped me feel really connected to the home and their why. And so I encourage you. Story goes a really long way, and so you can share your story. 

[00:01:41] Sarah: You should share your story. 

[00:01:43] Annette: Yeah, you absolutely should. You don’t have to be a great writer. Look at them for inspiration. We all love behind the scenes. We all love the story. So, um, make sure that you share your story, and people will feel connected to you that much quicker. So well done. And I love it because they’re taking the story and adding pictures for people’s memories, and people really absorbing the story will go so much further. So well done, TheIdyll House. Thank you for using the hashtag. Sarah, let’s talk about our amazing guest that we have on the show today. 

[00:02:15] Sarah: So today’s guest is David Richter, the author of Profit First for Real Estate Investing. So perhaps you’ve heard of Mike Michalowicz’s book, Profit First. If you haven’t, we have linked it in the show notes for you. Well, David wrote the book that specifically targets profit first for real estate investors.

[00:02:33] And as we all know, most of our listeners here and Thanks for Visiting are real estate investors in the short-term rental space. So this is a book you must read. And we’re having David Richter speak at TFV Con. And we’re very excited for that because he’s going to help us hosts keep more of our profits in our pockets. 

[00:02:52] And something that David said in this interview is he said something about the real estate rat race. And I was like, well, wait a minute. We’re not supposed to be in a rat race whenwe invest in real estate. It’s supposed to set us free. Well, in case you feel shackled to your real estate investments because you’re not quite sure how to keep more profits in your pockets, this episode is going to be for you.

[00:03:18] David, welcome to the show.

[00:03:21] David: I’m excited to be here. Thanks for having me. It’s an honor.

[00:03:24] Sarah: We are so excited to have you as a keynote speaker at TFV Con. Our listeners know at this point, you’re here to share some education, but to get the real good stuff, they’ve got to make the decision to come to Columbus, Ohio, here in September and see you live.

[00:03:41] Annette: I want to give a little precursor and just let everybody know the reason that David is speaking at our event is because one of our coaches, I’ve got to give a shout-out to Mike Hicks, went to a live event and saw David speak. So what I’m trying to do here, everybody, get out of your house. Come hang out. Meet people. I think we were doing text messages, phone calls, Zoom calls, all from Mike going, um, to this live event, going up to David right after, because here’s the deal.

[00:04:15] Everyone at TFV Con is going to be so approachable. We’re all short-term rental hosts. We all let strangers sleep in our bed. We want to meet you. We want to say hello. But I always like to take it back that Sarah and I met as complete strangers at an event. David and Mike, two people that are now very close to us met at an event, and that’s how things happen. 

[00:04:38] I’m not saying that it cannot happen online, but it happens so much faster when you are face to face, right next to the people. There is a different energy when you’re in the same room with everyone. So I just wanted to kick this episode off with that because I just think it’s interesting that the whole live event thing is how this actual podcast came about. And I just want to share that with everybody if they’re on the fence.

[00:05:05] Sarah: David, share with us more about who you are. What’s your background in real estate? Give us a story that led you up to writing Profit First for Real Estate Investing.

[00:05:15] David: Yeah. So I was back in college, good friend of mine gave me the book, Rich Dad Poor Dad, and it was game over after that because never going to think the same way again. And bought my first house. It was a fixer-upper, then from there, did several things with that first house. Rented it out for a few months, then lived in it as my first house with my wife for two years. Then we lease option the property. And then, at the end of those first six months with that lease option, the guy cashed me out. I’m like, this is awesome. Because it’s also two out of five years. If you live in the same place, there’s no capital gains. I’m like, boom, here we go. 

[00:05:52] From there, started working with a real estate investing company. So I wanted to learn the game, learn more in depth, but we’re in the business of real estate too and not just get one deal at a time. I want to see, how do you actually make this scalable, a system, and how are these people doing it? So I found a connection by going out. I found a local real estate investor, and they were doing about five deals a month at that point in wholesale back then. This was about 2014. 

[00:06:22] And so we scaled that business over the next five years to about 25 deals a month, doing all different types of things. Fix and flip, wholesale, wholetail, retail, a long-term rental, a couple of short-term rentals. Anything you could think of in the real estate. There’s single family residence space. And I got to sit in a lot of different seats. And one of the seats I sat in besides marketing, sales, all the good stuff there, sat in the finance seat too.

[00:06:50] I know I don’t look like the numbers guy. Just kidding. I definitely do. I do. I like numbers. But that’s where I figured out, and I had no financial background. I wasn’t a CPA. I wasn’t a bookkeeper, accountant, none of the fancy terms and fancy acronyms after the name. But I sat down with the CPA for a year and said, I want to learn.

[00:07:12] I want to learn how to read the P&L, how to read the balance sheet, how to read, are we making any money, that type of stuff? And then when I was able to, after several months of intense questions back and forth with him, I realized we were doing 25 deals a month, but spending 26 was out the door.

[00:07:29] It’s like, why are we doing this? Who cares? We’ve scaled. No wonder why no one can get a raise, why the owner’s unhappy, why we feel like we have to just always be churning the engine, have to be going after the deals. To me, that was a huge wake up call to be like, who cares that we built a big business in the real estate world if we’re not able to keep any of it?

[00:07:50] Then it got more interesting because I love that you already alluded to this. You said, get out. Get out there. Network. It’s a different vibe. Well, I went out. I started going to these events with this company. We were a part of a couple of different masterminds, and then each mastermind, people would stand up and be like, yeah, we’ve got a seven-figure company, or we just hit high six figures. Then they’re crying at the bar because they’re like, where’s all of our money, though?

[00:08:15] Our CPA said we made money, but where is it? I heard that over and over. Then I recognized that it was an epidemic, and it wasn’t just us. That’s where it first clued me off that this is probably a big issue just in the business world, not just in the real estate world because that was the other masterminds and events as well. 

[00:08:35] So through a series of events, go figure, that business did not keep everyone employed. There was many people that were good A players that have their own business today but separated after just a lot of stuff went down there. So I moved across the country with my wife. We had built a little portfolio. I was very thankful for the opportunity to learn. And that’s where I feel like, if you’re listening to this, that’s a great place to start, is potentially doing work for someone in your local market and actually helping them.

[00:09:06] Showing up, doing the work. I work nights and weekends when I first started and got, eventually, into the full-time realm with them and learned a ton. I was earning and learning at the same time, which was a lot of fun. So then from there, though, when I moved across the country, I sold a little bit of the portfolio I had and was able to have some financial freedom, but started working with another investor. Said, open your books.

[00:09:30] Your numbers don’t lie. You can tell me you’ve got a great business, all that stuff, but I don’t care. I want to show what’s really happening. And so like most investors, open up the books, and they were a mess. He didn’t have a bookkeeper who was in real estate investing and knew what the heck they were doing. And he had no clarity. I’m like, okay, we got to clean this up, and then we can even see where we’re starting. So through that process of just giving them the clarity, it took about three months with a new team, and then I was guiding them.

[00:09:56] And then he came back to me and said, this has been life-changing. I know what I’m making spending, and if I get to keep any of it at the end of the day. And I’m like, boom. Light bulb. Click. I need to help other people just with this clarity because if we would have had this back then, at five deals a month, way back in the first company, before we hit 25 deals a month, we would have been able to keep more of the money versus just the rat race, I have to do 25 deals a month just to break even type thing. That’s where started then a business, Simple CFO.

[00:10:28] And that’s where also, once I started that to give clarity to the real estate investing community, I got a call from one of my mentors, Gary Harper, and he said, hey, you need to read the book Profit First. So I read that book in one evening. Said, boom. This speaks to me as an entrepreneur. I love the framework, and it’s a simple to deal my dollars where to go and to keep money end of the day.

[00:10:51] So we started implementing Profit First as part of our services, and then about a year into it, I’m like, this is working. I’ve got great testimonials. I’ve got great turnaround stories. I’ve got great people that we’re doing however many deals a month and spending more than that. And now it’s the reverse of, they’re keeping a lot more of what they’re making. So I went to Mike and said, hey, I’ve got a real estate background, heavy real estate. Done about 850 deals.

[00:11:17] I’ve also got the profit first background now. Could I write the book? And that’s where the book came into view. So there you go. There’s the long version of my background of getting into this, but I will not tell that story at the event. At the event, we are going to get down to the quick and dirty of, how do you actually keep more of what you’re making, and get into some practical application. But there’s my story of coming into this business.

[00:11:41] Sarah: I like how you said the real estate rat race because anyone listening who’s read Rich Dad Poor Dad by Robert Kiyosaki– if you haven’t, I think all three of us can highly recommend that you do, and we will link to it in the show notes. But it’s funny that you say that, David, because that’s the whole thing that Robert is trying to keep us away from, is the “rat race.” So can you explain what the rat race is, and how the heck do we as real estate investors end up in it when that’s the reason why we started investing in real estate in the first place to avoid it?

[00:12:12] David: It’s more a human problem than it is a business problem. We think that income solves all problems. And we hear that statement. And while it does solve a lot, it also contributes to the same problems if we don’t take care of the root problem. If we bring more money in, we have to keep more of it.

[00:12:31] If you’re a for-profit business, the main purpose of that business is to be profitable. So many businesses run accidental nonprofits. It’s not even funny. I don’t want you to be there. So that’s where a lot of people get into the real estate game, and they automatically think– if you’ve ever played Robert Kiyosaki’s game, CashFlow 101, there’s the little wheel in the middle. It’s a perfect symbol of the rat race, just going around. And then there’s the fun track on the outside, which has all the fun stuff. Buying the mansions, buying the cars, going on trips, whatever it is that you want to do. That’s where it’s at.

[00:13:05] A lot of people jump into real estate and they think they’re automatically going to the fun track because, hey, I’m going to get a couple of short-term rentals. It’s going to be amazing. I’m going to just make bank and make way more than those long-term rentals, all that stuff there. Whatever. Whatever the mindset is.

[00:13:22] They jump in, but then they quickly realize that they’re just in that little wheel going around, trying to land on the green spaces. Now they’re living deal to deal instead of paycheck to paycheck. They traded in the W-2 living for deal to deal living. That’s where we were, even with that many deals that we were doing a month.

[00:13:41] It was ridiculous. This is why I’m passionate about it now, because it’s avoidable. It’s avoidable to get into and stay in that real estate rat race, and living deal to deal, and hand to mouth, and all of that, but you have to know that, yes, income solves a lot of problems, but it doesn’t solve the root problem.

[00:14:00] The root problem of, I get a dollar, what do I do with it to make sure the dollars return and that I don’t go bankrupt or don’t go bankrupt on my way up? While I’m scaling and getting more properties, why am I bringing home less and less? That’s avoidable. I don’t want you to trade that W-2 paycheck to paycheck for jumping into real estate. You get in there full time finally, and then you’re like, oh, shoot, now I’m living deal to deal.

[00:14:24] Annette: So how do we become less human? Do we turn into robots? I can tell you. I’m feeling that in my soul right now. How do we unhumanize ourselves, though, David? 

[00:14:39] David: I wouldn’t say it’s unhumanized. I think we’ve made a problem out of it when it doesn’t have to be because there’s a solution. Especially if you’re an entrepreneur, there’s a solution for all of that. When I read Profit First, that’s what lit my fire. Because I was an entrepreneur and everyone else had touched on it.

[00:14:55] Even Robert Kiyosaki, in Rich Dad Poor Dad, says the words about a billion times, pay yourself first. That is one of his themes of that book and all of his successive books of 20, 30 other books. And he says that over and over again. But it’s all throughout these books that you read as an entrepreneur. 

[00:15:13] The Richest Man in Babylon, portion of all you have is yours to keep. The 7 Habits of Highly Effective People, first things first. So we’ve heard a version of that of what it takes to be truly successful. And that’s where I felt like Profit First said, hey, I’m going to use the human problem that you have, but use it for good. 

[00:15:36] Since you look at your bank accounts and you look at all this stuff, in order to pay yourself first, I want to leverage some of the systems that you already have as an entrepreneur. You would rather look at your bank account balance than a QuickBooks account. And I get that. Most people that are entrepreneurs are not the numbers people. 

[00:15:52] And it’s like, that’s where I felt like Profit First, and that ideology, and the actual system behind it was different than all the books I had read before. That’s why I’m so passionate about it, because it’s not just saying pay yourself first. Because at the core, that’s what Profit First is about. Pay yourself first. 

[00:16:09] Make sure you actually take the profit first off the table and build a healthy margin into the business. That’s the core of the message. But it has steps behind it, practical steps to say, here’s how you actually fulfill that and utilize what you’re already doing as a human and turn that on its head, which is why I love this system because it’s almost using your psychology against you. 

[00:16:32] I’ll get into it more, into the nitty gritty, at the event, for sure. And we’ll go over those steps and go like one, two, three. And you will walk away from there with more profit from your next deal. I guarantee you, if you come to the event and listen to my presentation, on your very next deal, you will be more profitable. I can guarantee you. 

[00:16:50] That’s what I want for you, and that’s why I get so fired up about this and how I know you can get out of this problem that a lot of people find their way into. Here’s the other thing too. I love that you asked this question. So many of us have not been taught how to be a real business owner.

[00:17:07] It’s the blind leading the blind out there. And here’s the other thing. If you’re a Dave Ramsey fan, on the personal finance side, he’s got some good principles. Or Suze Orman. A lot of the different personal finance gurus out there. Some people have never heard those names, and they jump into business with no wealth-building habits, no personal finance habits. And then they think the business is going to cover all the sins of never working through that stuff. 

[00:17:36] Maybe they had parents that say money doesn’t grow on trees. No, you can’t do that. What are the parents in the life to give an example, or was it a bad example? There’s so many different factors, but a lot of people don’t also talk about the money. It’s one of the things that’s probably the most taboo thing that people stay away from because most people are embarrassed, or they had an upbringing where it wasn’t talked about, or it was put down, or it was the middle class mindset, like we were just talking about right there.

[00:18:03] That’s where a lot of these things can be overcome. And I want to normalize that conversation. That’s why I’m really excited to come out to the event. Because when I speak, you’re not going to be bored. I’m going to give you the practical advice of how to make sure you can actually turn that dollar into more dollars and actually the dollars that go into your pocket and not just out the door again.

[00:18:25] It’s one thing to scale a business. It’s another to scale profitably and have fun. That’s what I want for you, and that’s where you can take some of these things. That’s a human problem, the income. We just think, more income, but there’s things that we can do and put in place in order to make sure that we’re leveraging that in our favor.

[00:18:42] Annette: We’ve got to give our listeners something good today. We know they’re going to come to the event and be knocked out of their chairs in a good way because, listeners, I don’t know if you can hear the passion in David’s voice. Someone’s listening today, and they’re in it. They’re in it. 

[00:18:59] They’re like, I got into this real estate. I’m not getting the bookings that I thought. It’s not looking like the dream that they had. What can you offer them? Where do we start? Do we just throw our hands up in the air and sell the property? Because we do get these emails where people are like, it’s not making what I thought, and they’re just in it. 

[00:19:19] What can you offer to someone that’s really just struggling right now and they aren’t in a good position? They aren’t 3X-ing. They aren’t hitting those goals. What is a starting point to see some light? Pay themselves first seems like, what? I’ve got to pay the bank. I’ve got to pay utilities. I’ve got all this other stuff. I get pay yourself first, but where can they start today? What can you offer of a starting point to see some light?

[00:19:47] David: I can hit that from a couple of different angles because when I talk and when I present, there’s two main things that I want people to come away with, but there’s one main thing that I want to give here first, is if you’re in the real estate world, you think you’re playing the real estate game. You think that more bookings, more properties, more that, that will solve the problem. Almost the same as the income. 

[00:20:11] But you’re not playing the real estate game. Maybe this will shake you up first. You’re playing the money game. Those are just a means to an end of getting the money in, so that way you can use that money to turn into more bookings, more of what you want, more leads, more properties, that.

[00:20:30] So that’s the first thing I want to say, is we have to have the right framework of mind in our mind first of, okay, we’re really playing the money game. But a lot of people play not to lose instead of playing to win. And a lot of people don’t even know how to play to win because they’re going off of what other people are doing.

[00:20:52] That’s one of the things, which is the blessing and a curse of a mastermind of, like, if you’re around a bunch of other high-producing people, it’s easy to get sucked into, I should be doing that much. Because when you get in there, then you get to where you’re comfortable.

[00:21:09] Maybe you have a couple of properties, and you’re like, hey, this is starting to work. I’ve got some bookings. I’ve got some things rolling in, but then you are like, well, I could get five, 10, 15, a 100 more properties. And then the bookings dry up in some of them, and they don’t in others. It’s like the money shuffle game’s happening and you have no idea what’s going on, but you were driven there because of comparison.

[00:21:31] That would be the first thing, is you need to know what winning looks like for you. I would also take that to the granular level. I mean, you can track, okay, how many bookings do you need to break even? Okay. Then how many bookings do you need to have actual profit per property? And it’s like, can you say? Okay. And then how often? What are the average days I need to have, or the average days I need to have filled during the month? 

[00:21:54] It’s like those specific things for the practical day-to-day, but taking the broader view, the 30,000-foot view, what does winning look like to you too? Because that’s where a lot of people say, ooh, I want the big shiny thing, whatever that big shiny goal is for them. More property, whatever, or the car, or whatever it might be. 

[00:22:15] Then they get it, and then it’s, what’s the next thing? It’s like they’re always moving the goalpost of life. And that’s one of the hardest things to stop, is the goalpost moving. But it’s also the most rewarding because when you get there, you’re not like, oh, now what’s the next thing? It’s more like. Wow, look at what’s been accomplished. And then you get to sit back and say, do I want to take the next step forward, or do I want to stay where I am?

[00:22:41] Because that’s where a lot of people get themselves into trouble. If they have a few properties, maybe some bookings are good, maybe they’re not. It depends on where they are in their journey too. But if they’re right at the beginning and they’re not getting what they need, that’s where you always have to focus on the key things first of making revenue happen. 

[00:23:00] So I don’t want to minimize that, but I also want to say, start with where you are. And what does winning look like for you so that way you’re not constantly playing the, I just need one more, and I’ll be happy? Because then, guess what? It’s your deathbed, and you’re like, oh, just one more. And then you’re going to croak, and who cares? It’s like that’s where it will go to the end. 

[00:23:19] I will also say, there’s another good book, resource for this, if you are struggling and want some practical advice. Not just Profit First. We’re going to dive deep into Profit First. I’m going to give you lots of content, lots of very actionable things. But there is another book written by Mike Michalowicz that I think will help you, especially if you’re right at the beginning of your journey. It’s a great book. It’s called Fix This Next.

[00:23:44] If you’ve never read that book, I highly recommend it because if you’ve ever heard of the Maslow’s Hierarchy of Personal Needs in your personal life, this one is the business hierarchy of needs. And on the bottom of that triangle, there’s three that you cycle through constantly. On the bottom is sales, then profit, then order. Those are the three areas where you’re always going to be investing in. I need enough sales. So in the short-term rental world, that’s the bookings.

[00:24:10] Do I have enough bookings coming into my property? Am I actually making revenue and enough to be profitable? That’s that second base there. I have enough sales coming in, and then I have profitability. That’s where a lot of people skip. That’s why I love what we’re going to be talking about, profit first, because you start making the bookings and you start making the sales, and then you don’t know what to invest in, or what should I be doing with the money? Should I get another property, or should I save for the rainy day, or should I do both? What is that?

[00:24:38] So it goes sales, so you have to get enough bookings. Then you have profit. So making sure you have the profit there from the sales you make, then you can invest in order to scale to the next level. So that’s systems, people, processes, those types of things. But if you skip that, if you go from sales and then invest right into order, then you miss profitability, and you’re wondering, yeah, I can’t pay myself. Sounds like a pipe dream. 

[00:25:02] That’s what we’re going to talk about, is Profit First covers that layer in that pyramid. But that would be a great book. If you’re struggling with bookings, there’s a lot of great tips in there of like, how do I think about, from my customer’s point of view, what they want, what they’re looking for? How do I create the things that will actually create what I want here for my short-term rental, then the profit, and then order from there? 

[00:25:26] So that’s a great book. If they want to take an action step, they could buy that book, and I think that would help them, especially if they’re struggling on the sales side, because it’s like, what’s broken in your business right now? Because, I tell you what, if you go to sales, then profit, then order, and you invest in people, at some point, you have to start leveling yourself up and being a leader of those leaders on your team. And it’s like that’s where a book like that will give you a good framework as you go through several different iterations and versions of your own business.

[00:25:54] But if you’re struggling right now, that’s where you might not even have enough to keep what you want from the business. With profit first, that’s where you start, where you are, too. I’m going to teach this, and it’s very practical. But even if you’re listening to this now, I want you to have this part.

[00:26:11] Start with where you are. Can you pay yourself 1% of what’s coming in? Can you start with something that’s doable? So that way, you get into the habit. And so, hey, bookings are increasing. We just got another property, and bookings are through the roof on that. So that way you can start adding.

[00:26:28] And then once you start getting bigger, guess what? Your habits that you now have, that are good habits, start to increase with the size of the business that you have. That’s how you can be successful down the road without saying, oh my gosh, we’re at 25 deals a month and not making any money. So it’s those small things that you can incorporate today. That would be one big thing, is if you’re doing short-term rentals and you get some bookings, can you take 1% of what comes into your bank account and put it into a savings account? Do something like that just to protect your profitability.

[00:27:01] Sarah: What I heard earlier, David, was that thing that we hear when we go to live events, which we’re actually actively working very hard so you don’t feel this way when you come to TFV Con. But if you go to a real estate meetup, if you haven’t yet, sometimes the question you’re asked is how many doors do you have?

[00:27:16] And that is somehow supposed to share with that person you’re connecting with whether or not you’re legit, or whether or not you’re experienced. But what I want to offer everyone listening out there is, the number of doors that you have isn’t the question that– first of all, it doesn’t even need to be asked. But we know short-term rental operators, David, who have one door, three doors, and they are making more profit, not revenue, than those who, like in your example, where you’re doing 25 deals a month and bringing nothing home. 

[00:27:47] So I want to offer that too. And here’s how you can sit in that confidence when you go to a meetup and you get asked that question where someone’s trying to size you up, and you know your balance sheet, and you know where you sit because you know your numbers. And that confidence, whether or not you share that with that person or not, or you just sit in that knowing that you have your stuff together and that you’re keeping your goalpost set so that you can just keep that laser focus.

[00:28:13] My question to you now, David, we get this question a lot, is I’m not good at numbers. You had the wherewithal when you were working for that company to figure out how to read a profit and loss statement, how to read a balance sheet. But there are investors out there, especially in the short-term rental world, who get into it, David, because of hospitality or because they want to make a space beautiful, and they want to share it with travelers.

[00:28:39] That’s where they get involved. So how do you help people– what mind switch can you help them flip to help them know, hey, whether or not you’re good at numbers, here’s how you need to reframe your mind so that you can know where you stand?

[00:28:54] David: What it sounds like is a lot of people who are getting into it, from what you’re saying, want the hospitality and they want to make the space beautiful. I am a 100% for that. It’s also the same thing that in a lot of books, like The E-Myth, the person who’s great at baking pies opens a pie shop, and she loves baking the pies. She’s the best in town, but then the business starts to consume her. And then it’s just like she’s doing everything. 

[00:29:19] And then, eventually, doing so much that she spends a fraction of her time baking the actual pies, the thing that she loves to do. And it’s like, that’s where, in your business, you need to make sure that you have the business owner mentality, even If you’re just doing one property and you want to make it the most beautiful property of all time, there’s still the component of what makes a good business owner and making sure that I treat this like a business.

[00:29:49] Your side hustle. Thinking of it even as a side hustle still needs to be treated as a business. If you work a full-time job and you have short-term rentals and you’re starting to build that, it’s still a business. Does that mean you have to work full-time hours? No. That’s also the beautiful thing about a business, is that business is built on systems and built on the things that will help you get to where you want to be. 

[00:30:11] And it always doesn’t have to be you and the sweat off your back. It doesn’t even have to be the sweat of other people’s back. It can literally be the systems that you put into place in your business, and then providing that vision and dream. And other people might want to come along on the journey. If you love short-term rentals and you got into it for hospitality or to make spaces beautiful, people love that. People love to hear that. They love your vision. They would love to hear about why you started this. That’s what keeps good people on your team for a long time, is you being able to cast that vision.

[00:30:46] So that’s one key component, if that’s you coming into this space, that you already have that some people just don’t have. They don’t have the ability to cast vision. They don’t have that core skill, and they might have to work at it more. That might be a skill they have to flourish and work on, and that type of thing.

[00:31:04] But if you come in saying, I want to make a space beautiful, you’ll probably attract other people that want to help others, that want to make spaces beautiful, that want to be in the hospitality business. That’s where, if you get that first property, treat it like a business, meaning you know some core skills. You know marketing, sales, operations, and finance.

[00:31:22] Knowing just enough to be dangerous too. You do not have to be an expert in all four areas because there are people that are experts in that area that you might need to borrow expertise from. If you’re not an expert marketer, then there’s expert marketing teams. Or listening to you two, Sarah and Annette here, they’re great at what they do.

[00:31:44] So it’s like you’re borrowing the wisdom from those different silos that you need at the times that you need them. Let’s say you aren’t good at marketing, but maybe not good at sales. Maybe you can’t actually close the sale, or you don’t have the systems to close it. That’s where you come to an event like this and see, what are the systems they’re doing? How can I incorporate this into my business? 

[00:32:03] And talk about it like you’re the business owner, even if you got into it and you’re like, this is my side hustle, or I’m just doing this to make a space beautiful, or whatever it might be. Think of it like that, because then a lot of people don’t like the operations portion. If you don’t like operations, and I’m telling you right now, people would rather hit their head on a nail than talk about the finances. So I get that part, if you’re an entrepreneur, that you don’t want to talk about that. At the same time, you might have to borrow that experience.

[00:32:31] Honestly, this is why I love talking about this, because a lot of people don’t talk about the financial side. And if they do, it’s boring, it’s dry, it’s not relatable, it’s not understandable. Honestly, Sarah and Annette, you need to come to their event too, because they care about this stuff.

[00:32:48] I feel like anyone who has me come and speak cares about their audience because it’s not just about getting you more doors, like they were saying, like that other places might be like, how many doors do you have, and all that stuff? It’s about how much are you keeping, and do you actually have the freedom that you want?

[00:33:04] So that’s where, if you’re going to get into this and you’re not thinking of it like a business, I would switch that mentality pretty quickly, or you won’t stay in it long to make it the hospitality or a beautiful space, because you’ve got to make sure that it’s not a drag on you and your life and draining your freedom and time.

[00:33:21] So that’s where, if you have some of these areas of the business and they’re covered by you or by other people, or you borrow that expertise, or you get a simple system like profit first in place to make sure that you have money actually at the end of the day, that’s where I want you to be as the business owner. So hopefully that was good for your answer there.

[00:33:39] Annette: I love that because we would never– let’s say we were getting ajob or we were at a networking event and someone was telling us about their business, and then we asked them who their bookkeeper accountant was, and they said no one. If we were in a job interview, we would walk out of the interview, I think. Wait, you don’t have an accountant? You don’t have a bookkeeper? Who’s watching over money? We’d be out of there. 

[00:34:02] And so I think, same thing with us, it’s like, you can’t afford not to. And whether that person is someone that, once a month, they’re looking over– there are some bookkeepers that do things quarterly. It’s one of those things you cannot afford not to have that person in that seat.

[00:34:19] Because I know myself. I’ve done this before, not looked at the books, not looked at the books. And then the first month goes by, then the second, then the third, then, holy smokes, the six months, then the year goes by. And you never catch up. And then you’re in such a hole that you have to pay double to that person, and it’s because I was being stubborn or wanted to keep all the money myself, and that wasn’t my area of expertise. It just kept getting pushed to the side. And I love saying, if that is something that you are not someone hired for or a part of your time is not devoted to that, then it needs to be the top of your list.

[00:34:55] David, what do you think if someone is in it right now? They haven’t looked at their books. They were getting their short-term rental open. They were going full steam ahead because it was summertime, and it was busy season, and they had guests, and they had vacation, and they had work.

[00:35:09] What type of time commitment, someone that’s behind, someone that hasn’t been paying themselves first, someone that’s needs to start with that 1%– I’m just looking at this mountain here. How do I get started? How much time do I need to commit to this to just start to get that 1%, start to focus on that? What can you offer there? What have you seen in your experience of people that are really buried coming out of it?

[00:35:33] David: If they have the resources, they need someone else to climb the mountain for them. They need a bookkeeper that knows the real estate investing space and knows short-term rentals to come in there and say, here you go. Here’s what it’ll take to clean it up. Here’s what it’ll take to keep it up to date, and the maintenance on the books. Because that is one of the things that once you have the end result of the numbers, you can produce more dollars. 

[00:36:00] Instead of your gut feeling, you can actually run the business off the numbers, which is a lot of what we do with our clients. We do it from a financial leadership perspective and look ahead. But if you’re like, I don’t even have the numbers in place, we have to start somewhere. Because a lot of people say, who’s the bookkeeper, like you would just ask, and it’s usually them.

[00:36:21] And then you’re like, how are you as a bookkeeper? I suck at the books because they’ve never done any accounting, or finance, or anything like that. And then they’re trying to keep it up to date, but they don’t know what’s going on or how to put it in, and it’s going to be a cleanup job anyway.

[00:36:34] That’s where I say that at the beginning, get that cleaned up. Get that in place with someone there. And I’m a 100% biased. I have a fractional CFO company. So I understand that this needs to be taken with a grain of salt, but I’ve lived there. And I even feel that, even if you’re at the beginning, you might want a financial leader just to start, to help you get the foundation laid, and help you connect to the right people, and then manage those people for you, at least to get it up to date. 

[00:37:07] We’ve got even a smaller plan for people just to get up and running. And it’s like, I wish I would have had this, because there’s been so many people that have gone out to get a bookkeeper, they get the bookkeeper, then the bookkeeper messes it up, and then there’s another 10,000-dollar cleanup.

[00:37:21] It’s the vicious cycle. I get a bookkeeper, I let them do their thing, and then I go away and do deals, and then I come back six months later and, oh, shoot, they didn’t know what they were doing. And that’s the next person telling you, and then it’s just this vicious cycle. So I’m a little bit biased there too. 

[00:37:37] I would want you to have a financial leader, so that way, you have the bookkeeping taken care of, the necessary evil, the numbers, but then also looking ahead to, how do I manage the dollars coming in? And if you’re like, that wouldn’t work for me, I have just my first property, I’m just getting started, find a good bookkeeper that is in the real estate investing world. 

[00:38:01] Go through your referrals, your network, people like that, so that way, you can reach out too and say, who’s doing your books? Do they do short-term rentals? What other type of clients do they have, other short-term rental clients? Those are the questions to ask the bookkeeper, so that way, I want you to be able to go and get the help and not have to pay tens of thousands of dollars in cleanup down the road.

[00:38:25] Sarah: And that’s the key, is having them also be real estate investors themselves because they get it. I feel like the thesis of this conversation comes back to that one statement of, when you go on an airplane, they tell you to put your oxygen mask on first and then help the person next to you.

[00:38:41] It’s the same thing in business, whether it’s short-term rentals or you’re running a pie shop. If you don’t have your oxygen mask on and that, i.e., knowing your numbers, knowing the health of your business, how the heck can we show up for our guests? Or if you’re aco-host or property manager, how can you show up for your owner? How can you be the best investor and host if you don’t know where you stand? 

[00:39:04] So facing that music, knowing it’s going to be something that’s a challenge for you, but– I’ll give Annette a ton of credit, David, when we started Thanks for Visiting, our podcast. We needed to understand our business so that could know where we wanted to go. Not even knowing where you’re at or where you’ve been, but then also looking at different ways of how you want to get to that next spot. Creating models of, okay, if we have this many properties and we’re making this much, we could be in this place. And also, having that clarity, oh my gosh, is it empowering to know if you want to get that next property. You’re not just throwing it out there. 

[00:39:45] David: Exactly.

[00:39:46] 

[00:39:46] Sarah: What I want to offer, too, to everybody, David, is I can also say that, I know we share this inside our membership, but we’ve had to do this a couple of different times. We had bookkeepers, and they weren’t a good fit. And it is not fun. Listen, Sarah and I have done it all. We have had to hire new bookkeepers. We have changed banks. We have went through all of that, a CPA, but it got us to a much better place.

[00:40:12] Annette: I’m not going to say it did not hurt and was extra. It was more. It seemed like double work at the time. It was not fun. We knew. We were like, man. We went with some budget-type establishments because we just really didn’t think that we have the cash to be there. And so we’ve had to go through that, and it’s so much better now. 

[00:40:34] So I know there’s probably a lot of people maybe listening that know their bookkeeper isn’t potentially the right fit, but they just keep going through the motions. And to link arms with everyone around you that is a part of your finances is so important. And when you find the right partners, I mean, I’m just sitting here right now taking notes because I know there’s so much more work that Sarah and I need to do.

[00:40:55] I think that’s what I also want to say, is I see so many people get stuck on wanting it to be perfect. It is never going to be done. It is never going to be perfect. I’ve been using QuickBooks, I want to say, over 20 plus years now. I’m not even in our QuickBooks, but I ask a question about QuickBooks probably weekly. Every single week. I’ve been in it. I’ve been working at it for 20 years because there’s a new vendor that comes up.

[00:41:24] There’s a new payment that comes up. There’s a new way that maybe I want to see a report. And so that’s what I think also. I think all of us want this bright, shiny, we don’t have to do any work. And at the end of the day, there’s just a lot of work. And for your books to be clean and looking good every month, you cannot not do the reps. 

[00:41:43] I think that’s the thing, too, is I know you have your CFO company, and the owner of the business still has to show up. I still get multiple [Inaudible] clients every week. Can you just talk about how the work will never be done when it comes to your accounting? Because I also want to make sure that everybody understands this is not part of your business that’s going away because it’s a part of the business that we all want to reap what we sow. 

[00:42:07] David: Well, it’s your story. The numbers tell the story of what’s going on in the business. And like today, literally today, before this podcast, I had my finance meeting. I run a fractional CFO company, but I have hired one of our CFOs to be our CFO. Because as the owner, I want to know, how are we doing, where are we going? Are we on track for what our goals are? And at the end of the day, are we keeping what we want to? Are we not taking more out in draws than what we have on our profit and loss? Just a lot of the questions of, where are we right now? And are there any financial issues? 

[00:42:41] That’s why I’m going to put a plug in here too for a business operating system, which if you’re small– I don’t care how small you are. If you want to run a real business, you’ll run it off of some type of operating system like the book Traction, which is Gina Wickman’s book for the entrepreneurial operating system, EOS, or Scaling Up with Verne Harnish.

[00:43:00] There’s these different operating systems out there, but it gives you a good framework of how to run these meetings and make sure that you as the owner are in tune with what’s going on. Because the bigger you get, the more out of tune you will be in the day to day. And you’ll have to be the leader of the leaders.

[00:43:19] And so the leaders that report on the day-to-day need to come back and tell you what to do, but they haven’t been telling you what’s going on. But that’s where having good framework for those meetings– especially the financial side, that’s a meeting, even though– there’s an operations meeting and some other meetings of the departments for our specific company that I don’t even attend, but I attend the finance meeting.

[00:43:42] I know, where do we stand cash wise? Where do we stand on the profit and loss? How’s our balance sheet looking? What are our assets, liabilities? What’s the equity that’s being built in here? I want to look at that stuff as the owner because, like you said, that’s where a lot of people, everyone, if you got into a for-profit business, it was to use the profitability of the company for whatever that was for you.

[00:44:04] That profit unlocks your purpose. The profit helps you become more of what you wanted. It helps you become that person that stood up one day and said, you know what? Enough of this. I’m going to start this business, and I’m going to give myself a shot. That person is still inside of you, and you can unlock that person again with the profits, because if you don’t and you’re living in survival mode, like we’ve talked about here, you’re making every decision on fear and not from your purpose, that’s a horrible place to live. 

[00:44:31] That’s when you make the decisions that help you go out of business, or that make you choose the wrong person, or make you choose maybe a cheaper option that you shouldn’t go after that ends up costing you quadruple what it would have cost for a good person in there. And we’ve all been there. 

[00:44:46] And I know she’s crying there. That’s where we’ve all been. I’ve made those mistakes. We’ve all made those mistakes. And sometimes we have to go through it just to be able to see on the other side. Oh, yeah. You know what? Everyone who said that is definitely right. Sometimes we go through that.

[00:45:03] If you’re one of those people that say, hey, I want a shortcut, the shortcuts are being able to listen to people like us right here, the three of us here that have this experience and say, don’t do this, do this, and you will literally bypass some hurt and heartache along the way. That’s the power of the groups and the events and that type of stuff. 

[00:45:22] If you know where you’re going, then you are very laser-focused on the questions that you ask and being able to get there faster. And those are the real shortcuts. It still takes work. It still takes getting to know the numbers. It still takes that type of stuff. But once you know what you’re going after, then you know the questions to ask that get you there faster. So there you go on that question. I just want people to know, if you have an issue or something in your business, there’s people there that can help you get to where you want to be.

[00:45:53] Sarah: I’m all hyped up. David, before we let people know where they can reach out to you other than coming to TFV Con, I have a question for you just in case anyone out there is literally pre-business owner or they’re business owner day one. Can you share with our listeners, what is a profit and loss report, and what is a balance sheet, and what is the difference?

[00:46:13] David: Yeah. Oh, man. I love this. This is why I love these types of questions. If you don’t know the difference of this– here’s my first question way back years ago in 2014. I thought P&L was P, the letter P, the letter N, and the letter L. And I’m like, what’s a PNL? What does that mean?

[00:46:32] Sarah: Yeah. That’s real, and that’s okay.

[00:46:34] David: Yeah, it’s totally fine. So wherever you come from, P&L stands for profit and loss. That’s an and in the middle, not an N. So it’s profit and loss, or an income statement, literally showing you, what did I make, spend, and keep? So where did it come from? What’s the income that I’m generating? That’s income. That’s usually up at the top.

[00:46:52] Then you’ve got cost of goods and expenses on that same financial statement. A fancy way for saying, what money went out the door? What did I spend that actually ran the business? And then the bottom line is your net profit. So that way, how much did I actually get to keep? But that’s why I don’t like the financial statements as much as profit first in the cashflow management.

[00:47:13] Because even though it might say $20,000 on your net profit, did you put $20,000 in your account? Probably not. So it’s like, take it with a grain of salt, but I want you to know the difference. The income statement shows you, what was your net profit? That’s the end goal of it. Here’s your income. Here’s your expenses. Here’s your net profit.

[00:47:32] Balance sheet is assets, and liabilities, and equity, meaning, what do I own, what do I owe, and what’s the difference? Do I own more than I owe, or do I owe more than I own? And that’s where equity can be either negative or positive. In the real estate world, the balance sheet is very important. If you run a wholesale company–let’s just say you’re doing some wholesaling on the side. Your balance sheet might not look very big.

[00:47:57] You might just have a credit card, or something on there, but you don’t actually own the properties when you wholesale a property. You might own it if you do double-closing for one minute and then sell it. But if you’re doing the assignment, it’s literally just going to be a service-based business.

[00:48:11] But if you’re doing short-term rentals, you’re going to hold the property, and what you’ve put into it, all the costs will sit on the balance sheet under the assets because that’s an asset for you. What you’ve put into that property, and then what it’s worth, and all that, that’s where the asset side is going to show you, how much have we poured into this property so far for purchase price, to repairs, to maintenance, all that type of stuff?

[00:48:35] Some of the stuff you can expense to. That’s why real estate investing bookkeeping is so fun because there’s so many different ways to categorize things. And I’m being very facetious there, but that’s why you want a good bookkeeper who actually knows real estate investing because you use all five areas on the balance sheet and the P&L, the different five core areas of income, expenses. Then you’ve got assets, liabilities, equities on the balance sheet. That’s where on that side, it’s really, what do I own, what do I owe, and what’s the difference between them?

[00:49:04] So if you can get that, that’s really the big difference between them. And then it just shows you. The balance sheet, your equity should be growing, and your assets should be growing. The liabilities are the loans that you have against the properties, or credit cards, or things like that that are liabilities to you that you owe. So it all shows up there.

[00:49:22] That’s why, too, if you’re running a business like this, you need some type of software like QuickBooks because it’s like the CRM for your money. If you use Guesty or a lot of those different types of software for the short-term, this is literally like a CRM, though, but for your money.

[00:49:35] That’s what QuickBooks is. It tells your money, where’s it coming from? Where’s it going? How do I follow up with it? Making sure that it actually gets to where I want it to be. So that’s where that helps to recognize and be able to see, okay, a transaction came in. It’s going to sit somewhere on those financial statements, then I can see, how’s the business doing overall?

[00:49:53] Annette: I don’t know about you, listeners, but I’m hyper up.

[00:49:56] Sarah: Hyped up. I’m very hyper up right now.

[00:49:58] Annette: I want to go look at P&Ls and balance sheets. But more importantly, David, we cannot wait to meet you in person, in real life. Feel this energy. And we know it’s going to be next level because you’re going to be talking profit first. But where can our listeners, in the meantime, before they get to meet you in real life, buy your book and just find out more about you and your team?

[00:50:19] David: That book took me 18 months of my life. It was a very long process to get through, but the information is too important. If you go to simplecfo.com/gift, that’s where you can get the book. You can get the ebook, the full entire book. Not just two chapters. I want you to have the book for free. I want you to have that book, and I want you to download it, and I want you to start reading it because it can literally transform your life just by taking a couple of those key steps. I want you to have that. So if you go to simplecfo.com/gift, that’s where you can get it.

[00:50:56] And then if you drop the gift off, simplecfo.com, that’s just our general site if you want to get to know us, why I started it, the podcast, other people’s profit first stories are on there, that type of thing. That’s where we run our fractional CFO company as well. That’s where you could get to know me.

[00:51:11] If you come to the event, though, I’m not only going to give you the book. We have a course that we sell for 497, that type of thing, that goes over profit first, and it goes over basics of bookkeeping for your real estate investing, no matter what thing you have. And I want to give that at the event if you come. For free. So if you’re at the event, I’ll give you there. 

[00:51:32] Annette: We didn’t even know that. This guy.

[00:51:34] David: So if you come to the event, I’m giving that away as well too, but it’s going to be a different link than the /gift. So it will not be there. But if you’re listening to this, I want you to have something. I always want to leave you with something of high value that took me literally years of my life to get out the door. So please, listen to it, read it, do– it’s on Audible. You can buy the audible version on audible.com. 

[00:51:58] Annette: We’ll link to that because we have to share with you, David, Sarah and I, we actually listened to your book together on a road trip, and we were pausing it.

[00:52:09] Sarah: Taking notes.

[00:52:10] Annette: And then we’d pause it like– you just keep talking. So listeners, if you have a business partner, life partner, real estate partner, pet, uh, imaginary friend–

[00:52:23] Sarah: A plant.

[00:52:23] Annette: Listen to it. I have lots of plants I talk to. David’s book really, really shook Sarah and I. It was one of those trips. I think we actually got home before we could finish it, and we were like, should we just drive a little bit more? It really was, um, David said earlier, the stories and the numbers.

[00:52:43] And David has so many stories woven throughout the book of so many of his clients, and friends, and partners. The stories inside the book really help you see from so many different perspectives. And I love it because it is, um, long-term rentals, it’s midterm rental, short-term rentals, it’s wholesalers, it’s property managers. So he gives you, um, different perspectives and how profit first can work for anyone. 

[00:53:11] And so we do have to give a shout-out too really quick. We’re going to have all of these links in our show notes, David’s free gift, but we do have to let everyone know that David and Sarah and I, all use Relay. And so Relay has really been an important part of our profit first journey too. So we’ll make sure to have that link in the show notes too. 

[00:53:29] Sarah: Relay is a financial software. They partner with the bank, and actually, they are going to be with us at TFV Con.

[00:53:36] Annette: And they help you make that humanness habit of that percentage just happen without you even having to do the math. So they are helping us not become human, but know how human we are using tech to help us. So David, we cannot wait to meet you. Everyone, check all the show notes, listen to the book, read the book, come to the conference. We cannot wait to share profit first with you.

[00:54:00] Sarah: With that, I am Sarah Karakaian.

[00:54:03] Annette: I’m Annette Grant. And together we are– 

[00:54:04] Both Annette & Sarah: Thanks for Visiting. 

[00:54:05] Sarah: Talk to you next time.