The Science of Flipping - The Bank Account Setup That Will Change Your Real Estate Business | David Richter

Episode Date: January 31, 2025

Download David's Free eBook 'Profit First' & Cheat Sheet: simplecfo.com/JC -- In this episode of The Science of Flipping, I sit down with David Richter, author of Profit First for Real Estate Investors and founder of Simple CFO. If you’ve ever felt like you're making money but still feel broke, you’re not alone—I’ve been there too. David breaks down why traditional money management fails real estate investors and how the Profit First system ensures you actually keep more of what you earn. We talk about setting up the right bank accounts, avoiding costly tax mistakes, and structuring your finances like a true CEO. Whether you’re just starting out or running a multi-million dollar business, this episode will give you the tools to take control of your cash flow and build real wealth.   -- Download the Free eBook & Cheat Sheet: simplecfo.com/JC Follow David on Social Media: @SimpleCFO Visit His Website: SimpleCFO.com Read the Book: Profit First for Real Estate Investors (Available on Amazon & other platforms) Hire Simple CFO Services: If you need hands-on financial help, visit SimpleCFO.com to work with David’s team. --   The #1 training and coaching system to launch, grow, and scale your investing business! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: http://www.thescienceofflipping.com Turn cold real estate leads into engaged motivated sellers on auto-pilot using the power of A.I! 𝐋𝐞𝐚𝐫𝐧 𝐌𝐨𝐫𝐞: https://www.rocketly.ai/ Have a question? Ask me anything at https://www.askjustin.ai/ 𝐀𝐛𝐨𝐮𝐭 𝐉𝐮𝐬𝐭𝐢𝐧: After investing in real estate for over 17 years and almost 3000 deals done, Justin has created a business that generates 7 figures in active income through wholesaling and fix and flipping as well as accumulating millions of dollars of rental properties including 5 apartment buildings, 50+ single family homes, and 1 storage facility Justins longevity in real estate is due to his ability to look around the corners, adapt to changing markets, perfecting Raising private capital, and focusing on lead generation which allows him to not just wholesale and fix & flip, but also accumulate wealth through long term holds. His success in real estate led him to start The Entrepreneur DNA podcast and The Science Of Flipping podcast and education company, where he has coached and mentored thousands of aspiring and active investors over the last decade. He is a nationally recognized speaker and is on a mission to educate as many people as possible on becoming a successful dynamic real estate investor. 𝑾𝒉𝒂𝒕 𝒕𝒉𝒆 𝑷𝒓𝒐𝒔 𝑯𝒂𝒗𝒆 𝑻𝒐 𝑺𝒂𝒚 𝑨𝒃𝒐𝒖𝒕 𝑱𝒖𝒔𝒕𝒊𝒏:  “Justin is one of the best trainers in this space. He really gives everything to his tribe.” – Brent Daniels (TTP) “Justin’s ability to connect with people and help them understand what he is teaching, is unparallelled” – Kent Clothier (REWW) “We have been in the trenches flipping homes in Phoenix for over a decade, he is one of the best to do it.” – Sean Terry (Flip2Freedom) Subscribe To Justin Colby: http://youtube.com/justincolby View All My Videos: https://www.youtube.com/c/JustinColby

If you're running a for-profit business, you need to be thinking about profitability. You should be making money because without it, you won't be able to grow, scale, or have people on the team, or give, or travel, or whatever you want to do with your business. And so he's just like, here, here's a system. That's what I loved about Profit First. It went a step further than all those other books and said, here's a system to actually do that. And that's what Justin was alluding to with the bank account set up a couple minutes ago.

You know, it's like, it literally revolves around you being intentional with every dollar. What is up, everybody? What is up, my science of flipping fam? This is gonna be a good one. Because if you are in real estate, if you're doing deals, if you're making money, but you still feel broke, and we've all been there,

including myself, then my guest, David Richter, is here to help you. He is the author of Profit First for Real Estate Investors. He thinks like a CEO, he helps us think like CEOs and CFOs. So, David Richter, what is happening, brother? What's up, Justin? It's good to be on here. Appreciate you having me. Yeah, I'm excited to have you.

You know, I had you come speak to one of my smaller group events, and people loved it. And I said, it's about time you come and join the podcast and make sure everyone in my world knows who you are, knows your book, reads your book, but starts acting like, treating it like a real business and not just a hobby, right? Yeah, big time.

So tell us a little bit about your story. Where did this come from? Like, how did you develop, you know, this idea, concept of making sure you're running a business with Profiting First? Because obviously it seems pretty like a no-da statement. And as you know, and I know, it seems pretty like a no-da statement. And as you know, and I know, it is anything but a no-da statement. True. It definitely came from pain. I was a part of a real estate company in my early 20s,

where I jumped right from college into real estate investing. And with this company, they were doing about five wholesale deals a month when I first started there. So they were doing a pretty good amount of business outside of Chicago. But then we grew it over the next four or five years to about 25 deals a month between wholesaling, flipping, turn keys, we were doing rentals, lease options, like all the stuff.

And we were doing 25 deals a month, but spending 26 worth out the door. So it's like, who cares? Like they were doing 300 deals. I remember we did 100 deals in 100 days once, like over a quarter, we wanted to do something cool like that. Which was like, oh, yeah, it's so cool to say. But then it's like our bank account is like, you know, cobwebs. It's like, what the heck is going on here? So that's what opened my eyes because I was young. I was in my 20 my early to mid 20s at that time, but I was learning from that business. I was like in a bunch of different seats. So I got like a crash course in just small business and the different roles and everything, which was awesome.

But then from there, I sat in what the finance seat was one of the last seats I sat in, which gave me some of the knowledge just to know what I'm looking at. How do I read a profit and loss? Like, I remember asking, like, people are wondering like, oh, I'm a business owner and I don't know this. I remember asking, what's the N stand for in PNL?

And the CPA is like, that's an and. I was like, oh, he's like, it's profit and loss. I was like, oh, dang it. So yeah, that's how I started. So yeah, I didn't have, I wasn't the sharpest tool in the shed when it came to money in that business until I learned and sat down and figured out, like, how do you read the profit

and loss, the balance sheet, everything. That helped me tell the business story. So I hadn't known really the story up to that point. And then I saw like we're doing 25 deals a month, spending 26 worth, like this story can't end well. Like not the way that it's going. Unfortunately, I wish I had a great ending to that story. I wish I did, but I don't.

That company kind of blew apart. People went their separate ways, did different things. That forced me into other areas. I was going to other masterminds at that time, and everyone else was saying the same thing. So this was not just us. It was an epidemic, and I wish I would have had a great, I wish I would have had profit first back then.

I think that story would have ended a little bit differently. I can go from there, but that's what got me kicked off, even of knowing, okay, it doesn't matter how many deals we do if you're not keeping any of the money at the end of the day. Well, like anyone, you had enough pain that you had to do something differently.

Yeah, it's a big tie. And so from the pain came this amazing opportunity and amazing business that you now run. But really, just like so many of us, the pain is what created the need to like do a deep dive, go down a rabbit hole, get understanding of finances and how to run a business, manage a business by the numbers, be a real CFO, which by the way,

you and I both know, all these people out here, there's always the presidents, there's always the CEOs, there's always the founders, no one necessarily the CEOs, there's always the founders. No one necessarily, and I don't want to say nobody, but for the most part, many of the real estate investors that I'm aware of, they don't have a true CFO, right? And they don't know how to be a CFO. And that is where the rubber meets the road,

ladies and gentlemen, is when you make money and what you do with the money. So you're not just making money and feeling broke. I'll tell you my story because the reason we resonate is when I was introduced to you years and years ago, I had a very similar example. We had a very high performing year, multiple seven figures. And my personal paycheck was like

a single digit percentage of that. And that's insane, right? And to be able to make that much money, build that team, do that much volume, lose a whole lot of hair doing it. Right. And to be able to look and be like, dude, I could have worked at pretty much any corporation and made this kind of money without this much stress is a very real thing that us, you know, professional, uh, you know, full time real estate investors go through.

And so let's talk a little bit about the nuts and bolts because I think first of all, everyone needs to go get his book. Where do you want to send everybody to learn more about the book, take a look at it? I know it's called Profit First for Real Estate Investors, but I know you put together a website. Yeah, I did.

So you can actually download the ebook or audio version at simplecfo.com jc like Justin Colby here. So that's where you can go and download the book. It also has like a little profit verse cheat sheet. So if you like listen to this whole episode and you're like, what do I do first? I just point you there too. So that way you can at least get started. So that's where simplecfo.com forward slash jc. Simplecfo.com forward slash j. Simple CFO.com forward slash JC. So if you're hearing this and maybe you've done a couple deals or maybe you're doing a couple of deals a month and you're like, I'm making some money here, but where the hell's my money?

Then this is a very real episode, right? This is one you really want to make sure you're tuned into dialed into share with friends if you know they're going through it, right? Um, so let's talk about the fundamentals here because I think the people wanna know, what are the things that they should be doing? What are the roles that should be having? What bank accounts should they be setting up?

All those good things that you and I are both aware of. So let's dive in. So I wanna touch on what you said too. If you're gonna make money as an entrepreneur, you need to actually keep it as well. And they're two different skill sets. And it's like that's where I don't need you to become a financial wizard or like a bookkeeper or CPA yourself or a CFO yourself. But I will say knowing some of those fundamentals like you were saying, Justin, like right here.

I want to give you some of the fundamentals that you can know as a business owner without being this financial guru wizard You know even bookkeeper QBO QuickBooks online expert or whatever We're dealing with cash because everyone that's listening to this you are dealing with cash on a daily basis Whether your personal life your business whatever it might be like money flows through. And it's like, what do I do with those dollars? It comes in, it goes right out. I'm making money, where's it all going? Especially if you're flipping. I hear that lots from flippers, like,

man, I've got 14 deals on the docket and it's like, it's eating me alive. It's like, I've heard all the stories. So I wanna help you with the just fundamentals of profit first, but good money management. Like it's just good business habits to have when money comes in. What do I do with it? And a lot of people just aren't teaching that. So fundamentally, honestly, if you're listening this and you've never heard of profit first, you probably have in some form or version or other

book. Like have you read Rich Dad Poor Dad? Like he says a million times, like pay yourself first. Like you out hit that book and the rest of his series. Then there's a bunch of other books that say the same concept like The Richest Man in Babel and A Portion of All You Have is Yours to Keep, The Seven Habits of Highly Effective People says put first things first. Same thing. It's the same concept in profit first. It's like if you're running a for-profit business, you need to be thinking about profitability. You should be making money because without it, you won't be able to grow, scale, or have people on the team, or give, or travel, or whatever you want to do with your business.

And so he's just like, here, here's a system. That's what I loved about Profit First. I went a step further than all those other books and said here's a system to actually do that. And that's what Justin was alluding to with the bank account set up a couple minutes ago. You know, it's like, it literally revolves around you being intentional with every dollar. Whether you love Dave Ramsey or hate him,

he's made the envelope system very popular in the personal finance space of like being intentional with every dollar and literally he's telling you you take your dollars out of the bank and put them in envelopes, you know, and earmark them for certain things. But in business, you're not going to do that. You're going to set up bank accounts. And because a lot of people, here's the wrong thing. Here's what I see.

A lot of people that and just where we were and just where lots of people that I've worked with our, they have one big bank account and that's the big black hole bank account we call it now. It's like money goes in, money gets sucked out to the swirling vortex of doom, never to be seen again, and that's when you're asking yourself, where did my money go? And it's like you have no clarity. And that's where separating out the money

into different bank accounts to know where your money is gives you clarity, which gives you control, versus the chaos that's just ensuing in that bank account. And the specific bank accounts, if you're listening to this now, this might be a time to take out your paper and pen and write these down because this is an actual action step you can take from this episode. You can set up the fundamental accounts from Profit First. The first three are the Golden Trio of bank accounts.

I call them the Golden Trio because I'm a huge nerd. I love Harry Potter, Star Wars, all the big epic sagas. They've got three main heroes, right? Lou Conlea, Harry Ron Hermione, like making sure good wins along the way and it's a fun story and then when you get to the end, good ultimately conquers over evil, right? Your business though is so much more important than those and it can take a lesson from it too.

Like we need three main heroes in our business and that's the golden trio. They help you keep more of the money. I'm literally gonna give you three bank accounts that will help you focus on the profitability of the business. The first one is profit. The second one.

Yeah, shocker, right? Second one is the owner's comp, which I love just as much. We'll talk about that in a second. Then the owner's tax account which I love just as much. We'll talk about that in a second. Then the owner's tax account. I love these three bank accounts because they all focus on you, the owner. The difference between all of them. Profit is more of like, why did I start my business?

And it's like the big want. Like, what do I really want from it? Do I want to take crazy trips? Do I want to give a lot of money away? Do I want to go and be a part of a mastermind that I've never been part of before? Like, do I want to give a lot of money away, do I want to go and be a part of a mastermind that I've never been part of before? Like, do I want to jump in with Justin and get mentoring from him? It's like, these are the things of where you get to go out and do the fun things you want

from life. And I would do that on a quarterly basis, taking the money out of there. Owner's cop, here we go. This is how we could have solved the 25 deals a month issue. This is how Justin and his business could have solved the 1% or whatever, you know, like the single digit percentage, you know, like making all those seven figures. Then I see this over and over, having an account

dedicated to the owner to pay themselves consistently by a percentage that you decide, that the owner decides. At first, if you're already in the trenches, you might be like, well, I'm not paying myself and I'm not profitable. I would warn you right now, this is the exact time you need to start implementing something like this because you're not profitable.

So let me just put that as a side. The other bank account would be the owner's tax. If you, okay, when we're recording this, it's right in the thick of tax season. And it's like, good God, do you have your taxes? Do you know them? Are they up to date? Are you gonna pay an arm and a leg

because you're only an active real estate investor? Well, if you are, this is where an owner's tax account is like a peace of mind account. These are to save from the business. Like every deal you do, you slice a little bit off, put it into the tax, you know, bank account, and then when tax time comes, you don't have to be like hair on fire,

oh shoot, I gotta do four flips right now just to cover this tax bill, or like my first six figure tax bill, what do I do? I actually talk about one of our friends, you know, from the groups we're a part of, Jesse, like in the book where he got his first six figure tax bill, and he's like, it took him years to pay that off

before he found Profit First, and then it took him like a year, you know, like to get it out the door. And it's like, that's a peace of mind account. So those are the first three. Profit, owner's cop, owner's tax. The other two, well, you already have one of them. You already have OPEX, the operational expenses.

That was your black hole bank account where all your money flows out. Well, now instead of it being chaos, it's only the outflow. I do separate out income. That's the fifth one is income would be you get your wires in and now you can see where's my money and how much did I bring in over the last month. That's more of like what you made. So the income. Just for some clarity for people, right?

The last one you spoke about, the fifth one, income. This is all wires from title companies, wires from closing lawyers, true gross revenue for the company. That is the only thing that goes in that account. And from there, you can start to disperse into the other four. Exactly. Is that correct? Into the other one.

There's a lot of people that I think when they hear OPEX, they think that's gonna be your main bank account. Right. It shouldn't be. There should just be your main bank account that is collecting all revenue. Exactly. From there you delineate or distribute, I guess, to the other four.

Yeah, and in the book too, like if you ever get money in like from a private lender or something, that's where I'd give another system for that. If you're a real estate investor, I will say though, here's a bonus account. If you are a real estate investor, especially in the active flipping space or active side, if you're getting money from private lenders, we call it OPM, other people's money. So if you take money from other

people, I would highly recommend an account dedicated to their funds. And this is where people ask me, well, what if I have a bunch of lenders or what if I have like five projects going on at a time? It's literally just a holding bucket for all the rehab money for all your rehabs going on to see do I have enough to finish all of them or do I need to tap into and like go dive into my system to see how much do I have left for each project? But it's more of just a holding bucket there to make sure you know, this is what I have in OPM

to finish my projects. The rest of the system is to make sure the business is healthy. And if you're like, good God, David, that was like five or six bank accounts in that you just said, like, what do I do? Like, I can't do all this. You know, I'm barely struggling to stay afloat. I would do one. I would pick either profit or owners cop. Pick one of those to start with. Start to keep more of the money because that's,

honestly, if there was a magic secret sauce, that's it. And it's not, even though it's magic secret sauce, it's doing that for a long time, over a long period of time, and it's like, it's not sexy or exciting once you have it there for four years, but you know what's sexy and exciting? Taking money out and doing something sexy and exciting. You know, like going out on that cruise or going to wherever you wanted to travel to, whatever you wanted to do. That's where I would start with that.

And if you are like, good god, my hair is on fire, I can't even do this, I would start with 1%. Start with 1% to one of those accounts, like one of those keep accounts, profit, owners cap, and like put the rest of it into OPEX and run the business, but every quarter, like can we do a little bit better instead of 1%, how about two? Can you go to two?

From two to three, three to five, five to 10. Like we just want to build the, Like if you were going to the gym, like you're not going to go from like lifting no weights to like double your weight, you know, and bench press. Like you're not going to do something crazy. You're going to start with where you are. And that's where a good system like this is almost like a personal trainer. Like coming in and saying this is what you need to do in the system. And like, that's where just starting it, starting it is the habit.

So there you go, Justin. There's like the overview of profit first. I know we take a long time, but then also the nitty gritty of like, here's the actual bank accounts to get set up. Well, I think a lot of people, what they need to understand is it is a progression, right? So if you're not where I'm sitting

and having six bank accounts for maybe even more, because I do have a lot of private lenders Then I get that and David does too, right? And so then you have to decide do I need all five? Well, you may not write you may not have any revenue coming in You may not have any flips or wholesales going now you may be in the middle of trying to get them to go So again the progression of where your business is at is always go. The thing that I think most people aren't aware of, that I think you can help them with, and just the understanding of the owner's tax bank account.

I think a lot of people think just because they have an LLC and just because they might have an S-corp that owns said LLC, somewhere, somehow that money doesn't trickle down into their hands. And they use their corporate credit card for everything and they pay off the credit card with the money that hits the LLC. And I think their mindset there is something I really want to touch on because many people I think do this and I know do this. And I was a victim of this in my younger entrepreneur life where I was like, Oh, I made a hundred grand. I spent a hundred grand all through the LLC. So Justin Colby doesn't get taxed. Well, ladies and gentlemen, that is not the case.

That is all going to trickle down into actual income into me, even though for me, owning it with an S corp does give me some tax savings because I own the waterfall owned by me, I will be taxed on all of that revenue. Okay. That is the importance of having this bank account that is owner's tax account. Now speak a little bit to that because some people might have different formats of how they own the company.

Yeah. They might have an LLC owned by a C Corp or an S Corp, or maybe they own it themselves. probably not very likely. But talk a lot about that one, because I think there's a lot of people out there that just feel as if, oh dude, I don't pay my car payment, my company does. Right.

Brother, you're gonna pay tax on the income that pays your car payment. And I don't want you to forget that. Yep, exactly. So yeah, even though I'm not personally a CPA or tax expert, so I just, there's that disclaimer. And this is not financial advice. And this is not financial advice for you, so, but this is where a lot of people have that mentality of like, okay, I'm just going to put everything on the business card, or I'm just going to run everything through the business.

And while there's a certain degree of like, yes, you should run as much as you can, it's also at the same time, like, you want the LLC to protect you like an LLC is supposed to protect you. Or like a corporation is supposed to protect you. Where if you are just like co-mingling everything, that's like a separate issue even maybe from what we're talking about. It's like, don't co-mingle everything because then you pierce the corporate veil of yourself. Like that very famous, infamous statement you know an American you know our society here it's like I don't want you doing that another thing is that's why I like the Prof First system because usually we do percentage based transfers meaning like if you get a hundred thousand in there's going to be a percentage that

goes to profit at you know to owners comp to the owner's tax and like to the OPEX account and like in the system think of it like that if you have a there's gonna be a percentage that goes to profit, to owner's comp, to the owner's tax, and to the Opex account. And in the system, think of it like that. If you have $100,000, and let's just say you had legitimate business expenses of 50,000, then you're only gonna be taxed on the 50,000 that's left over, that's actual profit to the business, but then you're actually taking the cash

and putting it in the owner's tax account, like at 15% or whatever, and like now, you've got cash there sitting for the income that you'll be taxed on. And if you think you're gonna get around it, it usually will catch up to you. I just don't want it to catch up to you in the worst way possible, like someone doing an audit

on you and then you've gotta go back and pay penalties over the last few years or whatever it might be. Like you wanna be ahead of this stuff versus behind. Like this is a horrible thing to catch up on for multiple reasons. One, if you're playing catch up and clean up, that's usually way more expensive from bookkeepers, CPAs, accountants, like to get things caught up and all, you know, where it is. But another thing is too, is like if you're playing clean up, catch up, like if you haven't paid the actual taxes you're supposed to

They could come after you again for that, you know down the road with the fees and everything So that's why it's super important to be like even though you might feel like yes, I've got my LLC. It's all set up I'm running everything through it If you don't ever see also if you don't have a CPA who knows what they're doing Like you could be a major trouble if you are just putting that all through from not just an orange jumpsuit perspective, but like I'm gonna have to pay again through the nose, maybe even what I already paid, you know, just in, you know,

and then that'll be all the fees and stuff. So you just, that's why Justin, I don't expect them to become a financial guru or wizard, but I do expect them to, number one, I want them to know and be able to and be empowered to be good stewards of their money and be good money managers of like a dollar comes in and they feel like I know what to do with it. And I at least now know where it went. Even if it's not stacked up, I know where it went and like I can at least pinpoint it and now make different decisions.

The other thing is too, I want them to know there are people out here like me. Like, even if you don't use simple CFO and myself, there's other people that have this mentality, this mindset, they're not just your typical what you think of, maybe an elderly CPA, like Ebenezer Scrooge sitting at his counting house, like in a dark corner like just being there and not

Actually caring about you, you know in the entrepreneur and then giving you good steps to follow of like here's what to actually do So yes, the owner's tax account like I mentioned before is like a peace of mind account It is there to make sure you have the money to pay the taxes which you will Because even if you don't pay them today because you're doing some squirrely things behind the scenes, it will catch up to you when you get the right people in place that are ultimately there to protect you and help you. I don't think the IRS is there to protect you and help you, but we have to follow. We have to follow what their guidelines are and what and what that's where I also say

too, then get into rentals. Get into long-term eventually. Get into the passive side so that way you can legally literally get your taxes either to zero. I have multiple clients that have so much depreciation and they carry over losses for years because of what they're buying or the syndications or the big deals or even if they buy a portfolio for themselves. So if you want to legally do it, you're in the best industry, and you already have the skill of acquiring properties, usually, like, if you're listening to Justin, you're learning that skill.

Like, you're, like, pumping that muscle every time you listen to him. So it's like, that's where, go out that and flex that a little bit, because that's where the real tax savings can come into play. Yeah, and there's no doubt, you know, I was definitely in ahead there, is because I believe real estate is the only vertical.

Now, this is my belief that you can make a whole lot of money. You can build a whole lot of wealth. You'll never be able to pay taxes again or have to pay tax again if you do it right. And you're protecting your downside. So what do I mean by that? I believe, and I know this to be true because I've had to do it, when times get tough, you have equity in these assets.

You can lean on that equity to protect your downside. Right. And I've had to do the very same thing. And so there's no other vertical I'm aware of. Now you can make a whole lot of money in crypto. You can make a whole lot of money in stock and Forex training. I get that. But where's all the other categories like not paying taxes?

You're going to pay a lot of taxes with crypto, you're going to pay a lot of taxes with Forex and stock trading. You're going to pay taxes. Where's the opportunity to accumulate wealth? Well, you're probably making all the money in those categories and then putting it into real estate. Okay. And then where can you protect your downside?

Where can you say, hey, either I need a $500,000 right now, by the way, tax free another benefit, right? Um, because I need to do whatever it may be potentially even pay your tax bill, potentially even pay your tax bill. So what if you had 20 rentals, right? And I'll just say, hey, you have $100 thousand dollar tax bill and you lean those 20 rentals you get a you know a HELOC and you borrow that money tax-free to pay your tax bill and you pay it back over time there's no other there's no other assets right so this is why I lean into everyone needs

to be in real estate even if they're not a full-time real estate investor even though they're not acquiring a rental a month and all these who gives a shit statistics of how successful you are, they have to be in real estate. And if you're going to be in real estate, then you're going to want to read the book. You're going to want to treat it like a business, even if you're doing it part-time. Let's lean in a little bit more to the book. Beyond just the bank accounts in and of themselves, what are some other golden nuggets that you can leave here with this audience about the book?

Yeah. So another one is how to mess up profit first for real estate investing. Sure. And the number one thing I say is just don't do anything from here. Like just listen to it and be like, okay, that was good. I either read this or like that was a good podcast, inspiring, but I don't do anything with that's the worst way to mess it up. The second one is you set up the bank accounts, but I don't do anything with, that's the worst way to mess it up.

The second one is you set up the bank accounts and then you don't do anything with them. Like, that's where I give in the book, and specific to my book, I give what's called target allocation percentages, that's not the specific part, but the specific part is I give it for if you're selling the property,

or if you're buying it and holding it, and like, okay, for those bank accounts, like, depending on the size of your business, how much money should go where, into those bank accounts from every, like we were saying before, it comes into income, how much should I physically transfer to those other accounts?

So it gives you a little roadmap in there. That's another big one, especially if you're in the real estate space, because a lot of people buy and hold, not just sell real estate. So that's another big one to mess it up. The other way to mess it up is like making it too complicated. Like you go out there and you set up 15 bank accounts.

It's like, wait a second, what are you going to do consistently? If it's one, I'd rather you do one and get it set up and start to get good habits and then have that progression where, you know, Justin is now like down the road and has multiple bank accounts. We have had people set it up, and then I've had people set it up where they set it all day, assist them up, and then they come back to me in some other event,

like, oh, how's it going? Oh, I set up the accounts. Did you do anything? Oh, no, I didn't really. And I'm like, oh, man, don't do that to yourself. Don't overcomplicate it. The other thing I would say is that really derails people and this might not be, well this could be how to mess

up profit first, but you get the wrong financial people around you that don't really have your best interest at heart. Whether it's a bookkeeper, like if you have a bookkeeper and you're in real estate and they don't know real estate investing, you could probably be looking at like from anywhere from a thousand to like 10 to 15 thousand dollars of cleanup down the road because they probably don't know how to enter everything in the real estate space.

I just had this happen to me by the way. Oh, that sucks. Incorrect bookkeeping. I've had my bookkeeper for years. Yep. And he got me. Right. My account was like, wait, what just happened?

Like did he, and they've worked together for years. Yeah. Like even when you have someone good, there's still mistakes that happen. That's reality and I forget what it was. I think it was four tax returns that they had to re-go back. I wanna say it cost me $2,500 per tax return. Okay. It's a $10,000 mistake.

I guess who's not gonna pay, the bookkeeper. Right, exactly. That's where it's like you gotta have those right people in place that are supporting the profit first mentality I would say too of like they support that you wanna set all this up and do it but then they also need to know real estate. Like that's the other big one. If you have a CPA who doesn't know real estate and you're buying real estate especially to hold it, like good luck like getting the actual tax benefits from the IRS, you know, because you have that CPA

that's in place, and we don't, you know, I'm more on the CFO side, which is more business and money management, so it's like, I even see this all the time, where people have the bookkeeper CPA, which you need those people in your life, but if they're not real estate investing specific and that's the industry you're in,

then that could end up costing, like Justin said, I could tell you story after story now of just people where they thought it was right or they didn't even know. And honestly, a lot of times people don't care. Honestly, the real estate investor is just like, let me make money, let me do the deal and I'll get to the books when I get to the books

and then it bites them in the butt big time and they come back and they're like, oh shoot, you know, like I maybe I should have been paying attention to this the whole time because it's not just a bill that gets slapped with it's like, oh, I could have done a better business. You know, I could have built something that actually served me, you know, versus like the mess and chaos that I'm in right now. So it's like hitting it from multiple angles.

The thing that I would tell everyone is first of all, go follow David, even the simplicity of just following him all over his social medias. Simple CFOs his company, profit first for real estate investors, but don't be someone who's listening to this or watching this and doesn't do anything. You can be that person, but then be aware that like you're gonna have no results.

If you're even just getting started in real estate investing, this is likely one of the first books I would tell you to buy. Not because it's gonna teach you how to get the deal. It's gonna teach you how to set it up as a business from the beginning, even if it's a part time business, right? And that way the financial mistakes that I definitely made in my first probably five years of business and basically just running all money in all money out I don't care like do more deals you're gonna avoid that trap right like even the highlight I try to point out about the pro the taxes

personally you're not aware unless someone like myself or Davis mentions to you like hey the money gross money that's coming into your LLC trickles down to you at some point. Yeah. And if you weren't set up the right way and you're not pulling out owners taxes on every deal, on every dollar, even if you're pulling out 20 percent, which you're gonna be taxed more than that, but even if you pull out 20 percent of those dollars, you're gonna have a good head start to make sure that the tax man is actually gonna get paid.

Right? And again, David, you've seen, I mean, you've worked with thousands of investors. Like you've seen it all the time. They're built on sand. Yep. Yes, indeed. And we see that a lot of people don't, like you said,

they don't have that good foundation, which is why I'm so adamant. And I love that you brought that up. That even if you're just doing your first deal, like you're in the middle of your first deal, or you're about to set up your LLC, the EIN, and all the banks, you know, bank stuff, it's like, set up this system.

Like, B, have good habits from deal one, versus, okay, I was 850 deals into my real estate career before a profit first even entered my you know headspace and I'm like good grief if we would have had this from deal one that could have been 850 deals where we had more profit and a system for it and I'm like please for the love of guy if you are doing this now and getting into it set it up from deal one if you're a thousand deals into it don't let your next thousand deals be not as profitable as they could be because you didn't do

something from this podcast. Let me tell you what he's saying without saying this. Don't just make money to pay yourself 100% of it so you can go buy the car you want or the watch you want or take the vacation. Ideally, you will have that kind of money to do those. That is our perfect world, right David? But he's not saying this,

but it is underlying on everything he is saying, is it takes time and you need runway, right? If you're doing a deal a month, you're gonna be able to buy cars, you're gonna be able to buy watches, take vacations, because you're setting it up the right way, you're accounting for the dollars. But if you do one or two or three deals

and maybe you make like 30, 40, 50 grand or more, and you're like, fuck it, 50 grand or more and you're like yeah fuck it I'm gonna go buy my car or I'm gonna go you know to Vegas or I'm gonna go whatever then you're just gonna get in trouble later on down the road that's all we're saying right we're basically saying we are big brother we are seniors in high school you are a freshman there's a way to play this game so you are you know senior prom king at the end of this game. Yeah.

Or you're the guy scared to go to prom your senior year, right? You get to play the game however you want, but David and Justin are going to help you become prom king and be the best of the best, right? And I just, I want people to understand where we're coming from here is I've made these mistakes. David's made these mistakes is why he wrote the book, Profit First for Real Estate Investors.

What was that website again, David? Simplecfo.com forward slash JC. Simplecfo.com forward slash JC. He gives, I mean, there's a bunch of free giveaways on the website, right? Yeah, it's literally my book and the Profit First cheat sheet. So if you're like, here, let me distill this down

into one page, cause I know I'm an entrepreneur. Like just give it to me at the bottom line. What is it? There you go. You can go there and get that one page cheat sheet. So if you're like here, let me distill this down into one page because I know I'm an entrepreneur. Like just give it to me at the bottom line. What is it? There you go. You can go there and get that one page cheat sheet and the book. Well brother, I appreciate you. I know I'm going to have you featured in a lot more of my intensives and masterminds. If you're a part of my world, you're going to see a lot more David because this is a, this is a, it's like an epidemic, right? I mean it really is just, I see all the. People make money and they have no money. And so if you're sitting out there like, dude, this relates, I relate, I don't like, what the hell did I do?

I didn't buy the car, but I still don't have any money. Like I didn't do it wrong, Justin. You're telling me don't go buy a car. I didn't buy a car, but I still can't find the money. I get it. David gets it. There's a way to handle this. So make sure you follow David. Go to simplecfo.com forward slash JC. Bro, I get it David gets it there's a way to handle this so make sure you follow David go to simplecfo.com forward slash JC bro I appreciate it let's keep

spreading the word let's keep getting you out there because you're gonna change a lot of lives yeah I appreciate that and appreciate you let me spread the word and thanks for having me all right man see you guys if by the way if this was helpful and you think you might know one or two people who could be a better business owner make sure you share it with those two people. I appreciate you. Make sure you give a lot of love, likes and comments on this. See you guys on the next episode.