The Different Languages Of Real Estate

David Richter is an active real estate investor who has been essential in closing over 850 deals over the last 10 years. He has experience with wholesale, turnkey, BRRRR, owner finance, rentals, lease options, and any other exit strategy you can think of.

While growing and building a real estate business from 5 to over 25 deals a month, he realized that as much money was coming in, it was all going right out the door. With the unique opportunity of being in every seat as a real estate investor, he found a calling in the company’s finance seat to help businesses see where their money really went.

• Starting Real Estate With $0
• Getting a Financial Education
• The Steps You Should Take To Leave The Rat Race
• Every Deal You Take Down Will Be Different
• What Do You Own, and What Do You Owe?

To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com

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Full Transcript Below

Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars and we talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.

Rod
Welcome to another edition of How to Build a Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled that you’re here. And I know you’re going to get tremendous value from the gentleman I’m interviewing today. His name is David Richter. Now, not only has David been involved in over 850 real estate deals, more importantly, he’s the author of a book called “Profit First for Real Estate Investing”, which is really an offshoot of Michalowicz’s book, “Profit First”. I had Mike on the show, it’s probably been over a year ago, but he did a version of that book for real estate investors, helping real estate investors not just make money, but keep it. He’s also a founder and owner of a company called Simple CFO Solutions that outsources CFOs to different businesses. So we’re going to have a lot of fun today. Welcome to the show, brother.

David
Thanks, Rod. Thanks for having me.

Rod
You bet. So, maybe you could just give us a little background as to how you fell into– or you don’t fall into anything. You busted your butt to make this happen, but how you got into the fractional CFO business and ended up writing that book. So can you elaborate?

David
Sure. Yeah. So, I read “Rich Dad Poor Dad” in college, so a friend gave me that. That was the real estate bug right there. Read a bunch of books after that, but that’s where I started buying properties. After that, I bought some of my own properties, started building a little portfolio. I also linked up with a real estate company at that time, too, that was doing five deals a month. And then that grew to about 25 deals a month, about 300 deals a year, which was awesome, rocking and rolling at that company. One of the last seats I sat in there was the finance seat in that company and I saw– even though we were doing like 25 deals a month, we were spending like 26 deals. You know, it’s like why we were doing so many deals but not keeping any of the money and like spending more than what we were making. So that to me was a huge eye-opener. And I’m also going to these other masterminds and events too, and like people saying, yeah, we’ve got doing this many deals or this many units or, you know, making this much top line, then they’re all crying at the bar later, like, yeah, but, you know, like I lost money last month or I lost money last year, or like, I have no idea where I’m going to pay this bill and, you know, make payroll. And I’m like, I think this is more than just our company. So it was very eye-opening to me to kind of see that behind-the-scenes world, too. That’s where, you know, I got the first bug. Then from there, it was, you know, through a series of events started working with another investor across the country and helped him right away by saying, like I need to see your numbers, they tell a story. Like I need to know what’s going on here. And it was just a mess, just like most people when we first started seeing that, like it was just a mess. And so helped him clean up, and what does the– did we clean up. It was like, what are you making? What are you spending? Like, what do you own and what do you owe? Like, what are the basic things in your business? Once we had clarity there, it also unlocks something we didn’t even know. He had a lot of his own money tied up in his properties. He was only 30% leveraged, meaning, like, he had 70% equity in his portfolio. So we were able to grab cash out of there. That’s where, you know, he told me, this has been life changing. Like, I know what I’m making. I know what I’m spending. I can turn those dials, like, on a whim now. I can also, you know, pull cash out and actually get my money back. And I didn’t even know where it was sitting. So that, to me, was a spark, because he said, this has been life changing. I was like, I need to help people know that story. Like, I need to help them know the story that those numbers are telling them, be able to interpret it simply and like use my background as a real estate investor more than like an accountant or numbers guy. And then using that to be able to say, this is what you really need to focus on and why you should know exactly where everything is so you can plan better for the future. That’s kind of what started it all off. And then started implementing “Profit First”, and then the next year reached out to Mike after successfully implementing it with people in the real estate world and said, hey, I’d love to write the book. I’ve got a real estate background. I see it working. There’s definitely quirks in the real estate investing arena that’s different than just the brick and mortar businesses. And he was like, yes, let’s do it. So that’s where the book idea came from, too.

Rod
Nice. So, do you have an accounting background, or you just fell into that?

David
No. No.

Rod
Okay.

David
I do not, at all. So I know I look like I do. If you’re watching this, I look like the numbers guy for sure. But that’s where when I said I read “Rich Dad Poor Dad” in college, that’s because I was a reader, like, growing up. And then also from there, I read a lot of books. You know, I was just getting my financial education at that point because school didn’t do it. So I finally got my own financial education. That’s where I saw that there’s this huge need and after sitting in the finance seat and really learning at it, that the small business level. And being able to understand really what’s going on behind the scenes, and learning the language of accounting, even though I’m not the accountant, and being dangerous enough to talk that language, but also could talk the entrepreneurial language and the real estate investing language, that’s where I was like, okay, there’s a lot of people that need this help. I know how to speak the language, so that way they’re not going to just fall asleep whenever I talk or whenever I present this that’s what also really appealed to me about “Profit First” was that it spoke to the entrepreneur, the business owner, the real estate investor of, this is how you manage the money without– you wouldn’t even have to look at your books ever. Like, I know that sounds crazy coming from a finance person, but it’s more like you just are able to manage the cash as it flows through because you’re going to do that anyway. You’re going to do something with the dollars that flow through your company. So that’s what appealed to me. But yeah, my background, no CPA, no accounting. I’ve got 30 CFOs on the team that all have their MBAs and, you know, their CPA degrees and all the licenses and all that. But I myself, I saw the need, saw a huge need, and just wanted to help the real estate world because I had a lot of good people help me up until that point.

Rod
So, you know, I’m familiar with the “Profit First” model, and I think I first got introduced to Mike at a Mastermind that he spoke at Collective Genius up in Tampa and then I had him on the show. And so, guys, really, “Profit First” is pretty straightforward and that is when you look at your revenue, you pull out the profit first. I mean, that’s very greatly simplifying it. But talk about how a real estate investor can get more clarity and even confidence around what they’re looking at when they’re looking at their numbers and the money that’s coming in and going out.

David
Right. So many people that I’ve talked to at a lot of these events always say, I have no idea what I’m making.

Rod
Right.

David
What I’m spending.

Rod
Right.

David
You know, like how do I even know that? That’s why the first step, we work with a lot of people and we tell them like one of the first things we want to do is implement this system because it’s going to be something you understand without us having to go into the profit and loss, the balance sheet and like start teaching you the in-depth accounting language, principles and tools, you know, and all that. So that’s where “Profit First”, like you said, first the mindset. Like, everyone thinks that sales minus expenses equals profit.

Rod
Right.

David
They think that I make a sale, I pay everyone else and their mother, and whatever I have leftover, hopefully, I have something at the end of the day, while the “Profit First” formula is sales minus profit equals expenses, like you said, I make a sale, I take my profit first off the table then, that’s where I fill in the expenses around that because now I’m building the business I want to build versus my expenses dictating what I get to keep.

Rod
Right.

David
So that’s where I want you to be in control of your cash. And how do you get clarity? One of the first things is the practical steps to “Profit First” is setting up multiple bank accounts, like the envelope system, like you hear on the different, you know, Dave Ramsey’s made that popular, you know, all those different–

Rod
Buckets. Different buckets as well.

Intro
Different buckets, you know.

Rod
Right.

David
That’s where you set up those different bank accounts and name them specifically, like profit, owners comp, owners tax, and I call those the three– those are the three ones you should always set up. I call them the golden trio. I mean, look at me again, I like Harry Potter, Star Wars, all that good stuff, you know. There are always three main heroes, right? Moving the story forward for good, Luke, Han, Leia, well, your business, your life, needs those three main heroes in those bank accounts. Like, you need to make sure you have profit, owner’s comp, and owner’s tax, like those bank accounts separated out from the money you’re paying other people so that way you’re taken care of. So that’s the practical steps of making sure that a deal comes in, it closes, you have money and revenue there, you’re putting those in those first bank accounts first to be able to have money that’s for you, the owner, so that way you’re not feeling like the burnt out rat race, like, oh, shoot, you know, I just took down an elephant but now I’ve got to keep doing it again over and over and over. And it’s like, I want you to not have to be like, okay, now if I don’t close a deal, then the next six months, we’re going out of business. Like this helps you get the clarity of, what can I pay myself? What are the expenses out of the expense bucket? You know, like, making sure you know at least the cash level, for you the entrepreneur, do I have enough coming in to support me and to support my business as well?

Rod
So, just to give you guys some clarity on what he’s saying here is, typically, like he said, you’ll have the income come in, and you’ll take out the expenses, and what’s left is what you carve up for yourself as an owner’s salary or, you know, you put in the bank. But the better way to do it is to decide what that profit margin needs to be. You take that money out first, and then you adjust your expenses. If it means cutting some expenses, whatever it is, to make sure that, you know, you get down to zero at the bottom. But you take the profit first then you do your expenses and, you know, you may back into realizing you need to cut some things or increase revenue or just, you know, it forces you to really take a good hard look at your income and expenses and live lifestyle. So, what are some steps that someone would take– now, obviously guys, you should read the book. So again, it’s “Profit First for Real Estate Investing”. And the “Profit First” book is also really good. But, you know, what are some steps that someone should take to– you know, especially those of you that are listening to me want to get into multifamily but maybe you’re flipping right now or you’re wholesaling and you’re going deal to deal, you’re not building cash flow. You know, what are some steps so people can get out of that rat race in living deal to deal?

David
That is one of the best things about the system is that most people that are in that space, you’re just talking about the wholesaling, the fixing and flipping, they don’t have the consistent income of rentals or multifamily commercial. They don’t have that in their portfolio. And usually, it’s because they have to keep hunting, killing, taking it down. You know, it’s just a transactional game all the time.

Rod
Right.

David
And that’s where a system like this, number one, you need to realize step number one is do I know what I need from my business? So no matter if you’re flipping or you’re multifamily, get that number first. Is my business supporting this and can it still survive on its own, you know, like with me taking this much out for what I need for my lifestyle and for my expenses? Then the second thing is setting up those accounts. And if you want to get into multifamily or into that side and you want to start that, set up an account. That’s like my multifamily account that I start stocking money in there, you know, for whatever. Whether that’s to buy the properties, going to a syndication, to be an operator, like for education, go to one of Rod’s events, you know, it’s like whatever it might be, putting a separate account there and naming it for that. Now, in the book that I talked about, that’s one of the big steps is like you’re building the wealth habit by setting up these bank accounts for you, the owner, like the profit, your owner’s pay, your owner’s taxes, like making sure you’re separating this out. But the great thing about the system is if you want a specific outcome like getting into multifamily, set up an account for that and make that a goal from every deal that you close. A certain percent of those deals goes into that account and then you fund it for whatever it is. Like I said, education or buying a property, syndication, whatever it might be. So those are some practical steps to help you see the actual money coming to fruition and not just blowing it all every month and not seeing any of the fruits of your labor, you know, like just evaporating in smoke.

Rod
Right. No, you know, it’s similar to tithing in a way, honestly.

David
Yeah.

Rod
But guys, I know this sounds super simplistic. It’s a little more involved than it sounds like right now, but the bank account thing is not that complicated. And, you know, I know I’ve been to lots of trainings and like I say, use the bucket system. You’ve got your growth bucket, you’ve got your savings buckets, you’ve got your, you know, spending bucket. And this is along those same lines with bank accounts. And it just really helps you be very, very deliberate about you know, being able to take profits. So, talk about– you know, I mean, maybe elaborate a little bit more on how effective this has been for, you know, clients or people that you’ve communicated this to.

David
So, I had a client this year. He called me back in June. He’s been with us for three years. He’s been on the Profit First system for three years. And after being on that system for that long, he told me that he had closed enough deals that he just closed his, you know, the last deal that he had closed in June and said, with this deal, I funded the accounts for my business from now to the end of the year. So I have enough to pay the rest of my expenses. He’s got a giving account. He said he filled up that giving account because he’s supporting like a camp for kids. So it’s like he had filled up the accounts that were important to him, his pay. So he said, I’ve got young kids at home. I could take a month off if I want to. Any deal I do from now to the end of the year is icing on the cake and just for, you know, planning for the next year, I could learn a new marketing strategy. Like, those are the types of calls that I get constantly. Another person called me and said, like, hey, I just paid my taxes, but I had saved the taxes that I was owed. And like it didn’t sting at all this year because it was in a separate account. I was able to pay it off and like, yes, it still sucks to send money to the IRS, but at least it was there and I wasn’t like sweating bullets like, oh shoot, I got to do four more deals right now or I got to have money coming–

Rod
Yeah, and that’s becoming a bigger deal with 87,000 new IRS auditors who they’re arming, by the way. I just– don’t get me started on that. Go down that rabbit hole. But anyway, well, listen, guys, you definitely should check out this system because you know, it’s going to give you clarity on your numbers. And, you know, honestly, I’ve been remiss in doing it for myself and I’m actually going to do it for me as well. But check– you know, get that book, “Profit First for Real Estate Investors”. You know, and if you have an interest in the CFO business, it’s simple. CFO Solutions is the name of the company. But, you know, I’ve had, you know, full-time CFOs in companies that I’ve owned, and I’ve also had fractional CFOs where they just come in and do meetings and, you know, review things. And as expensive as they are, you know, doing that fractional option is actually not a bad idea at all. And so, you know, I’ll be talking to David about it after we finish this interview. But anyway, check him out. And I was impressed enough with our conversation we had previously that I’m actually going to have him speak to my Mastermind because I think even those guys that are in the thousands of doors will benefit from this conversation and benefit from the strategy. So, Is there anything I didn’t ask you that I should have, David because I mean, yeah.

David
Let me just say one thing, too. I’ve got a podcast, a “Profit First REI” podcast. Had a big multifamily guy on there that’s been following “Profit First”, and he says, like from every deal that we take down, you know like we set it up a little differently. We have our profit accounts then we put the money in there, then we’ve already got our owner’s buckets you know like already filled up from some of the last deals, and then we’re able to fund our own deals and do things like that. And it’s cool hearing about some of the ways that other people do it in the space. And I’ve seen it now, not just with our clients, but other successful multifamily people as well, too, coming on and saying it’s been revolutionary for us because now we don’t have to go into every deal that we’re doing, like, scared of, like, okay, is the money going to hit?

Rod
Right.

David
Is the deal actually going to close? It just gives them that sense of security. So, that’s another big thing as well, too, that a lot of big people want is that just security of like knowing that the money is there for them.

Rod
Yeah. No, got it. Well, listen, I appreciate you coming on the show, brother and looking forward to continuing the dialogue around this profit-first topic for myself, actually, and for my business. So, guys, check it out. So if people want to find you, David, they can just go to “simplecfo.com”, is that correct?

David
That’s the place.

Rod
All right, sounds good. All right, well, it’s great to see you. I appreciate you coming on and we’ll talk soon.

Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our Warrior students do just that using our “ACT” methodology which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?

Rod
You bet. Guys, we’ve been going non-stop for three years building an amazing community of like-minded people, and our coaching students which we call our Warriors have had extraordinary results. They’ve purchased thousands and thousands of units, and last year we did over 1000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our Warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon apply to work with us at “MentorWithRod.com or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.