Profit Comes First: How Real Estate Investors Scale Without Running Out of Cash

Rocky Lalvani (00:00)
So I think the biggest problem with a high growth company is if they haven’t built their model correctly, the growth and the problems scale faster than the cash does. And so even though sales are increasing or their their portfolios growing, if their cash is not keeping up or staying ahead, at some point

Even with a profitable company and everything going well, the cash stops. And when cash stops, everything falls apart. Most people don’t realize that. They’re just looking at, hey, we’re growing, the sales are growing, everything’s getting better. But when you can’t pay your bills, you can’t make payroll, you can’t play your contractors, everything stops.

Scott Bursey (02:21)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we are diving deep with Rocky Lalvani, the pro behind Profit Comes First. Rocky is a master at helping business owners scale and grow their profit and cash flow while ensuring they don’t overextend. Pros, you can expect a walk-away today

from this conversation with a totally different framework for managing your liquidity and managing smarter, more strategic business decisions. Rocky, welcome to the show.

Rocky Lalvani (02:55)
Thank you so much for having me, Scott. Excited to be with you today.

Scott Bursey (02:58)
It is awesome having you here, my friend. And to help our listeners get up to speed, please give us the ninety second highlight reel of how your career ignited and where you’re pouring your fuel now.

Rocky Lalvani (03:11)
So I’ve always been an entrepreneurial type of bent, just from a young age, as a kid, always earning a buck, and then ended up following the traditional path of college and and kind of that W-2 job, but always love real estate on the side and eventually started buying rentals, flipping houses, and eventually walked away from the W-2 to do my own business, which is helping business owners scale and grow their profit and cash flow.

Working with a lot of people in and around the real estate space, helping them take their capital and get better returns and ensure that they continue to build their business.

Scott Bursey (03:51)
That’s an incredible journey, Rocky. Thank you for sharing how you built your foundation with us. And what really caught my attention about you was the way you’ve been able to teach entrepreneurs that not every dollar needs to be invested. Sometimes you need to keep cash ready for the opportunities that present themselves. And on that note, curious to know what was the specific achievement moment that made you realize that scaling

shouldn’t come at the cost of your your cash flow.

Rocky Lalvani (04:22)
Well, I’ve always been that way. I mean, just from the beginnings, it was always about growing the actual cash and growing the net worth. And so I’ve always done things that way, whether it was real estate, paper, asset, so forth. But it isn’t see, there’s two skills here, Scott. The first skill is growing wealth. And the second skill is a much harder skill because a lot of people know how to grow wealth. Very few people know how to

keep wealth. And it’s that second part. How do you keep the ability to survive the storm and be able to do that? And I think I’m just kind of watched going through multiple recessions. I think right now people just assume real estate keeps going up. You know, I I don’t know if we’re back on that curve after eight when when everyone got a surprise. I think

Markets are turning down again. It’s a question of how do you survive through all of that? No matter what happens, how do you make sure you don’t blow up in your particular deal? And real estate has that habit of people blowing up.

Scott Bursey (06:20)
Rocky, we’re interested to hear what do you see as the biggest eternal strength as a business owner that you can build on to protect your margins?

Rocky Lalvani (06:30)
I think the the biggest strength for business owners, if you want to protect margins, is to understand your margins and understand your cash flow and understand your return of capital. For example, a lot of times, you know, real estate guy will have some extra cash lying around. They’ll see an opportunity, they’ll go rushing into it, but they haven’t looked at, hey, what is the total cash needs of this particular opportunity?

And when is the cash gonna start coming back into my pocket and how does that affect the rest of everything else I do? And so what you see is a lot of people say, Well, we’re house rich, but we’re cash poor. And so there’s gotta be a balance in there. And there also has to be a balance on how much leverage you have on all your real estate and and how that leverage has played out. And understand what the opportunities are there and

Whether or not someone else has power to call your leverage besides you.

Scott Bursey (07:32)
And let’s continue down that path, Rocky. Please help the pros understand what is the most common weakness or perhaps blind spot you see in high growth companies that are running out of cash.

Rocky Lalvani (07:46)
So I think the biggest problem with a high growth company is if they haven’t built their model correctly, the growth and the problems scale faster than the cash does. And so even though sales are increasing or their their portfolios growing, if their cash is not keeping up or staying ahead, at some point

Even with a profitable company and everything going well, the cash stops. And when cash stops, everything falls apart. Most people don’t realize that. They’re just looking at, hey, we’re growing, the sales are growing, everything’s getting better. But when you can’t pay your bills, you can’t make payroll, you can’t play your contractors, everything stops.

Scott Bursey (08:35)
What’s the first step to fixing that leak?

Rocky Lalvani (08:39)
I think the first step is to understand how money moves through your particular business. Every business does things slightly differently. You can take the same exact business and run it differently and have a different cash flow issue. So some businesses just inherently print money and they never have a problem. Other businesses, no matter what, are always behind on the cash because they

didn’t build a good system for cash moving through their business.

Scott Bursey (09:12)
Rocky, we love your take on the current market. Where are the best opportunities for pros to deploy cash right now without over leveraging?

Rocky Lalvani (09:22)
That’s a really hard question. Cause I think we’re in a state of flux. I think where some of the opportunities are coming up is probably in the commercial space. You see a lot of just change of of what happened there. So again, that’s local driven. So what be might be in my market may not be in your market. There were a lot of syndication deals

That are now going bad because they were built on interest rates that don’t exist anymore. And so all of those types of opportunities come up. Can you walk in and take over something that for whatever reason didn’t survive or wasn’t well run? the residential real estate market is, you know, I think that’s kind of wild right now across the thing. I’m hearing that the South is dropping.

Again, I’m not there, boots on the ground, so I don’t know. But there’s all I think your bottom line is there’s always opportunity. It’s a question of can you buy it right? In real estate, the money is always made when you buy it. So, regardless of current market situations, is there a distress or an opportunity or an ability to walk into something and change the scope of the project in a way that unlocks capital or unlocks value?

That somebody else can’t see. Like I know in our neighborhood there’s a a mall and the thing is dying. I think they keep trying to get rid of it and they can’t. And so someone who can walk in there and know how to revitalize that can make a killing. But you gotta know how to do it.

Scott Bursey (11:31)
What’s the one criteria, if you will, Rocky, that you use to to vet an opportunity?

Rocky Lalvani (11:37)
Does it math? If we sit down and run the math on the project, does it math? And does it math not with your most opportunistic, you know, beliefs and your your thing? Does it math when we’re pessimistic? Does it math when things don’t go perfectly? And what does that look like? And what’s the range? At what point does the deal no longer work?

And that gives you the drivers to say, Hey, we can do this through this level, and here’s our cushion. And if it works and you’ve got a good cushion, go for it. But you have to know that for that particular deal.

Scott Bursey (12:16)

Rocky, what are your thoughts on the biggest threat to profitability for real estate investors in in the current market?

Rocky Lalvani (12:24)
So I don’t think we still understand what the interest rate market is going to look like going forward. there’s already talk again of possible rate increases. I don’t think people should rule that out. if they want to get inflation under control, the last time they wanted to get inflation under control, interest rates went to 18%. Can that happen again? Well, it could.

Does that put a big wrench into these markets? Absolutely. So I think that’s the big thing that’s unknown is what does your cost of capital look like? And how does that cost of capital affect your particular plans? Now, let’s say I go buy an apartment building and I get a 20 year fixed note on it, and I can cash flow it today, and they can’t pull my note. Well, who cares?

It doesn’t matter. But if you’re not in that type of situation, then you better understand the risk of interest rates.

Scott Bursey (13:29)

Wondering, Rocky, when you help a business owner scale, what is their what’s the the first transformative change in their behavior that signals they are finally in control of their profit?

Rocky Lalvani (13:42)
The the first I so first of all, I think they need to understand how it actually occurs. If you ask most business owners to map out and show me how money comes through your company, they might know in their gut, but they don’t have it mapped out to say this is where it starts with. It starts with a lead. That lead cost me X amount of dollars.

These are what my conversion rates look like. This is what my true sales cost is, right? So this is what I’m selling it for. This is what it costs me to deliver it. And here’s my margins. And then once the margins go away, how does cash flow through the business? And what does that look like? Every type of business is radically different. And so even in the same market, two side-by-side businesses can be radically different.

Scott Bursey (15:16)
And Rocky, when it comes to your business, Profit Comes First, what’s the outlook for the next twelve to twenty four months?

Rocky Lalvani (15:24)
We’re positive in our business. we’re also a countercyclical business. So if the economy goes down, we actually go up. Because when things are good, everyone doesn’t worry about their cash and their money. They just think it’s gonna keep flowing. When things go down, that essentially is the big wake up call to people that, hey, I gotta do something different.

Scott Bursey (15:49)
And Rocky, it’s fascinating how much networking changes as we grow. What does your professional network look like right now?

Rocky Lalvani (15:57)
I have a pretty massive network. I belong to mastermind groups and and other types of groups and of I go to a lot of different types of conferences. So from that you get to meet a ton of people and that’s how the network grows. I I have podcasts, two of them. And so that also grows your network because you get to meet people and talk to them. You get a chance to have a, you know, forty five minute to an hour conversation with people. It’s building your network.

building your relationship. So at this point in my life, I have a very, very robust network because of all of that.

Scott Bursey (16:32)
Rocky, thanks for shedding light on that. And curious to know, what is the best piece of advice you could give someone who is feeling pressured to reinvest every single dollar they make?

Rocky Lalvani (16:46)
Don’t. Literally don’t. Like I since we’re in the real estate, I think everyone can understand this. Would anyone build a house without a foundation? No. If you’re not gonna build a house without a foundation, don’t build your business without a foundation. In business, cash is your foundation. So understand what it needs and how what you need to be totally secure.

And then you can build on top of that. And you can only build as big as your foundation. Right? So it depends on your particular business and its needs, but that’s how you make sure that you don’t blow up.

Scott Bursey (17:25)
Thank you for laying the foundation there, Rocky. And Rocky, you really have given us a lot of knowledge here today, but is there any additional advice you could leave with the pros?

Rocky Lalvani (17:35)
I think it’s just the simple understanding that generating cash is not as hard as keeping it. And most people are really good about generating cash, and their attitude is always, I’ll just go sell more, I’ll do another deal. Eventually you hit a hiccup. And so learning how to keep cash and be secure with it is the biggest thing I think everyone needs to do. They you need to have that crap.

Pile so that when things go bad, even if you’re not hurt, think about how much more you could grow, pick up the opportunities that become available to you. I just look at Warren Buffett. I don’t even know what he’s at currently. I think he’s at like 300 billion in cash, waiting for an opportunity. Like, if Warren can do it, so can we.

Scott Bursey (18:24)
Rocky, for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you, what’s the best way for them to to reach you?

Rocky Lalvani (18:32)
So my website is profitcomesfirst.com. And when you come to the website, you’ll find our podcasts and they’re on how to build a profitable business. And we do talk about real estate a bit sometimes and how to be the best leader within your life and your business as well.

Scott Bursey (18:50)
Thank you for joining us today here, Rocky.

Rocky Lalvani (18:52)
Thank you so much for having me, Scott.

Scott Bursey (18:54)
It’s been a pleasure. And to our listeners, we appreciate you. If you receive value from today’s episode, please subscribe. We’ll be filling your tanks with a lineup of elite guests, just like Rocky, who are accelerating and setting the pace for the rest of the industry. Until next time, keep your standards high and your vision clear. We’ll see you in the next episode, everyone.