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Show Summary
In this conversation, David Richter shares his extensive experience in real estate investing and emphasizes the importance of understanding the money game. He discusses how many investors lack a solid business plan and often focus solely on closing deals without considering overall profitability. Richter advocates for implementing cash flow systems, such as the Profit First approach, to build cash reserves and achieve financial freedom. He also touches on the concept of geographical arbitrage as a potential solution for housing affordability and stresses the need for financial awareness among investors.
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Investor Fuel Show Transcript:
David Richter – Simple CFO (00:00)
it does not matter how many deals you do that determines your financial freedom. It’s what you do with your money.And that’s where I have we try to help with the profit first system. And that’s where I really believe that if people have a system in place for the cash, that’s what really builds the bridge from that rat race wheel over to financial freedom.
Dylan Silver (01:50)
Hey folks, welcome back to the show. Today’s guest, returning guest, David Richter is an investor with over a decade of experience and over 850 closings on record. He has experience with multiple exit strategies ranging from wholesale to bird, to owner finance, to lease options and more. And today he helps companies turn around and build cash reserves using the profit first cash flow system. He’s been featured on Bigger Pockets.our show and many other podcasts and shows. He’s also the author of Profit First for Real Estate Investing and you can find him on simplecfo.com. David, thanks for taking the time today.
David Richter – Simple CFO (02:32)
Yeah, thanks for having me Dylan. Great to be here.Dylan Silver (02:35)
I’d like to dive in and ask you about folks who are building a real estate business and they may be in their first, let’s say three years as real estate investors or budding or aspiring real estate investors and focus on how can they avoid the bad deals but also have more cashflow opportunities.David Richter – Simple CFO (03:02)
right out of the gate. how can they get better deals and have more cash? Well, first is having a real plan. A lot of business owners build their business on the hope and pray plan, man, I hope that this marketing goes out the door in this money that we actually get deals in the door. And then at the end of the day, hopefully we’ll have some money. And that’s how most investors approach the business because number one, they have never been taught business. A lot of people jump into business, but they come from the W2 world or they didn’t haveYou know, they didn’t go to Harvard or they didn’t go to a business college or even if they did, they might not have gotten the actual real world business experience. So when they jump into a real estate company, they’re like, okay, I just need to do deals. I’m good at closing sales. I like real estate. I can do wholesale. I can do whatever. And so they’re good at getting the deals, but they haven’t learned what the business is really about. And this is where my experience comes into play. I was part of a company in my early twenties where we were doing about 25 deals a month.
between wholesales, fix-in flips, turnkeys, all of that. But we were spending 26 worth of deals out the door. So it’s like you make a million, but you spend 1.1 to get there. And that sucks. So it’s like, that’s where we were falling into the same trap that most entrepreneurs do when you ask that question. It’s like, we know how to get the deal, and we’re good at getting the deals, and we can get them in the door, but are we really good at what we’re really supposed to be good at as an entrepreneur? And that’s not real estate.
it’s money because it’s like the game of money is what we’re really playing. Real estate is just our widget. So you have to know is the money going to be good at the end of this deal? That’s why so many people have formulas to find the deal and are they going to have profit or not, which is a great first step, you have to have a formula in place to make sure are you building profitability into this deal. But then a lot of entrepreneurs and a lot of real estate investors forget to do that for their business. Like how do you analyze the business to make sure that I have
profit not on each deal, but just as the business overall, just because you have profitable deals does not mean you have a profitable business, which really trips up a lot of real estate investors because they’re like, well, I made 40,000 on the last couple deals and like, where’s all the money? And that’s where I hear a lot of that. That’s why Dylan as well. I also think because the second part of your question was what do they how do they build the cash reserves?
They need a system for that cash. Once they understand that the real game they’re playing is the game of money, they need a system.
to be able to play that money game to win. And a lot of people don’t have a system. That’s why I went down the profit first road. Cause even though I look like an accountant, that was not my background. It was real estate investing. It was that real estate world. And profit first really helped me understand that the first steps is I need a system to make sure I have cash that I’m keeping more of it. And that if those deals are profitable and I have a system for the cash for the business,
not only will I have both ends of that stick then doing what you just asked, how do I make sure a deal is profitable? And how do I make sure the business I’m keeping more of it? That’s the two things I think number one, you need to make sure you have the right mindset of like, we’re actually playing the money game. So it does, it doesn’t just end with the deal, it ends with a, okay, do I have a system to keep more cash? So I know that was a long winded answer, but that was my best way to try and answer that question in the in the most direct manner.
Dylan Silver (07:04)
You know, when we talk specifically about the avatar of who is a real estate investor, I can speak personally to this that a lot of times the person who’s going to be someone who takes a lot of action and starts a business and is willing to do the bootstrapping necessary. And this isn’t true 100 % of the time. I hope I don’t say the wrong thing to offend anybody.David Richter – Simple CFO (07:21)
Yes.Dylan Silver (07:32)
you deal with a lot or you see a lot of people ⁓ who are very much action takers, but they’re almost cowboys in a sense, like, hey, shoot first, ask questions later, right? Well, what ends up happening in so many cases is sure, you could be fortunate enough to have invested at a time where your strategy works, but what happens when the market shifts and your strategy is no longer working as has happened over the last several years, right?David Richter – Simple CFO (07:38)
Yeah. Yeah.Right.
Dylan Silver (07:59)
And that’s really the hallmark for me, having spoken with so many investors of a successful real estate operator, is you’ve got to be able to say, hey, this isn’t working, or this has stopped working, and what do I do, right? What do I do now? When we talk specifically about transactional real estate, whether that is being an investor and doing flips, or whether that’s being an agent, right? I’m a Texas licensed agent.I think a lot of people get focused on like moving the piece around the Monopoly board without realizing that they’re even playing Monopoly. Like, hey, you’re in the game right now. Let’s take a step back over here and analyze the full board rather than just say, hey, I gotta get to Park Place.
David Richter – Simple CFO (08:36)
Right, yeah. Exactly.Exactly. And that I use a lot of the example of the rich dad poor dad game of cash flow 101, where Robert Kiyosaki made that game and literally in the middle of the wheel, you’re trying to land on these little green spaces that say big or small deal. It’s like the typical real estate investor like going around in this rat race, just literally trying to land on the big and small deal over and over and over again. And we think that the number of deals will eventually get us his game has a second part to it of the
It’s not the rat race anymore. Once you hit your passive income goal, then you get to the fun track or financial freedom. And so many investors are not playing the real game, the money game, they’re playing just the deal game, I just have to land on these big, you know, the bigger, small, the green spaces here. And if I get enough deals, then eventually I’ll get to financial freedom. And I can tell you, without a shadow of a doubt,
it does not matter how many deals you do that determines your financial freedom. It’s what you do with your money.
And that’s where I have we try to help with the profit first system. And that’s where I really believe that if people have a system in place for the cash, that’s what really builds the bridge from that rat race wheel over to financial freedom.
And that’s what we’re trying to help people with. Because honestly, Dylan, there’s no recession proof businesses out there. Like there’s ones that have gone up and down sideways, you know, like there’s insurance companies that have been around for, you know, 100 plus years. But you know what, what is really recession proof people like
can they understand the systems a lot of those ones that have been over 100 years, you know why because they have a ton of cash in place and like, it doesn’t matter if the market crashes or the market is like blessing everyone out there. It’s like, this is where they are very conservative with okay, I need the cash, I will still invest and reinvest in the business, but not at the sake of even if the worst market were to happen, I’m going to be like, my gosh, what am I going to do now? So that’s where we’re trying to get people off that rat race.
into that financial freedom fun track over here, know, like going on that board. And a lot of people just never build that bridge with a good system for their money.
Dylan Silver (11:19)
Yeah, you I’m going through your speaking to someone who’s going through this right now. This is my first full year in, I believe, and maybe a little bit over that my full year in business for myself. you know, coming from the W2 world, I worked so many different ⁓ jobs, but a lot of my time was spent working in the automotive space before I got into wholesale and then being a realtor. I’m realizing the way that I approachedDavid Richter – Simple CFO (11:32)
Awesome.Dylan Silver (11:49)
money was on like a bi-weekly or monthly basis. And that that I didn’t even realize this until very recently, talking with with a enrolled agent and a tax strategist that I have. And that’s a limiting factor, because if I’m only looking at, every two weeks or every month, then I can’t think about, hey, what’s this quarter going to look like, or I start to feel pressure from that whereDavid Richter – Simple CFO (12:16)
Mm-hmm.Dylan Silver (12:17)
If I’m looking at a multifamily real estate deal and I’m trying to acquire things through seller financing, this isn’t going to happen on a two week or one month timeline. So I’ve got to think longer term.David Richter – Simple CFO (12:25)
Right.Yeah, I would 100 % agree with that. And if especially if you’re living through it right now, this is where it’s like, I would rather you take some time and do a little less deals while you’re getting into it to be able to build a better foundation now. Because the habits you have now, unless they change through systems and books and things like that, you’ll have the same habits with money. Now in your first year.
as in your 10th year, like, it doesn’t get better. Like when we were doing when I first started working with that company that we eventually did 25 deals a month, we started at five deals a month. And we had not great habits with money at five deals a month. And then we grew to 25 deals a month. And we had 25 deal a month problems, like the problems ballooned that big. So yes, my, my admonition to you Dylan, specifically, or anyone listening would be the sooner the better even okay.
I talked with a lot of investors to Dylan that are 10 years down the road, where they’re like, my gosh, like I’m already 10 years into it. I’ve made a million, but where’s all the money going? And so we have to start with, okay, we have to start with the basics right now. So that way we might have to unlearn some things that they’ve learned with money and then build better habits. But Dylan, honestly, you’re in like the best time to be able to start something like this, because it’s like the sooner you can get it, and the sooner that you understand and the sooner you have the systems in place.
then you can build a foundation where it doesn’t matter what deal type you do. You know how to keep more money from that deal type, and you’ll be more confident as a business owner. So I tell people like, I love it because people ask me all the time, they’re like, when should I start profit first? When should I implement this? Like, should I do it down the road? Should I do it right away? And I tell people like yesterday, like, get it in place as soon as possible. I even speak to some groups where they are just getting in and they haven’t done a deal and I tell them
when you set up your LLC, like set up five bank accounts, like set up the first steps of profit first. So that way when you do a deal, you’ll know that okay, we’ve got the system in place and we can make sure we can tell our money where to go. So I just tell people all the time, wherever you are, if you want more profit and you want to keep more cash, start this system now because then your next deals, you’ll start to build better habits.
then 10 years you wake up and you don’t say where’s all the money you say what do I want to do today because I’ve reached financial freedom.
Dylan Silver (14:46)
One of the things that I think is working against folks is so few people, even I would say some people with money, are themselves aware of what’s happening with their money. A lot of people will blindly entrust like a financial advisor and that’s great, that can work for folks, right? But someone else is managing your money and you may have some say in that, but really you’re not.David Richter – Simple CFO (15:05)
true.Dylan Silver (15:13)
taking much of an active role. You’re basically saying, hey, I trust you with this process. When folks are looking for, positive role models and people who they can mirror, there’s not a ton of positive influences out there for money habits and money management.David Richter – Simple CFO (15:27)
That’s true.Yeah, I would say that is true. That’s why I believe that there are some good ones out there like Mike Michalowicz who wrote Profit first, the original book, like that’s where this whole movement came from. I also think there’s other ones and other role models out there but they’re through story or through book telling as well to like the richest man in Babylon, or like the seven habits of highly effective people.
all those say the same course concepts as profit first, like put first things first is one of the habits of highly effective people or in the richest man in Babylon, a portion of all you have is yours to keep. I would also say because okay, I’m going to throw this name out there. But investors usually don’t like this person a whole lot. But like someone like Dave Ramsey, who’s like very anti debt and I get it, you’re in real estate, there is good debt, like you can leverage, you can also over leverage, which we don’t want to do. We don’t want to go down that road, though.
But as far as that goes, like Dave Ramsey’s done something right, he’s worth 10s of millions of dollars, if not $100 million, and it’s all debt free. So it’s like there’s something going on right over there. But you don’t have to achieve it the same way he did. It’s just there’s role models out there. If you’re looking for there’s Rameed Seti, there’s several people out there that I highly recommend and respect. And it’s almost like I want you to model not just what they’re saying, but like, what are the principles of money that have stood the test of time?
And is there anyone out there that you can model after and I would I would look at Mike McCowitz and I would, you know, consume his content or I mean, if you’re in real estate, I love for you to consume our content, like what you’re doing right now, like you’re listening to this. So it’s like, I want to be able to be a, a help in that arena as well, because I will, I would second you very hard there, Dylan, like, yes, I agree. There’s not enough good role models out there. But because of this system, they’re becoming more common.
honestly, a lot of people just aren’t in front of people like you and I are to Dylan, like a lot of people that have profit first are out there, they’re doing deals, they’re keeping more money, but they’re not getting on a podcast, you know, like every week or every month and like talking about it. So it’s like, I also want to give a shout out to them too, because they’re like the unsung heroes of the actual business world. That’s why there’s several groups I’m a part of in one group I’m a part of gives a freedom award, which is really cool because the freedom award you don’t
Dylan Silver (18:10)
Yeah.David Richter – Simple CFO (18:26)
reach it unless you tell the moderator, here’s what freedom means to me. And here’s how I achieved it, whether that’s taking time off like a month or whether that’s having a certain dollar amount in the bank or whether that’s like being able to go on a big trip, whatever it might be. It’s like, what does financial freedom mean to you? And here, tell me how you did it and give some proof whether it’s like the pictures from the vacation or like, you know, the time off on the calendar that you did or whatever. And I’m like, that is such that is so cool. That is so much better than who did the most deals.who went out there and did the most volume, whatever it is, it’s like who out there is doing the financial freedom. Those are the unsung heroes and the people you don’t hear about as much, but they’re starting to become more regular because there’s systems like this being put in place.
Dylan Silver (19:07)
I want to pivot a bit here. This isn’t really a question out of left field, but there’s a lot of folks and I would say definitely younger people who are looking at home ownership in various areas of the country. And I can say where I grew up in Northern New Jersey, and I’ve said this many times in a podcast before, I don’t know who owns those homes, but I doubt it’s a lot of the people that, you know, I grew up around because you have, you know, eight, $900 million homes. These are middle-class homes, by the way, middle-class.David Richter – Simple CFO (19:16)
Yeah.Mmm.
Yeah. Yeah.
Dylan Silver (19:36)
but it’s just now the urban sprawl from New York City has spread beyond the Hudson River into parts of Northern New Jersey. where, in my mind, who’s owning those homes? It’s people who have substantial income, because even with a large down payment, you’ve got to be able to qualify for a six, seven hundred, eight hundred thousand dollar mortgage, right? And then they’re commuting into the city. So these could be medical professionals, these could be executives, people in finance.David Richter – Simple CFO (19:53)
Right. Yep.Dylan Silver (20:04)
where’s the piece of the pie for everyone else? I’m being long-winded here, but what I’m seeing a lot of people do is realize, okay, if I want to save more of my money, I may have to be willing to kind of like geographically arbitrage. Like, hey, I may have to potentially leave this sect that I call home and move to somewhere else that may be more cost-effective, whether that could be some other state, some area of the state.or I’m currently living and splitting my time between Dallas and Santo Domingo Dominican Republic, where I’m talking to you right now. So I can see this firsthand. Do you think that there is a time and a place for folks to say, look, where I’m living right now is just, the math isn’t math-ing, the numbers aren’t feasible. I may have to be willing to relocate either for a job or for housing or for a combination of the two.
David Richter – Simple CFO (21:00)
Yeah, I mean, yes, of course. Because if if they it depends what they want out of life, too. Like, what do you want out of life? Do you want to be debt free? And do you want to have less stress from when it comes to money? Or are you staying in an area because there’s family or there’s relatives or there’s things that money can’t buy? I think that’s the real question. Like, are you just pursuing the dollar? And like you’re just going after that? Or are you in an area where you have things that money can’t buy? And that’s a really personal question to each human being because it’s likeI don’t look at everything from just a money perspective. Now I have to make sure it makes sense financially. I can’t be like just bleeding out and eventually I’m on the street or I have to live with one of those relatives because I can’t support the housing or whatever it might be. But it’s like I that’s how I take the decisions now that I’ve learned that like true success is really not just doing what you want, where you want, when you want with who you want. It’s really the okay, when I wake up,
Do I get to be around the people that I like or like, am I just doing this because I have more money in the bank? But I would tell people, yes, if you’re not able to live there, then you can look at other places. This is probably one of the most transient times of life that we’ve lived in Dylan, right? Where you are literally splitting your time between two places and what you’re probably in your 20s, I’m guessing like, and you’re getting out there and you’re doing it’s like, this is where there’s a lot more options to be able to do that now and where these people and where these, you know, places I should say.
are becoming a little bit more not cost effective and they might get a starter home and it’s like, wait a second, the starter homes like 500k like, what are we doing? You know, so that’s where you might have to choose something else. If you aren’t able to do it, or it’s like, okay, what are we shifting here? What are we willing to trade off? And that’s where honestly, if you’re a business owner, the best thing you could do is train your brain to think and to become a better question asker. And that was a great question, Dylan, because it’s more of like,
what are the questions I really need to ask myself to be able to move or to be able to go out there or like, why would I move versus why I wouldn’t move? Or like, I like this one, Keith Cunningham says this in his books. It’s like, okay, what’s the best case scenario, worst case scenario, and that’s what most people stop at. But then there’s a third magic question. It’s the, am I willing to live with the worst case scenario too? So it’s like, are you able to do that? And just take those into consideration when you’re thinking about moving and depending if it’s on cost or family or whatever it might be.
Dylan Silver (23:22)
You know, I think the moving example is probably the most extreme. Now I’m doing it so I can speak from this, but it’s not gonna be for everybody. But there’s other examples of this within a business and within a budget where you can say, like this is costing you either a lot of time or a lot of money. part of this is you have to have the willingness to maybe take some drastic measures.David Richter – Simple CFO (23:29)
Sure.Dylan Silver (23:52)
you know, for folks like myself, it may be, hey, I’m going to stretch the dollar by living in areas where it’s more cost effective. But for other folks, could be, you know, something like a budget item or something like, hey, here’s where your office is or something like, hey, I know you don’t want to necessarily spend money on an accountant, on a tax strategist, but you’re going to have this bill at the end of the year. So do you want to do it upfront or do you want to do it at the end of the year? And I think you can see, you canalmost feel too that folks may have some pushback there because they’re like, whoa, I didn’t really want to have to make this decision,
David Richter – Simple CFO (24:29)
Right? Yeah, I 100 % agree. A lot of us put off the things until it becomes a real pain in our life. And so then we have to take action. Usually people are waiting till the end of the year, they get that tax bill, literally had a call like this yesterday, where the guy was like, you know, I have this tax bill, and I really need the help. And honestly, I’m I don’t know where all my money’s going, like a typical thing that I would have a conversation with a real estate investor. Then at the end, I’m like, okay, we can solve these problems and all this. And then he was like, I think I want to wait a month.you know, to do I’m like, okay, you just told me all these things. It’s obviously not painful enough to move forward at this point. So I get that it the pain of moving forward now is more painful than obviously you having a big tax bill or you not knowing where your money’s going. And it’s like, that’s a decision he has to make in order to move forward, you know, to that. So I get that I totally get where you’re coming from, Dylan, because it is it’s more about okay, what’s more painful, like not knowing where my money’s going, not having good cash flow, not keeping the dollars like
not being on true financial freedom, or like biting the bullet and pain where it’s like, okay, this isn’t marketing, this isn’t sales, but this should be your defense, the defense of the castle, making sure that you are keeping the money, making sure you know where every dollar is going, making sure you’re in control of the business. And that’s at the end of the day, what people really have to decide what’s more painful to them. Is it more painful than not knowing or knowing and making sure that you have the right people in place?
Dylan Silver (25:52)
Yeah, mean, it’s interesting, but now that I’m experiencing this myself and growing in my business, and I’ve seen all sides of it. I’ve seen the people who manage it themselves, and like you said, they could be five, even 10 years into the game, and they may be asking some of these questions. And then I’ve seen folks who are super systematized with everything, and that can seem extreme, right? But you do have to decide, like, hey, is thisDavid Richter – Simple CFO (26:03)
Yeah.Dylan Silver (26:21)
Am I close enough to the fire now where this is I’m going to get burnt or can I continue in you doing this? We are we are coming up on time here though, Dave. Any new projects that you’re working on and also where can our audience go to to reach out to you or your team?David Richter – Simple CFO (26:25)
Right. Exactly. Sure.Yeah, so we’re actually rolling out some new episodes of our podcast over the next month. We have a podcast as well around profit first. So the profit first REI podcast, and we’re doing some where we’re interviewing our clients and the CFOs on the team because a lot of people want to hear behind the scenes, not just a talking head like me, or I do a lot of interviews as well. So we’re actually rolling that out. So people can be like, here’s some of the details. How do they keep more of the money that they’re making? How do how does it feel to take in to keep more of the money versus like,
just going around to the rat race. So I’m really excited about that project because then other people get showcased inside the business. But if you want to reach out to us because you’re feeling like my gosh, you described me to a T I’m making money. I don’t know where it’s going. I need the help. You can reach out to us at simple CFO calm. If you go there there you can book a call right there with us you’ll be talking to one of our team members or to me because I take some of those calls as well. And I’d love to just see where are you now in this journey? What do you need because we do different things we do the bookkeeping.
we do the tax side, but then my favorite thing we do is the profit first and like the more financial help in the financial management and more like a financial coach. And that’s what we’re doing and helping you make sure you keep more. if you go to simplecfo.com, that’s where you can get all the info.
Dylan Silver (27:50)
Dave, thanks for taking the time today. Thanks for coming on the show.David Richter – Simple CFO (27:54)
Thanks, Dylan.
