Real estate is a great way to make money, but keeping that money can be tricky if you don’t have a plan. Many real estate investors work hard to find deals and close sales but forget the most important part—managing the money they earn. Without good money habits, it’s easy to lose track of where it all goes.
This blog will show you a simple and clear blueprint to help you keep more of the money you make, grow your savings, and build a successful real estate business. Whether you're just starting or looking to improve your system, these steps will set you up for long-term success.
Understanding the Game of Money
Most people think wholesale real estate is just about buying and selling properties or finding deals. But the real secret to success is learning how to manage the money you earn. Without this skill, many investors feel frustrated when they don’t see long-term results.
As a business owner, your job isn’t just to find distressed properties, send direct mail marketing, or close deals. It’s to make smart decisions about your cash flow so your money works for you, not against you. Let’s talk about how to master this.
Step 1: Start with a Clear Plan
What Are Your Goals?
Before managing your money, you need to know what you’re working for. What do you NEED to live comfortably? What do you WANT for your dreams and goals? Knowing your “keep” number—the amount you want to save or grow—keeps you from feeling like you’re just living paycheck to paycheck.
- Need: The amount of money required to cover your daily expenses.
- Want: The extra money for goals like traveling, saving, or giving back.
Create a Simple Money System
Once your goals are clear, set up a system that helps you keep track of your money. Avoid the common mistake of using one bank account for everything—this makes it hard to know where your money is going.
Use the Profit First System
The Profit First approach is a transformative system built on the envelope budgeting method. In essence, you segment your cash flow into different business checking accounts, each with a designated purpose:
- Profit: The reward for your hard work and the reason you started the business.
- Owner's Compensation (Comp): Payment for your efforts in the business on a regular basis.
- Owner's Tax: A proactive tax-saving measure to avoid stress during tax season.
Additional Accounts
- Income: Tracks all revenue, providing a clear picture of your earnings.
- OPEX (Operating Expenses): The account to cover business overheads.
- OPM (Other People's Money): For managing capital borrowed from lenders, crucial for those handling fix-and-flip projects.
Step 2: Implement and Monitor
Manage Cash Flow Regularly
Allocate money weekly from your income account to the other designated accounts based on a target allocation percentage. This routine allows you to have transparency over what's entering, being spent, and ultimately, what's kept.
Example Allocation:
- Profit: 5-15%
- Owner's Comp: 20-50%
- Owner's Tax: 15%
- OPEX: Remaining Balance
Review and Adjust Monthly
Analyze your income, expenditure, and retained profits regularly. This will not only bolster your confidence in financial decision-making but also ensure your strategies align with your business objectives.
Celebrate your success each quarter by drawing from the profit account for personal indulgences that remind you of the ‘why’ in your business journey.
Step 3: Build a Money Team
As your business grows, you’ll need a team to help you make the best decisions. Most business owners only use a bookkeeper to handle transactions, but you also need people who can help you think ahead.
Here’s your ideal financial team:
- Bookkeeper: To keep track of your daily finances.
- Financial Advisor: To plan for the future and use tax-saving strategies.
- CPA (Certified Public Accountant): To handle taxes and understand real estate deductions.
With the right team, you’ll spend less time worrying about money and more time growing your business.
Conclusion: Aligning Business with Vision
Why did you start investing in real estate? Maybe it was to build wealth, gain freedom, or create a better life for yourself and your family. Whatever your reason, this blueprint can help you reach your goals faster and with less stress.
By setting clear goals, managing your money weekly, and building a strong financial team, you’ll always know where your money is going and how much you’re keeping. With time and consistency, you’ll turn your real estate business into a powerful tool for financial freedom.
Remember: the key to success isn’t just making money—it’s keeping it. Start using these strategies today, and watch your business and your dreams grow!
