EP040: How to Implement Profit First for Real Estate Investing

Have you ever wondered exactly how to implement Profit First in your real estate business? For Natali and I, we initially struggled setting up the system. Now that we are fully immersed in Profit First, our business’ finances have been transformed.

On this episode, Natali and I are elaborating on exactly how Profit First works for us. We’ll discuss our different banking accounts, how we apply the quarterly bonus, and how the system works for real estate investing specifically. If you’ve ever wondered how Profit First actually works in practice, you won’t want to miss this episode of Investing in Real Estate!

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Profit First is a simple and effective formula designed to help businesses stake claim on their income by prioritizing profit above sales and expenses. The system operates as a means to allocate money appropriately so that the business not only runs smoothly, but so the business owner is paid.

Profit First consists of four different divisions for money: profit, owner pay, taxes, and expenses. Five percent of your total income is allocated into the profit account. This is set up so that your business is designed to make money. The profit accrues, and every quarter, half of the money is withdrawn for an enjoyable, non-business expense.

Fifty percent should be dispersed for owner pay. If there are multiple owners within your business structure, that fifty percent is divided among them. This division is set up solely for entrepreneurs—it is not designed for payroll.

Then, fifteen percent of total income is set aside for taxes. This allows your business to run smoothly and effectively. This account is to remain untouched until tax time, whether that is quarterly or annually for your business. It’s important to keep in mind that this money is allocated specifically for the government, and it does not belong to you or your business.

Finally, thirty percent of total income is distributed for owner expenses. For real estate, this could be spent on repairs or vacancy. Additionally, this account will also pay the wages of your property management team.  

To help you implement Profit First in your real estate business, I’ve created a freebie called Setting Up Profit First for Your Real Estate Biz. It’s a simple spreadsheet that will automatically keep a running total of your revenue, and will help you determine the Profit First distributions for your specific business.

On today’s show, Natali and I are explaining exactly how Profit First works for our real estate investing business. We’ll also talk specifically about funneling expenses, rewarding ourselves, and how the percentages outlined in Profit First can change over time.

If you're ready to take the first actionable step toward building a passive income,

We’re ready to talk about your goals and want to help you learn more about earning legacy wealth for you and your family.  

On this episode you’ll learn:

  • How many checking accounts does your business need?
  • According to the Profit First system, how should the quarterly bonus be spent?
  • How often should you make distributions?
  • How do you factor property management into the Profit First system?
  • And much more about buy and hold real estate!

Episode Resources
Setting Up Profit First in Your Biz Freebie
Tom Wheelwright on Investing in Real Estate: Part 1 & Part 2
Mike Michalowicz on Investing in Real Estate
Profit First by Mike Michalowicz
How to Manage Your Small Business Income and Actually Earn a Profit by Natali Morris
I Am That Lady
Find Your Financial Freedom Number
Like Morris Invest on Facebook