Visionaries, wholesalers, real estate investors, and entrepreneurs often have one task they dread and avoid as much as possible—bookkeeping! This is not exactly surprising. At best, bookkeeping can be downright boring. However, the importance of bookkeeping in wholesaling (or any business for that matter) cannot be overstated.
For starters, bookkeeping can help you keep track of the key numbers that’s relevant to your business. The knowledge can help ensure you are able to make smarter decisions so you’ll be able to take your business to the next level.
To help you understand the significant role bookkeeping plays in your business, Tom talked to Dave Rice. He offers exceptional bookkeeping services for people in the real estate industry. If you’re still not convinced how important bookkeeping is, today’s discussion will surely change your mind!
Other Key Takeaways
- The 3 key performance indicators (KPIs) real estate investors/wholesalers need to track
- The most important number for wholesalers
- Why knowing your profit per deal is key
- The importance of paying your taxes
- The first thing you need to pay after every single deal
- Why overpaying your taxes a little bit can be a good idea
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Tom Krol: Hey everybody. Welcome to another awesome, exciting episode of Wholesaling Inc. I very excited to be with you here today. I’ve got a very special guest, somebody who is going to go over a super, super boring topic that none of us entrepreneurs really care about and that’s exactly why I have this expert on the line. This is a guy who has been around. He is going to talk about something that we all need to focus on. He’s going to make it as painless as possible. I promise you, you are going to walk away with information, with action steps that you could implement right now for immediate results, so I’m super excited to have them online. If you don’t know what wholesaling is, wholesaling is the most honest, awesome, incredible way to make a fortune in a very, very short amount of time by finding discounted properties in your community.
I am Tom Krol. I’m America’s number one wholesaling coach and I’m excited to be sharing this information with you today. If you want to find out more about Wholesaling Inc. head over to www.wholesalinginc that’s wholesaling I N C.com and we’ll be happy to share more information with you. In the meantime, let’s get to our guests. The man, the myth, the legend. Mr Dave Rice. Dave, are you there?
Dave Rice: I’m here, Tom.
Tom Krol: All right. It is an honor and a privilege to have you on the phone. You guys, I have known Dave for a number of years. He is an expert at what he does. I’m going to talk about this. We’re going to introduce them right now. Before we do, I’m going to let Dave, you tell us a little bit about yourself and how you got started and what are we going to be talking about today.
Dave Rice: Tom, we’re going to talk about one of the most boring parts of being a business and that’s bookkeeping.
Speaker 1: BOOKKEEPING! Oh man, I love it. So what are we going to be talking about with bookkeeping and how did you get started in this like niche bookkeeping just for real estate investors and just for wholesalers? How did you get started and how did you identify this need and who are you?
Dave Rice: Very, very quickly, Tom. We got started in real estate investing a few years back and my wife Lori is, has an accounting degree and has done the books for our businesses for years. As I got talking to other real estate investors, we just started bringing this up and found out that this is one of those subjects that everybody wants to ignore and hope that it goes away. And once I mentioned that we do bookkeeping for ourselves, for our own real estate investing, we started to get people on board. So that’s where things have gone at this point.
Tom Krol: You know, I love David. Before I did this interview with you, and again, I’m so honored to have you on the phone. It’s funny, I looked at your website and I love it’s for anybody who wants to check the about it’s R E I, bookkeepers.com R E I, bookkeepers.com. It’s one of the lines on his artist’s first pages. It says, let’s face it, you stink at bookkeeping and Oh brother, that hit me like a ton of bricks. I absolutely cannot do bookkeeping. I have a bookkeeper and she is amazing and she works directly with our CPA. And I can’t tell you what a blessing that’s been you guys. If your visionaries, if you’re wholesalers, if you’re entrepreneurs of your owners, you are flying at 50,000 feet. There is no way that you’re going to know the right KPIs to track. There’s no way you’re going to, even if you do somehow use the discipline to do it, there’s no way you’re going to look at it.
And even if you do do that, you’re not going to do that consistently. So having somebody like Dave in your corner can’t be overstated because when you have like Mark Evans says it’s data not drama, right? So when you have the right data, you can be a decision maker, you could put simple consistent processes in place and it’s amazing. So it makes a world of difference. So Dave, here’s what everybody wants to know. Everybody’s talking about KPIs. You guys, if you don’t know what KPI’s are, they stand for key performance indicators. What are some of, as wholesalers, as real estate investors, and I know we have some landlords and rehabbers on the phone, what are a handful of the KPIs that we need to be tracking on a weekly, daily, hourly basis that is going to tell us the most about our business?
Dave Rice: Okay, Tom? Well, there’s a whole lot of things that can pile up, but it really boils down into three distinct numbers. How much does it cost to get a deal after all the marketing expenses you put in? How much does it actually cost to get that deal? That’s the first number that we want to know
Tom Krol: You guys. This is customer acquisition cost. Dave, I totally agree. This is one of the numbers that we are looking at all of the time in our business. The reason this number to me is so important is because you can reverse engineer it. So if you know it costs $280 for every new customer you get for every new motivated seller that closes, if it’s $280 you know, Hey, if my average deal is $17,000 and I want to buy a $45,000 boat, then I just need to spend 700 or six whatever that 280 times three is and I’ll have my new boat. Right? So this is customer acquisition costs. What does it cost you to do a deal? I totally, totally agree. And they’ve, what kind of numbers are you looking at in order to attract that on your side?
Dave Rice: Well, what we do is we try and get all of the expenses that has to do with marketing all into a certain group so that it’s a real easy number to pull out. And all the different ways that that you’re marketing, we’ve put all that together. That’s your cost to get a deal.
Tom Krol: So Dave, let me ask you a question. Do you guys get as granular on the customer acquisition cards? Like for instance, I use postcards. So did you get as granular as like a per postcard? Meaning how many postcards do I need to mail in order to get a deal?
Dave Rice: Well, Tom, the wholesalers we work with all have different message of finding their deals and so we will track all of the expenses of each of their marketing channels so that we know exactly what they spent, let’s say on direct mail. We know what they spent on Facebook advertising, we know what they spent driving for dollars, whatever the case may be. We will channel all of those expenses into those. And then when they get their deals, we want to know a couple of things. We wanted to know where that deal came from so that we can maximize the money they’re spending on where they’re giving their best return.
Tom Krol: Got it. Okay, so guys, that’s why Dave is the expert, right? So what he’s saying essentially is that all these different wholesalers, they have all these different channels, right? Facebook, PPC, SEO, bandit signs, driving for dollars, postcards, mailers, whatever. So he’s going to take that overall number and then break it down. You can then take those numbers and break them down per channel, which makes a ton more sense. So, okay, terrific. So Dave, I love it. Very, very sexy. Okay, next question. What is another KPI that all wholesalers need to be tracking in order to have a successful consistent business that’s growing?
Dave Rice: Okay, Tom, after we know what it costs to get a deal, the next most important number is very simply, what’s your profit per deal?
Tom Krol: Oh yes,
Dave Rice: We want to know the checking of that closing less your expenses. How much did you make on that deal? Most important number.
Tom Krol: I love it you guys. You know, it’s so funny I get to talk to wholesalers and investors, landlords and rehabbers and everything all day, every day. And God forbid the day that I don’t get to talk to a coaching student, I love my students and may that never happen, right? So I love it and enjoy it. But I will tell you sometimes, you know, Todd always taught me my brother Todd [inaudible 00:07:54] . You’ve got to make people be a truth teller and you always want to be a truth seeker. And it’s so funny cause when you talk to some people they’ll say, Oh you know I just, it is deal and I made you know $100 million. And then when you say, well yeah, but what was this? What was that it let’s break it down. And then all of a sudden you’re like, Oh wait a second.
It was actually $47 so knowing your profit per deal is so key because sometimes you think you’re doing really, really well, but you’re going on a gross number, which is like before expenses as opposed to a net number, which is after your expenses. So knowing your average profit per deal is so key. I know internally we know our average assignment fee per deal. We know exactly what that number is, the actual profit, the actual net number. So, so, so key. I could not agree more. All right Dave, number three, what is the next most important number that we should be tracking as wholesalers?
Dave Rice: Well, the third and final numbers that we really stressed above all this is after each deal, how much of that profit do you need to put into a separate account so that you are able to pay your taxes when the tax man comments.
Tom Krol: Yeah.
Dave Rice: We want to be sure that we’re staying well ahead on that. And so that, that is not a problem.
Tom Krol: So you know, this is a really and so timely too because you know I had a friend, a very, very, very good friend. Yeah, he is super Uber wealthy has a very big business and he just got hit. Are you guys ready for this? I hope everyone’s sitting down. This is no exaggeration at all. He just got hit with a tax bill because he was doing his books incorrectly. What he was doing was his income had gone up and he never changed his percentage. So his bookkeeper, and I know he wasn’t working with the bookkeeper he was working with, you know, just a CPA. So there was never a checking in on his books. His bookkeeper never changed their percentage of what they were taking out for taxes. So the year went by, actually it was almost like a year and a half went by and he got hit with a $1 million bill for taxes, $1 million in taxes that he owed and that was a combination of one year I believe that had gone by and then also one quarter and he just never changed his taxes.
Also, he was taking some of his tax money and I buying some houses with it free and clear who is rental portfolio. You guys, taxes cannot be overstated. As you start to become successful, you are not going to be paying the same tax rate. You need a bookkeeper in your quarter and by the way you guys, just so you know, this is not a sale of or anything like that. I am not making one penny whatsoever from Dave for talking about his service. That’s no affiliate commissions and things like that that happens with these, these sorts of things. This is just, Dave is a good friend of mine. I’ve known her for a lot of years. I know he knows what he’s talking about, so I highly recommend him. But you need a bookkeeper because you need somebody to say, Hey, here’s the money. You could take the cherry pick houses off your pipeline to buy a free and clear. But Hey, hold on Sally, hold on Bob, you hold on Johnny, we need to take this other money and put it towards taxes and let’s do this now. Let’s get it out of your hands. And I can’t overstate how important that is. That was $1 million tax bill that my buddy got hit with and that is just a crazy, crazy number. But yeah, no good. So I couldn’t agree more taxes. I mean, have you seen that kind of stuff where people have kind of had a surprise tax bill?
Dave Rice: I certainly have. And what we, what we find out when we start with wholesalers, Tom, is that their initial outlook is if I’ve got money in my checking account, I can spend it, I can use or spend it on business, I can spend it personally, whatever. And what it takes a while to convince them of is that we need to sell up this account to have money to go to get set aside for taxes. We liked the profit first program, but not everybody wants to go quite to that extreme. But we at least take the first step of getting a separate account where your future taxes need to go and it’s the first thing you need to pay after every single deal.
Tom Krol: I could not agree more. I will tell you guys that this is so important, especially those of you who are just started wholesaling and you know, especially some of our tribe members, they start wholesaling, then they quit their job. You’re used to paying taxes automatically out of your paycheck, and this is where you can get into trouble when you all of a sudden start to make large 10 2040 $80,000 assignment fees and profit margins and you’re not putting enough away into tax. And I will say other one other thing on this point guys. In my experience, it is better to overpay your taxes and get a little bit of money back at the end of the year. You know, I find that the people I speak with, the people who always say, Oh, you know, you don’t want to give the government a free loan. Those are usually people I find that aren’t really making a lot of money.
The people I know who are super wealthy, they always sit in a position where it’s now, this is 80% of the time, not 100% but I would say 80% of the people that I learned from, they have no problem getting a little bit about money back at the end of the year. I’m not saying to be, you know, dramatic and, and send all of your money yet, but overpaying your taxes quarterly a little bit. Not a bad idea. I love getting a check back. I’ve always hated when the tax guy comes and the bill comes and I owe money. I don’t like that feeling. Money is emotional. I don’t mind giving the government a little bit extra. That’s fine with me. I’ll do that all day rather than the opposite and I find trying to nail that number down, dial it in perfectly is very difficult to do so cannot be overstated.
Dave, any other key tips or tricks or bookkeeping points that you want to make with the listeners before we head out here and get off of this boring topic?
Dave Rice: The only other thing I like to mention is that one of the nice things that we can do now with the cloud accounting software that’s available out there is we can actually attach receipts and HUD statements right to your transactions so that all of that paperwork is now electronically stored in your account forever so that we never have to go back and dig through things. We don’t want you to be in the position where you need to be going back and digging into a shoe box in the closet looking for receipts. If you want us to, we can save all that right onto your electronic account and it’s there forever. I think it’s a great benefit.
Tom Krol: I totally a totally agree cause one thing I’ll tell you about us visionaries is not only are we not detailed oriented, we’re typically not organized. Although I’ve heard a quote recently by Albert Einstein where he said “if a messy desk means you have a messy mind, what does an empty desk tell you?” So, so yeah, so I’m okay with that, but good. Well Dave, it was an honor to have you on this show. I can’t believe you’ve been on. Finally, you’re probably the person I’ve known the longest who hasn’t been on. So I’m so glad to have you on and you guys, if you want to find out more about what REI Bookkeepers do, awesome, amazing, efficient, totally professional organization. It’s R E I, bookkeeper and Dave, you’re actually the owner, right? You’re the president of the company.
Dave Rice: I am.
Tom Krol: You guys. We have the source right on the phone. REI bookkeepers is R E I it stands for real estate investor bookkeepers, B O K K E E P E R S.com. This is a completely organic referral for you guys. I’m not receiving one single penny or benefit whatsoever. I think you definitely, if you’re not doing your bookkeeping right now, you don’t have a bookkeeper or if you do and you want a specialist and you’re wholesaling, you can’t beat Dave. He is a rock star so God bless everybody. It was great talking to you, Dave. Dave, thanks very much. Oh Dave. One other thing I have to ask. I ask all of our guests a book that has changed your life, a book that you would recommend for, I guess in your case I was going to say investors, new investors or maybe with accounting. If somebody has some interest in that boring topic, what, what would you suggest?
Dave Rice: No, much more generic, The 4-Hour Workweek is really, it’s a book by Tim Ferriss that really got me a way on my entrepreneurial career, so I love The 4-Hour Workweek and I bought for our work. We can, I read it every year or so just to reread it.
Tom Krol: I love Tim Ferris. I love The 4-Hour Workweek. That book I read and when I did, I hired Lorena. A lot of our listeners know Lorena. She is such a spectacular woman from the Philippines and she actually, we actually brought her to our last event in Orlando, Florida. We flew her from the Philippines, which by the way, guys, everybody who’s listening right now, if you’re in America, thank God we live in America because getting somebody to fly from the Philippines is not just a logistical nightmare with airplanes. It has to do with you actually have to get permission to leave the country. So we are blessed to live in this beautiful country, so God bless you guys. God bless America and let’s wrap this one up. Dave. Thank you for thank you. This is a boring topic so I appreciate making it as entertaining as possible. Thank you so much Tom. It’s been a pleasure. It was an honor having you on the horn. All right, talk to you soon guys. If you have any more questions, reibookkeepers.com, and of course if you want to learn more about wholesaling, it’s www.wholesalinginc, wholesaling inc com. Talk to you guys soon.