Your Net Worth Matters | Real Estate B-School

What's up, business freedom Podcast listeners? Today we're going to chat about something that is, I don't know, it's. I think it's a societal, cultural deal. And for sure, I see it in the real estate industry is that nobody's talking about net worth or profit or, like, what do you have to show for all of the effort you're putting into building your business? And so the title of today's podcast is your net worth matters. Let me be super, super clear. This is not the only measure of success in business, for sure. And for life. Absolutely, for sure. So I'm not implying or even remotely saying that the only thing you should focus on is net worth. There's a lot of guys that have proven that you can have a gazillion dollars and at the end of your earthly days, you've missed the entire game here on Earth. So this is just one measure of success and for a business owner, and I'd like to consider myself an entrepreneur in terms of being more attracted to building a business that makes a return versus kind of doing the technical work in a business. And that definitely went for real estate. My journey was one of, like, how do I build a system for somebody to do this thing I don't like doing or I'm really not well suited to do? So let's have this conversation around. Like, if you're a business owner, you're an entrepreneur, you've made the decision that you're going to go out in the world and just decide that you're going to make your own way financially and make a mark and add value and get paid for it. So if you're taking all the risk of being a business owner, you must have something to show for it. And the easiest measure of success in business and entrepreneurship is your net worth. And so I want to go through three things we have to be really clear on in order to kind of get our heads around this net worth critical number that hopefully by the end of this podcast, you'll all be measuring on a consistent basis. And I do this monthly, every month, on the 10th of the month when I run my profit first numbers for 10th and the 25th and the 10th, I'm running this calculation and I just do it monthly. And so number one is for real estate team leaders, the first thing you must do, and this is a longer, I could do a whole podcast on deciding your model. In fact, I think I did do a podcast on deciding the model that you're running in your team. And what I mean by Model is economic model. So in order to have something to show free efforts, your business, your real estate team needs to be set up on the right model. That goes for client service. How are we going to have a consumer focused, high, you know, emotional touch, you know, Ritz Carlton like experience for our clients? Because I do believe that's the only thing that's going to separate us in the future and have us remain relevant with all the, all of the shifting going on. You've got this decide that model. How are you going to treat your clients? And then the economic model. What are you going to pay your agents? Are you going to have agents that kind of just come and go as they please? Or are you going to sort of wrap some accountability or structure or cadence around it so that you have a good idea that you know what they're doing and they're treating your clients collectively, your clients, the right way? And so it's decide on model. So roughly speaking, well, let me just go through the main numbers. It's gross margin, what's left over after you pay your broker and your agents. And then you have advertising, marketing lead gen is one category, Administrative and management cost is another category, and overhead, everything else that's not. Those other two categories are the remaining expenses. Your overhead. Roughly a third needs to go to agents in your broker. A third needs to cover those three buckets of expenses and a third third with you fully leveraged and out of production and not that being out of production is the end all be all. Just know though, if you're in production and you don't have a third profit, you are, you need, you need work on your model. And if you're in production and you're running less than a third profitability, you need to make some massive moves to increase the profitability so you can have net worth to show for your efforts. And in real estate B school, we talk about time, money and stress, right? We don't want to put in 60, 70 hours a week. We do want to have this business, this vehicle, throw off cash so that we can increase our net worth. And we don't want to stress out all the time, kick our dog, beat our kids, mentally, abuse our wives as a way to kind of offset the stress we're enduring in our business. And so that's number one, decide on the model. You got to be really clear here on what you're building so that when you end up building the thing that you envisioned and is something that is going to serve you in this one indicator, which is net worth, all right, number two is take profit first. If you follow me on social media, I posted a picture with a guy and I just, you know, I just challenge people to say, you know, who is this I'm standing with? It was Mike Michalowicz, the author of Profit First. Really good book. Most people read the book and don't implement profit first. So knowing that, let me. I've been running profit first for three years in both businesses, and I just systematically watch my. Well, I systematically move around money and I watch my net worth go up. And so it's not a complicated system. You read it, though, and you're like, man, I can't set up five checking accounts. It's really hard. How am I going to move that money around? I only move money around twice a month. And so just know, though, that there's income, there's expense, there's income, expenses, taxes, profit, and it's one other account, owner's compensation, I think. And so just know that you have income coming in, you have expenses going out, you have to have a tax account, and then you have to take profit before you even pay your expenses. And you right size your expenses for the level of income you have coming in. And so if you're not moving around money consistently, you need to go read that book. This is the thing that is virtually going to guarantee that me personally, my net worth keeps going up. This is a long game. I just watch my net worth go up every month. And I'm not overly stressed about a shift, upturn or downturn in the market because I'm taking my profit first. And you decide the profit. Right. Profit is a habit, not an event. That's a direct quote. That's not my brilliance. That's Mike Michalowicz. Profit is a habit, not an event. That's number two. Take profit first. Number three is to make a commitment. So your net worth is basically, let me give you the definition. If you haven't run your net worth, a lot of people have shame around their finances because this is not taught anywhere. And you would think a real estate team leader would know how to run a profit and loss statement, know how to work expenses, know how to, you know, look at, you know, gross margin and different buckets of operating expenses. So you're sort of, you're the CFO of your business. It's not a common skill and it's not taught anywhere. This is why I'm so passionate about it, because it's critically important and it's not really taught in other coaching programs. Honestly, that's not a dig against other coaching programs. They just focus on getting you busy, you know, probably less time, more money, more stress. Right. They teach you how to go from 10 sides to 40 sides. That's most coaching programs. That's a monumental success. That's not what real estate B school does. So the commitment that I'm talking about here is, you know, your net worth is your assets minus your liabilities. That's net worth. I track it two ways. I track liquid net worth and total net worth. Like the equity in my home is. I don't consider it liquid net worth. I guess I could sell the home for a price where I could convert it pretty quickly to cash. Liquid net worth is something that I could convert to cash, like a stack of cash in less than seven days. So that's a number that I track. And I track the total, the liquid net worth divided by my total net worth. And I want to see that number go up. I'm super conservative when it comes to investing. I do very basic investing. It's so hard for me to earn money that I don't want to be super risky in terms of how I invest it. I'm still invested in the stock market. I'm still invested in some fixed income stuff. And that's essentially the entirety of my investment strategy. And so the commitment I want you to make is that depending on where your net worth is now, so you need to go through an exercise where you count all of your short term assets, your long term assets, all of your liabilities, any auto, car loans you have, which you shouldn't have, any consumer debt, credit cards you have, which you really, really shouldn't have. A home mortgage, which is probably the most acceptable form of debt, which I do have a home mortgage. I used to not have a home mortgage and then I got a nicer home and I decided to take on a mortgage because of rates. And it's my goal to pay off the mortgage in less than five years. It was a seven year, whatever, seven one arm deal at a super low rate. So I did play the debt interest rate game when I bought this with this property. So no matter where you are right now, make a commitment to where you're going to be in the future. Maybe it's quarterly, maybe it's annually, maybe it's three years. You know, every. I have a net worth goal and this is just one area of my life. It doesn't trump most areas. My faith, my family, you know, you know, the work I do in my community, my giving, how I'm showing up as a dad and as a spouse and my physical body, my emotional well being, all of those trump my financial well being. And I still am putting a lot on the line to be a business owner. And so net worth matters. So make a commitment and maybe it's paying off the consumer debt. You have the levers. Once you run your net worth, you see the different ingredients. So you could pay down your home mortgage, you could pay off credit cards. You can stop spending money on things that don't add to your net worth. You know, there's a lot of money that's going out to things that don't add to your net worth. And if you have a goal to pay off a $25,000 chunk of debt in the next three months, it might force you to make some decisions against things not to do, to be able to afford to pay off that 25,000. And then this is all total money makeover. Dave Ramsey we went through it on a real estate team. Highly recommend you go through that as a real estate team and do the work. We brought in a facilitator who in most markets I think it was seven sessions, seven hour long sessions for like $700. And it was a Dave Ramsey certified total money makeover coach. We read the book and he presented and it was phenomenal and really engaged the team in this area of their life, which most of them had not had any training, any personal finance training to that point in their life. And that goes for people on our team that were in their mid-20s, to some that were in their mid-30s and 40 years old. You know, and maybe you're the guy or girl that has a good background in personal finance, but the majority of folks don't. There's some stat in the book. It's like 80% of people are living paycheck to paycheck. 70% of people couldn't write a thousand dollar check if an emergency came up. They don't have thousand dollars liquid cash. And so you're not in the minority if you're in that situation. And the only way is to make a commitment to go in a different direction. And that's through calculating your net worth consistently. And last thing I'll say here is I mentioned consistency, you know, persistency, consistent, persistent. That's that last point. My final thought here is to stay focused. You know, I see small real estate teams and big real estate teams. We bring in members that are doing 3 million plus GCI and their net profit is less than 10%. And so and they're taking. I know a guy that's done like seven and a half million GCI in the last three years, so about two and a half million a year. And his net worth has gone down by $200,000. Wrong model. You know, I went through it. Wrong model. He's not taking profit first, you know, hasn't made a commitment and stuck to it in terms of changing the direction of his net worth. So it doesn't matter where you are in your journey. Stay focused on where you want to go. Don't. This is not. This is an area of your life where you cannot afford to bury your head in the sand. You know, this process for me started back in probably 2008, maybe 2009. Going into 2010 is when I. No, actually I started it when I got out of college and then I probably got away from it a little bit. And then when I started spending money to make money and making decisions around that, it was probably my second full year in real estate where I really got serious and I had 1, 3, 5 and even 10 year net worth goals. And I've exceeded all of those. My 10 year goals back then were for 2020 and I've exceeded all of those, those goals. And so stay focused. Right. We over. We think we could do more in the short term than how does it go? You know, we want to say that I can do in a year, I'm going to be here. When in reality you might overshoot what you could do in a year. And most people undershoot what they could do in three to five years. So take a three to five year view of this and really think about what's possible and just ask yourself the question consistently, like, is your net worth reflective of the commitments you're making in terms of building your business in a way where you have something to show for it. So you can't just bury your head in the sand on this. Here's a quote from Mike Michalowicz from his book. He says, putting your nose to the grindstone is a really easy way to cover up an unhealthy business. We think that if we can just work harder, longer, better, if we can just hold out, something good will happen one day. That's not what you want to do in the area of your net worth. So if you're at a point in your business where honestly some of this stuff is a little intimidating and there is a little bit of shame around, you know, how do you sort of set up your business to feed your net worth and you really haven't figured out this part of your business. You are not alone. This is what Real Estate B School does. If you've listened to the podcast for a period of time, you know there's not a hard sell. Either Real Estate B School is a fit for you or it's not a fit for you. If it is a fit for you, I'll definitely go through our pilot program. That's 30 days of intensive free coaching where we can set up baseline systems in your business for tracking for productivity. We'll do a full assessment of your business against the four drivers and 12 accelerators. If that doesn't make sense to you, you'll know more about it once we do a business growth strategy session. We'll that's the only thing I have to offer you. So go to realestatebschool.com if that's you. There's no shame. You know, the only shame, the only thing to be sort of upset about is if you don't take action in an area of your business and your life that matters so so much. We give up so much time and we stress so much about our businesses and it honestly takes away from the things that really matter. Time with your family, right? Time with yourself. A little bit of margin in your life so you can enjoy time on this earth. So take action. Go to Real Estate b school real estatebschool.com we'll see you over there.