Table of Contents - Profit FIRST in Real Estate with Rocky Lalvani
Dave Debeau [00:00:08] Everyone on the Dave Debeau with another episode of the Property Profits Real Estate podcast today, zooming in to talk all about how to profit first with real estate investing. We've got our special guest, Rocky Lalwani. How are you doing today, Rocky?
Rocky Lavani [00:00:25] I'm doing wonderful. Thank you so much for having me today.
Dave Debeau [00:00:28] My pleasure. So let everybody know where you are based. Where are you located?
Rocky Lavani [00:00:33] I'm located in central Pennsylvania, so I'm out of Harrisburg, P.A..
Dave Debeau [00:00:38] All right, perfect. So I see a good looking book behind you on your left hand side profit first. And that's what we're going to be talking about. So, you know, a lot of people would see that and say, well, OK, real estate investing, that's kind of the idea is to profit. So what what does that actually mean to you? And why do you think it's so, so important to actually whack us upside the head and remind us about how important it is to profit for real estate?
Rocky Lavani [00:01:06] You know, in real estate, everyone's got big egos and they've got big numbers, and what I find a lot of times is people don't actually put pen to paper. They don't actually create their spreadsheets, run their numbers and make sure that they can actually cash flows. It makes sense, depending on the kind of deal that they're doing real estate. A lot of people are very emotional. And so there I want this place. So it looks good, but they don't actually do the numbers and then they fudge the numbers. Well, we can make it work. We can figure out a way. We kind of go in the opposite way. We want our deals to be so robust with so much extra room that when things go wrong and they usually always do that there is room to handle the mistakes. And we know that going in. So when we evaluate deals, we know going in, hey, here's a best case scenario. Here's worst case scenario. Here's where we're targeting. And then so we might let's say we're going in and we're flipping a property. I have five things on. I have to do these five things to flip this property. Right. I need these five repairs. No questions about it. I might have two or three repairs that, you know, these would be nice, but let's see where the budget comes in. So having a budget, keeping track of your spending, then you can make decisions as you go along. Can we afford to do that extra thing that we'd like to do that might help make our property pop a little bit more?
Dave Debeau [00:02:35] All right, very good. So, yeah, you're talking about real estate investors having big egos. And I think there's a lot of portfolio envy that goes on there.
Rocky Lavani [00:02:45] People talk big numbers, but, you know, a lot of times you can have a massive portfolio, but if you're not cash flowing properly, you may not be profitable or you may be razor thin margins and everyone's you know, if you go in and you do a deal and you say, oh, I did 60 cash out, you're below in the 60 K, you look like you're big, but you're in debt up to your eyeballs. And that's the other half of the problem. So is that appropriate balance?
Dave Debeau [00:03:18] So it sounds like you got a lot of experience for this. Rocky, how did you get so smart around the numbers?
Rocky Lavani [00:03:24] So I've always been a spreadsheet geek. When I was in high school that personal computers were first coming out in the first spreadsheet program on the market was physical. And that's when accountants used to do paper ledgers. And I actually used to go into companies when I was in high school and show the accountants how to go from Paper Ledger to Excel sheet. So numbers are just one of my natural skill sets and I never realized how valuable that was because it was just so simple and easy to me. I never thought about it. And as a kid, I always was working on the house and I knew how to do all the work on the house. So I knew how to drop floors, lay tile, do plumbing, electric, roofing. When I was in college, I was selling real estate. So I've always been around the real estate space in some way or form. Unfortunately, I waited too long to get my first property.
Dave Debeau [00:04:17] So you did a lot of real estate stuff. When when did you first get your first property and what kind of deals did you start with and what do you do these days?
Rocky Lavani [00:04:26] So I started working and so I kind of stayed away from real estate. I didn't really have as much time. I had the kids and I always couldn't figure out the numbers in a way that made sense for me. And you have to realize back then, interest rates were seven, eight percent. They weren't two percent, three percent, four percent. So it's a lot harder to make that property cash flow. I bought my first rental in 2011, so the stock market had crashed, real estate had crashed. And I finally saw, hey, we've got numbers that make sense. I can make this work. And that's when I hopped in.
Dave Debeau [00:05:02] And what kind of deals did you start with?
Rocky Lavani [00:05:04] So much so I do single family rentals and I have a mix of single family rentals. I have some higher end single family rentals, and then I have some bread and butter, single family rentals. When I was originally getting in real estate, it was 2011. I didn't know what the economy was going to do. And what I wanted to do was create an inflation hedge through the mortgage. And also I thought if property prices were going to escalate, I'd like to have a bunch of nice houses for my family, for the kids to be able to do that. And then shortly after we did the rentals, all the foreclosures were coming up and nobody was buying. So we were able to pick up a lot of foreclosures very easily and quickly renovate them and then bring them back up to market and put value into them and make them nice. And so that that also was working for a while. But that market now is is much more crowded and much more difficult to get into. And there aren't as many foreclosures today as there were five, six years ago. There are definitely.
Dave Debeau [00:06:06] All right, very cool. So so you've written a book, Profit First. When was it that you just kind of realized that you. You had this gift for numbers that most of the rest of us don't when it comes to real estate investors,
Rocky Lavani [00:06:21] so I didn't write the book profit first. It's actually Mike Miklowitz and I have a partnership with him to to help people implement his system that he talked about. The thing is, the profit for system isn't unique to make. The profit for system is just like Dave Ramsey's envelope system. And both of these systems are what I've done my whole life. So when I got out of college and I got my first job, I created buckets of money and I started automating all my finances and automating my savings. And by doing that, that's what allowed me to build wealth as I built wealth and I decided, you know what? What do I really want in life? You know, I did what everyone told me I was supposed to do for the American dream and get the corporate job. And at some point I said, you know, enough's enough. What do I really want? And so I began a search. And throughout that search, one of the things that came up was financial coaching. And I finally figured out a way I could help people with money without essentially screwing them over like a lot of the financial houses. Do they sell you products that are not good for you, that don't really help you build value in wealth yourself. And so I finally found a way that I could do what I loved and enjoyed and I could do it in a way that fit my values. And so I started doing financial coaching with people, clearly real estate and money that they all kind of flow together into that space. And then once I saw the system from Mike and I learned that most business owners weren't looking at their financial statements and they couldn't understand them, I was like, there's the gold mine for me. This is where I belong. And so that's where that grouping came together with him.
Dave Debeau [00:08:05] Cool. So when you're working with a, let's say, real estate investor type client. What do you typically where where do you typically get them started, where where do you see the biggest gaps in most people's understanding or crunching of the numbers?
Rocky Lavani [00:08:22] I think most people don't even crunch the numbers. They go, oh, I want to get involved in real estate, let's go buy something. And they don't even think about, hey, before you buy a property, you need a team, right? Who's on your team? You need your attorney, but you also need your roofer, your plumber, your landscaper. You've got to have all these people ready to go or your costs are going to be astronomical. And for a newbie, they don't even know what the costs are and they don't even know how to accurately pen and paper them. And if you watch all the gurus, they come up with crazy numbers. I mean, they don't make sense. They're not real
Dave Debeau [00:08:59] numbers are
Rocky Lavani [00:09:00] TV numbers or some of these people say no seminar, seminar? No. I sat in a seminar. I got to tell you, I was horrified at the numbers they were putting up on the screen and what they were telling.
Dave Debeau [00:09:14] I bet they were horrified. If you started pointing that out to them,
Rocky Lavani [00:09:18] you weren't allowed to talk. He was like, oh, I got it wrong. And, you know, it's my now the last thing you last chance is there was no questions because they they have learned how to script that out to make you feel like you're out and people get up and they run to the back of the room at the end. I know how those games are played. It's horrible and I feel bad for those people. But their numbers aren't. Their numbers all add up. They're just not real. You're not going to buy that house and flip it without putting a lot more money into it than you said you had to. And that's the reality of it. So I think that's a big part of it. The other thing is with rental. So one of the things with the profit first system is you tell your dollars where to go. So a lot of people say, OK, I'm going to buy a rental. And they they come up with their business plan. Right. So much for vacancies, five percent for vacancies, whatever number they come up with, long term maintenance, they come up with all these figures. But then the money comes into the account, right. They pay the mortgage in taxes. They see money left over. Do they put money aside for vacancy now? Do they put money aside for the roof that in six years is going to be replaced? Now, they spend it would profit first. We actually allocate money and we segregate into separate accounts. So you have a vacancy account. When you have a vacancy, your cash flow doesn't get disrupted because you can take money out of your vacancy account and fund your cash flow when it comes time to replace the roof. And roofing repairs are not surprises, right? Roofs last 25 to 30 years. You bought a house with a 25 year old roof. There's no surprise, right, you're going to have to place this, so putting money aside to handle those long term repairs is a big part of it. So you create all these cash buckets so that you can weather the storm in times like this. Right now, I know most landlords, depending on where you are, seem to be doing well in the midst of covid certain ones in certain areas or not. And, you know, that's another part of it is understanding the type of tenants you have and how they behave. So certain properties are going to need much larger reserves, other properties need much lower reserves. So thinking through all of that and having clarity on the financial picture says you make choices.
Dave Debeau [00:11:43] Very good. All right. So I think you mentioned a few minutes ago that a big part of this success is setting this kind of a thing up and having it happen automatically so you don't have to think about it. Is that correct? So so if I'm understanding what you're saying is, let's say you've got a property set up, maybe it's in a corporation, maybe it's not. You've got your own. Primary bank account for that property, plus a whole bunch of little savings accounts attached to that, and that's where these and then as soon as as income is coming into the property, into that property automatically, you know, 50 bucks a month or whatever it is, is getting taken right off automatically for the vacancy account and twenty five bucks a month for this and that kind of thing. Is that the gist of it?
Rocky Lavani [00:12:29] That is the gist of it. And so even if you had 10 properties and they all come through one account, you can just group all 10 together if you need to. You know, this is going to work with whatever your accounting system is. You have to figure out how they all fit together. Yeah, but it will work with any accounting system. It's more of a cash flow management system and it's also there to protect you for when you need the money. It's not. Oh no. How do I pay for the roof?
Dave Debeau [00:12:58] It's almost there to protect us against ourselves.
Rocky Lavani [00:13:00] Mm hmm. We are our own worst enemy, right. We get emotional about the house. We get excited about the deal. We got to get a deal. We got to get a deal. You are better off waiting and finding the right opportunity than rushing out because I'm sure you've heard it a million times. Where is the money made in real estate on the purchase? So purchase. Right. Don't get excited.
Dave Debeau [00:13:24] Exactly. And then pay attention to those numbers that you've crunched in your in your analyzer and take that into account and actually do something, whether once you do have the property set up, the the envelopes of the buckets, as you mentioned,
Rocky Lavani [00:13:39] and the buckets will tell you. So if you keep finding out that every year your vacancy accounts running negative, well, then, you know, we don't have the right vacancy percentages. We need to change our percentages. And then it gives you that feedback so that you can make better decisions.
Dave Debeau [00:13:56] Yeah, smart, smart, smart, smart. All right, fantastic. Rocky time flies when you're having fun. If people want to find out more about you, what you do, the book, what, what kind of things can they do?
Rocky Lavani [00:14:08] So the best places to find me, my website is Profit Comes First. And on the website if you want to chapters of the book, they are free there and you can download them. I have two podcasts. The one podcast is called Profit Instrument, so we talk about numbers and business entirely. My other podcast is called Recher. So it's You got rich now what? So it's about life. How do we live our ultimate life once we figured out our finances? Because money alone will not make you happy.
Dave Debeau [00:14:40] Fantastic. Very good. Rockie, thanks a lot. It's been great having you on the show.
Rocky Lavani [00:14:44] Dave, thank you so much for having me here today.
Dave Debeau [00:14:46] All right, everybody, take care. Talk to the next episode. Well, hey there. Thanks for tuning into the Property Profits podcast. If you like this episode, that's great. Please go ahead and subscribe on iTunes. Give us a good review. That would be awesome. I appreciate that. And if you're looking to attract investors and raise capital for your deals, that may invite you to get a complimentary copy of my newest book right back there. There it is, the money partner formula. You got a PDF version at Investor Attraction book, dot com again, investor attraction book, dot com Taika.