Gettin’ Paid: Top 3 Best and Worst Ways to Spend Your First Paycheck in Real Estate

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There is a swelling of pride and sense of achievement that comes with your first payday in real estate investing.

The sense that “Wow, I DID this, my knowledge and hustle is rewarding me!” to the tune of $500, $5,000, perhaps even $50,000+.

But take it from those of us who have survived, thrived, and sustained through this last downturn; there are some fan-TAST-ic ways to blow your first paycheck and get yourself out of the game as quickly as you came in. As well, there’s high-value lower cost ways to keep yourself feeling rich without breaking the bank. Let’s explore both.

Top 3 ways to Blow your first paycheck

1.) Not Paying Yourself Back.

With the amount you’ve paid into marketing, equipment, utilities, gas, etc that’s it’s taken to get this deal done, what’s the running tally? You may be surprised to see you’re really just breaking even on the first deal. Don’t worry, most start ups don’t pay themselves back for at least 2 years, if you can do it in 2 deals, you’re ahead of the game.

2) Buying a Car.

You’ve just cashed the paycheck and the bank and walk out to see your used car, sitting there like a loyal puppy that’s been with you for years. Now, suddenly, it’s not good enough.(I think of the scene from Bruce Almighty). “Hey I’ve got a down payment now”, you might think…”Why not just upgrade to a newer, shinier, more flashy ride?” Memorize these terms “depreciative asset”. I’m lucky enough to work/ed with old-school investors that preferred people think they weren’t rich, and would dress, drive, and behave accordingly. They looked at a vehicle as robbing them of cash flow & leverage, and could give a hoot if people didn’t realize they had a net worth of millions. Although, that’s not to say they didn’t have a Mercedes at home parked in the garage of their home in a high-end neighborhood, but those came later as they built true wealth.

3) Bars, Clubs, and Shopping Malls

There’s a lot of young blood in the investor world, and man do we love our bling. Poppin’ bub, getting paid, live like- we’re- gonna–die-young sorta attitudes is great when it’s 1am surrounded by friends, (of course of which you’re picking up the tab for.) The light of day comes quick and trust me, those friends will disappear as soon as the funds do, too. And ladies, I get it. It’s nice to be fawned over at boutiques and spas and acquire all those extra designer duds, but curb the party until later in the game when you’re accomplishing set financial goals in your business.

Top 3 Ways to Spend Your First Paycheck

Have you paid yourself back, or even know what amount that would be? If you have no clue what it’s cost you to get and close this deal, guess what you’re next investment is, Quickbooks. (All at once now, HOOR-AY, A-ccoun-ting!) Beyond that, let’s look at other suggestions:

1) Pay Down Debt.

I’ve had the nights of lying awake staring at the ceiling, feeling the weight of the Debt Monster lingering over me, it sucks. But my group looks at debt as an explicit 4 letter word, and we avoid it like the plague. If you can pay off consumer debt, by all means do. Free up your credit to breathe again to use the power of other people’s money down the road. Don’t continue to pay high interest rates and sink further into financial turmoil; cash is king and leverage is almighty. Especially if you still have a job and this is extra income, appropriate it towards debt to create cash flow on your monthly income statement.

2) Marketing.

A certain portion of your proceeds should always be allocated towards ongoing lead generation, seeing as how without leads, you’re without a pipeline of closings. A good rule might be to start with 20% of your proceeds and know that (for example) $500 towards marketing can make you $2,000+. If you’re starting to get busier, perhaps hire someone to stuff your envelopes, make calls for you, or scrub leads lists. But make it non-negotiable with yourself to actively continue to market and allocating a % of your profits towards those efforts.

3) Give Back.

My mentors have been an altruistic bunch, having humility to know their good graces are a blessing and not everyone has the ability, opportunity, or station in life to be as successful as they’ve become. I’ve seen funds continuously poured out to local and national charities, families, and causes that were in dire need, which impressed upon me the importance of charity. And if you’re not at the point where giving money makes sense yet, that’s perfectly fine. Charities like Habitat for Humanity only ask your efforts and time. It’s cold out, perhaps just clean your closet and donate old coats and blankets to homeless in your downtown area. Why not make it part of your routine that every time you close a deal, you give back in some way to your community as well? (Besides the beautiful house you just rehabbed!). And if your thought is, well I close a lot of deals, isn’t that a lot of giving back? Yes, it is! What a reciprocal reward to be gaining recognition in your area, especially as a business that gives back to the area in which they operate.

In Conclusion

To conclude, some of the points I enjoy about this business is you can make more money as a high-school dropout then someone with an engineering degree, and make large sums in short amounts of time. I’ve learned the hard way and blown money, but also enjoyed the spoils of war, so to speak. Time and experience has made me all the wiser, nonetheless.

To quote Richard Bach, “Within each of us lies the power of our consent to health and sickness, to riches and poverty, to freedom and to slavery. It is we who control these, and not another.” I wish each of you the control needed as you begin your real estate investing journey, such that you might attain your own freedom!

What do you think about these lists? Did you blow your first paycheck or did it fuel you to grow your empire? Please share your experiences and thanks in advance for your feedback!

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About Author

Tracy (G+) is an Arizona Short Sale Realtor, Investor, Rehabber, and Foreclosure Expert. She also is an avid blogger, vlogger and consultant on all things Arizona Foreclosures.

22 Comments

  1. Nice work, Tracy!

    I would re-order the “places to put money” by placing marketing first.

    Marketing, marketing, marketing… that is the game until brand is developed.

    • Thanks Erik! I guess in some part it was hard to decide in which order to put them, so I wanted to impress the importance of even knowing what it cost you to get that deal so you know what figure would even mean breaking even. I agree with you, but also wanted to stress financial management.

  2. I agree, marketing, first,

    then pay yourself (in a box in the back yard, 3 feet deep!) lol dont touch it.

    Then give back, I coach boys lacrosse, it cost me money, and time, and energy, but I love lax, played in NCAA, and it is my positive addiction!

    Great post on dreaming big on what to do after the first check! It drives you past all the crap!

    • Haha Brian yes put it back in account far, far away (or frozen in an ice block in the fridge?).

      What an energizing way to spend your time and money. And even though you do have to expend some of your own funds, it sounds like the personal rewards are worth it. (Better than a bar tab, new watch, etc!)

      Thanks for the kudos.

  3. I am 27 and started REI at 21. I work primarily with buy rehab and rent out properties. I have put a huge amount of money back into my business and feed it with my day job. I get a rush out of being able to say I put $40,000 in cash into my properties for improvements and upgrades. Since I got married and have a son I loosened the reigns a bit. Last spring, my wife and I went on a late Honeymoon to Jamaica and although it was fantastic I also knew exactly what the cost to my business growth was going forward. I love putting money back into my business. My wife has a newer SUV but I have a 96 pickup truck but I love it because I can dent it scrap it and everything else and not have a worry. I also hold no debt on anything besides real estate which helps greatly as well.

    I suppose I could live a lot better right now but love the idea that I will no longer need a day job in 10 – 13 years and that will be the most fantastic ;)

    • Hi Kyle, thanks for sharing your story, very exciting for others to read. In my opinion, what you’re doing is ideal. Spoiling you and your wife in some instances, but also keeping an eye on the bottom line.

      Not having (negative) debt is rewarding within it self, so I think past a certain point of knowing “I CAN afford this (new car, bigger house)” but choose not to to build long term wealth inspires confidence and calm.

  4. Great post Tracy!

    I experienced a high after my first deal and believe me the ideas pop into your head – new car, new fancy suit, hard earned vacation.

    Dream about it for a few days and get right back out there and reinvest that paycheck! I’m with Kyle, I get a crazy rush when I reinvest back into my business.

    My partners and I have an agreement. 90% of profits go back into the business for the first 3 years and we all must put in $1,000/month into the business from our day jobs. It’s working so far and growth is exponential!

    Also, Marketing, marketing, marketing!

    Glenn

    • Thanks Glenn. Yes of course I still “dream of bling” but at the end of the day, 99% of the time I could care less after the initial rush to go buy it wears off.

      I like the plan you have in place; sounds like you have strategic and like-minded partners that have a focus on the bigger picture.

  5. Not to get political, but are you sure you actually did this, are your successes really attributable to your own efforts?

  6. Hi Dennis I’m not entirely sure what you mean but I appreciate the comments.

    Real Estate is typically never a one-person sport, so it could take months of networking, marketing, guidance and potential partnerships to close a deal. My success I highly attribute to my team and contacts, no doubt.

  7. Tracy,
    Now this is keeping it real! What an interesting topic to write about… I honestly can’t remember what we did with the first paycheck. I just know that we were so poor that we probably paid bills with it!

    Anyway, my personal opinion is that giving has got to be #1. Like gravity, the law of sowing and reaping is a principle that works 10 times out of 10. If you ask anyone in our company why we are doing so well, each would say that it was giving!

    Of course if you don’t market and you don’t make good business decisions, you will soon have nothing to give!

    Thanks Tracy for the fun article. The video is cool too!

  8. I have no idea what was done with the first paycheck, I have never gotten a paycheck in my life. Now on the other hand my wife is doing pretty well with me along.

    The first RE purchase netted her $10k that was a bribe to induce her to believe I was not an imbecile for buying the property in the first place after she saw it.

    Besides marrying her in the first place, that first payment was the best move I have ever made. Now she is not in the slightest bit interested in what properties I buy, but has an excellent sense about if the place should be wholesaled or fixed and retained as a long term hold.
    Recently she has been steering me to give up all management of half our properties in lieu of a professional manager as she thinks I work to much.

    • Hi Dennis, it’s good to hear your investing has worked out well for both you and your marriage; you are a smart man to show her what you are doing is working, and make decisions with her as well.

      Thanks for the comments, and perhaps look into hiring out a PM company so your wife can spend more time with YOU!

  9. Thanks for the article,
    Our first pay was from a flip in which we paid off debt. Our plan now is to use all of our means to pay off bad debt. We are really close, within one house, which is under rehab. So, with your plan, we usually take about 10% of the profits to splurge on our family. We haven’t done it for the last couple flips, so this summer after paying all of our debt (except the house) we will be getting the boat we’ve wanted for about 12 years. We need a little fun too.

    • Hi Steve, thanks for your comments. It is good to have a plan of action towards bigger goals, in your case paying down debt, but also the rewards, ie the boat!

      Stay on course and good luck!

  10. Like a lot of us I don’t recall exactly what we did with the first paycheck.
    I’m sure it pretty much all went to the monthly bills and paying down consumer debt we were floating to fund the initial stages of the business.
    I had been unemployed, err I mean a full-time investor :), for about 1.5 years before the first big check came in so there was a good amount of paying back needed!
    I kept very grounded and would say I wasn’t back to even until the 4th rehab closed when you took into account 2 years of my previous income.

    We will splurge on a few things now. Still mostly modest things, and usually things for our daughters.
    Personally the “toys” I’ve been buying with the excess cash are rentals making >20% annual returns. Don’t think anyone is planning an intervention for this affliction. :)

  11. I like your quip Shaun about being unemployed; I consider myself very unemployable at this point and I take great pride in that statement! :)

    And although the stuff you’re buying might not be sexy (although 20% returns is more desirable to me than a boat, car, etc) at the moment, you know what is? The freedom to live how you want.

    Keep on keepin on, cheers.

    • Unless you do you investing on the side for a long time then step right from the J.O.B. to being full time there is a delicate balance between being a full time investor and just being unemployed.
      I’d say I was mostly unemployed the 1st 6 months (Though I was a full time stay at home dad and a part time investor, so the 12hr RE only days now seem quite relaxing in comparison.:) ), then the next year I was mostly a full time investor, and once I hit that first big score I’d take away all the qualifiers!

      Yeah a well performing rental portfolio does not get you as much attention at parties as the bling but not having to drag yourself out of bed to go to a job you hate the morning after the party is better.
      My plan is to take my profits and roll them into these properties and once I get 10-11 that perform like this I will never have to work again even if the I never do another deal after that.
      Not that I can imagine stopping, but any work I do, be it for myself or someone else, will be a CHOICE not a requirement.

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