How do you pay yourself?

General Real Estate Investing
11yFollow

How do you pay yourself?

Gary Alford
Investor · Norfolk, VA · Member since 2014 · 164 posts · 51 votes

Alright BP I love business discussions and I have what I feel is a good question for you that popped in my head while listening to one of the podcast earlier that I want to get your take on.  How do you pay yourselves? Do most of you have a business account separate from your personal one? If you do, how do you calculate what to pay yourself? 

Do you take a set percentage from every flip? Do you not pay yourself unless needed and just pour it back into another property? If you are a buy/hold investor do you have a percentage from monthly cash-flow you take for yourself then leave the rest in your business?

I might have missed a podcast or article that hit this but I have never heard anyone in real estate hit on their opinion of this. I would guess that after a while if you treat this like any other business you have a set salary and that's what you pay yourself. What do you guys think and what have you guys done? Especially starting out? How did you do it?

2Reply
91 views

Most Popular Reply

Brandon Hall
CPA · Raleigh, NC · Member since 2013 · 1k+ posts · 2k+ votes
11y

@Bill Gulley is asking questions and trying to learn. There are a large variety of ways business owners pay themselves dependent on their personal situation. It seems to me that Gary just wanted to get a perspective of how people in the real estate world pay themselves (or when they pay themselves). 

He didn't insinuate that he was going to run his future business into the ground. You are also unfairly assuming he is financially illiterate which may or may not be the case but at least he has the courage to ask questions. 

You could have given him details about how you did it when you were starting out. Tell him how you paid yourself. If you reinvested everything into your business, tell him how you survived frugally. That would be much more meaningful and have a greater impact on his future rather than your lashing out as you have done which, by the way, helps absolutely no one.

15Reply
See this reply in the discussion

40 Replies

Jump to latestLatest
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y

    I have a little military air traffic control experience`as well, so if you need clearance I can handle that too! :))

    1Reply
  • Will BarnardPro Member
    Moderator
    Developer · Santa Clarita, CA · Member since 2008 · 15k+ posts · 10k+ votes
    11y

    Apology made and the question is being answered by many, lets please keep all future comments on topic here folks and let everything else rest.

    Podcast Guest on Show #130
    2Reply
  • Brian Gibbons
    Investor · Sherman Oaks, CA · Member since 2008 · 6k+ posts · 3k+ votes
    11y

    If you want to build a business get some capital and have a reserve like 6 months personal and 6 months business.

    For chunk cash, I would do lease option assignments, bank 50% of the money,  and pay down bad debt (student loans and credit cards) for the other 50%.

    Buy and hold investments when you are broke is hard, you need reserves.

    Remember to take 40% for Mr IRS.

    And @Bill G will say it is not your option money (that is assigned) until the deal is finished (option exercised or nullified).

    But I disagree.

    0Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    11y

    We have different strategies per property but generally the capitol is reinvested to upgrade so that one day the rentals will be mostly income. I do have a day job though so I don't need to pay myself.   One strategy I do use that works for us is to pay my son. He does real work that otherwise I would pay someone to do or have to do myself. He can use that to pay expenses that otherwise I would kick in more for so effectively I am paying myself in some ways.  You don't have to pay some employment taxes for them too when they are under 18 so that was good.

    0Reply
  • Jeff S.
    Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
    11y

    8% management fee. 1/2 first mo rent.

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    11y
    Originally posted by @Brian Gibbons:

    If you want to build a business get some capital and have a reserve like 6 months personal and 6 months business.

    For chunk cash, I would do lease option assignments, bank 50% of the money,  and pay down bad debt (student loans and credit cards) for the other 50%.

    Buy and hold investments when you are broke is hard, you need reserves.

    Remember to take 40% for Mr IRS.

    And @Bill G will say it is not your option money (that is assigned) until the deal is finished (option exercised or nullified).

    But I disagree.

    Well, let's see what Mr. IRS has to say.

    Assigning a contract is different, you recognize income as received. Now, keep in mind that the deal is, you sold me a contract to buy, that means with good title unless otherwise disclosed.

    I'll sure be looking at you if I bought your contract and in 3 or 6 months (whenever) I can't buy for any reason other than default of the seller and even in that case, the deal may be investigated to ascertain if that contract was good.

    In RE, regardless of what your deal is, don't count your chickens before they hatch! Things can happen where deals unravel and fall apart, even at the last minute, you better be prepared to cough up funds taken.

    You'll also find that your "non-refundable" may not be so non-refundable, you'll find that it's much cheaper to just back out of some deal and walk away to deal another day than to fight, get an attorney and go to court! 

    You assign a contract, you're not out of the woods until the deal is closed!

    So, as to your draws, go ahead, you can eat off the money, but you better be able to make things good if the deal crashes. :)

    0Reply
  • Atul Mohlajee
    Oak Park, IL · Member since 2014 · 285 posts · 114 votes
    11y

    I have a fulltime job and do not pay myself from RE.  I use RE money to pay off RE one at a time.  I have 4 properties fully paid and 4 properties with a mortgage.  I also like to have a reserve of $50000 or so.  Anytime I buy a property, reserve goes down and I save it back.

    0Reply
  • Keith Bloemendaal
    Contractor · Carolina Beach, NC · Member since 2014 · 157 posts · 89 votes
    11y

    Great topic! As a newbie I thoroughly enjoyed reading all the comments. 

    I am just starting out, part of my deal with my partner was that I would get a draw to live off of while we build the homes, it is modest, but enough to pay my mortgage, vehicle, etc.. and a little extra to start paying down credit card debt I racked up over the last few months. 

    My goal is to take enough to live off of, comfortably, and at the end of the year assess what we have and start reinvesting once we have decent cash reserves. In my case, we need about $100k - $200k in cash reserves to have a working capital for construction. Bills always come in long before the draws come from the bank when you are building new homes. 

    I do have a question to add to this conversation. Most of you said reinvest as much as possible. Does that mean pay down current properties as much as possible so you can pull equity to reinvest later? Or do you just save cash until you have enough for the next deal?

    0Reply
  • Gary Alford
    OP
    Investor · Norfolk, VA · Member since 2014 · 164 posts · 51 votes
    11y

    I want to say thank you to you all for adding to this topic. Sorry for not being able to address you all personally but I really enjoyed reading all of the post. 

    @Keith Bloemendaal  Those are some great questions to add?

    0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free