Business rules and rules of thumb

Oklahoma City, OK · Member since 2018 · 1 post · 0 votes

I'm looking for resources to help me in my partner and learn how much should we pay ourselves how much do we pay a project manager how much should we be putting away in the savings account so on and so forth if you know of any books or courses that could help us I would appreciate the insight thank you in advance

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Jason MalabuteBusiness Member

Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 912 votes

For savings, plan for taxes first. In a partnership you can owe tax on your share of the profit even if you didn't pull the cash out, so build tax distributions into your operating agreement and set aside money based on a forecast of real profit, not a flat guess. Project reserves are a separate decision, sized to your expected costs, debt payments and a cushion. For the project manager, first decide whether that person is an owner, and if not, pay a market-based rate tied to the duties. What type of entity are you operating under right now, or are you still deciding? The exact answer depends on your facts, so sit down with your own CPA or tax advisor to set this up.

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James Loffredo
Lender · Dallas, TX · Member since 2024 · 10 posts · 4 votes
5d
Rodney, a few rules I’d hold to.
Pay yourselves from closed deals, never from a draw. The rehab budget is for the house.
Put the project manager on a flat fee paid per milestone, not a percentage of budget. Hold back a 10 to 15% contingency on every rehab.
Keep reserves equal to the carry on every open project for a few months. Lenders want to see that cash too, so it does double duty.
The biggest one: build the process once and run the exact same process on every deal. Same checklist, same draw schedule, same close-out. That’s what lets you pay yourselves predictably.
I run a lender in Dallas, so take that into account. Good luck to you two.
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Jimmy Samaha
Staten Island, NY · Member since 2013 · 99 posts · 36 votes
4d
Profit First by Mike Michalowicz is the one I'd start with. It's basically a system for exactly that question, every dollar that comes in gets split into set accounts for profit, owner pay, taxes, and operating. There's a real estate version too, Profit First for Real Estate Investing by David Richter.
Some rules of thumb I go by. On rentals keep 3 to 6 months of expenses per door in reserve and set aside 5 to 10% of rent for capex on top of normal repairs. On rehabs a project manager usually runs around 5 to 10% of the rehab budget, or a flat weekly rate if it's one job. And move 25 to 30% of profit into a separate tax account the day a deal closes so it's still there in April.
For paying yourselves, figure out what the business needs to run for 6 months first, then pay a fixed amount on a schedule instead of grabbing money every time a deal closes. And whatever split you two agree on, put it in your operating agreement now while everyone's happy.
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Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 912 votes
4d
For savings, plan for taxes first. In a partnership you can owe tax on your share of the profit even if you didn't pull the cash out, so build tax distributions into your operating agreement and set aside money based on a forecast of real profit, not a flat guess. Project reserves are a separate decision, sized to your expected costs, debt payments and a cushion. For the project manager, first decide whether that person is an owner, and if not, pay a market-based rate tied to the duties. What type of entity are you operating under right now, or are you still deciding? The exact answer depends on your facts, so sit down with your own CPA or tax advisor to set this up.
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Divin KanyamaBusiness Member
Accountant · Seattle, WA · Member since 2025 · 535 posts · 227 votes
4d
@Rodney Hubbard A good starting point is to separate three things: pay for work performed, profit from ownership, and cash reserves. You and your partner should document your roles, time commitments, decision-making authority, and how profits and losses will be divided rather than simply taking money whenever it is available.
For a project manager, compare local market compensation and decide whether hourly pay, a fixed project fee, or a percentage tied to a clearly defined scope makes sense. Avoid incentives based only on spending or speed; include budget, quality, documentation, and completion standards.
Reserve targets should reflect the business model, monthly overhead, debt payments, upcoming capital needs, and project risk. Build a rolling cash-flow forecast and establish a minimum reserve before making owner distributions.
For resources, look for small-business financial management and construction project-management material from established universities, trade associations, and accounting organizations. More importantly, have a CPA and business attorney help you create a written operating agreement, compensation policy, and distribution framework tailored to your entity and tax situation.
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Aaron ZimmermanBusiness Member
Accountant · Chicago, IL · Member since 2018 · 2k+ posts · 1k+ votes
4d
On the business side, at least to start, you’ll want to generally save 30% for taxes. Could be more, could be less but it’s a good starting point. Since it’s a partnership, you’ll need to distribute the amounts to each member.
Since you’re probably looking to grow the business, I’d look to keep reinvesting the profits.
How taxes work for flips is that the completed projects get taxed in the year sold and the uncompleted projects get capitalized as inventory and therefore not expensed if not sold during the year.
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David Richter
Real Estate Consultant · Member since 2018 · 100 posts · 50 votes
4d
Rodney, message me, and I'll get you a copy of my book, Profit First for REIs, that covers this exact topic just as @Jimmy Samaha pointed out (thanks Jimmy!).
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Allison Machazek
Accountant · Bloomfield, NJ · Member since 2026 · 19 posts · 3 votes
4d
Rodney, the book recommendation is already covered, so I’d add a practical first step: build a simple weekly cash schedule showing available cash, unpaid project bills, upcoming loan payments, expected receipts and the reserve you’ve agreed to maintain. That helps distinguish money sitting in the bank from money available to pay yourselves.
In the books, also track each partner’s contributions, reimbursements and withdrawals separately so you can both see what has gone in and out. Are you doing flips, holding rentals, or a mix? That would help narrow the setup.
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Mike Klarman
Specialist · NJ · Member since 2022 · 1k+ posts · 656 votes
4d
I don't know if this is a cart before the horse research or not. Like is money rolling in and this is a current problem, or is this being prepared for when?

So when you speak about "Paying" yourselves, you have to be set-up to do so. You need an S-Coro or a full C-Corp structure. In an S-Corp you can be an "employee" of the company, but and it's a big but, the IRS is not stupid and they don't want to see random payments. They want to see a weekly, biweekly, monthly, or quarterly check that is consistent. So that means income has to be rolling in or else you can't do it or it makes it hard to qualify.

If you are an LLC structure, then the profit of the LLC goes on what's called a schedule K at the appropriate split. Each schedule K is prepared by an accountant and distributed to the members to file with their taxes. If you don't have your schedule K completed by March 15, you get fined $500 by the IRS, I learned that the hard way.
This is what I can tell you about money in general. First, set aside 50% in taxes. You'll get money back and it will be like a little reserve that will build. The other 50% some should be marketing/operational dollars. Maybe 20%. That last 30% you guys split as income. It's hard to make money in RE though, it's not as easy as the books and podcasts make it sound. They have money. They have the Process. They have the people. As someone pumped up to get started in REI, how can you duplicate their result? It's impossible.
Like any other industry, if you know and understand how the market works and what the market thinks is valuable and you can source the value or create that value or bring that value, then you can build something nice.

I see people on here all the time wondering how to start, and they think its with houses and lenders and that's not where you start....

You wanna get there yeah, but first, subscribe to a prop stream or another skip tracing software. Be a master in that software. You can create lists in any county using a multitude of filters. You know how to analyze the data and can really whittle down the lists to desperate home owners who need to get out. Wow, now when that person asks me where can I raise some capital - they have real options.

Bring something of value in a trade-off for capital.
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Matthew MorrowBusiness Member
Investor · PA - NY - NJ · Member since 2019 · 775 posts · 266 votes
3d
@Rodney Hubbard we're pretty conservative with how we withdraw funds and pay ourselves. Depending on your market, set a reserve amount per door. In my market, that's a $5,000 per door minimum for maintenance reserves. Then have a solid but flexible owner draw plan once cash goes above a certain number. Only you can define that number, but at some point the cash is better off deployed somewhere else, making more money, than sitting in the account. Definitely a strategy to talk through with your partner and your CPA.
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Amr Magdy
Technology · Member since 2026 · 26 posts · 7 votes
20h
Whatever rules you land on, put them in a simple sheet that does the math when a deal closes. Each partner's money in, their role, the split and the reserve. Then nobody has to remember what was agreed months ago, the sheet just says it. Have you two agreed yet on what happens when one of you puts in more cash on a deal?
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