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.
How I Bought, Rehabbed, Rented, Refinanced, and Repeated for 14 Rental Properties
This is the dream right? Going from zero to 10+ rental properties, providing stable cash flow and long-term wealth for you and your family, and building a scalable business model to boot! Learn how this investor did just that, in this exclusive story featured on BiggerPockets!
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.
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.
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!