Confident Cashflow Management for Realtors | What Works Wednesday with Leland Gross

Real estate professionals are no strangers to large commission checks, irregular income, and constant opportunity. The challenge is not making money. The challenge is knowing what to do with it once it hits your account.

Too often, we see people swing between extremes. Either every dollar immediately goes into the next deal, leaving them exposed when something unexpected comes up, or large amounts of cash sit idle in checking accounts, quietly losing value to inflation. Both approaches can create unnecessary stress and risk.

In this episode of What Works Wednesday, we dive into how realtors and real estate investors can think differently about cash. We break down what an emergency fund really is, why buffers matter in both your business and personal life, and how creating simple guardrails can give you the freedom to invest, grow, and actually enjoy the money you work so hard to earn.

Keywords: cash flow, real estate, emergency fund, financial planning, investment risks, liquidity, wealth building, personal finance, realtor tips, cash management

Transcript:

Leland Gross CFP® EA (00:33)

Welcome back everyone to another episode of what works Wednesday where your hosts Leland and Cody Cody. What are we going to talk about today? In our last podcast, we talked about cashflow managing variable cashflow, which is for us, probably one of the biggest things we see with realtors is not knowing what to do with your cashflow. Well, one thing I feel like we see pretty often is, you know, is the commissions are flowing. Now, what do I do with that cash? Right. And I think.

You know is is cash king is it is it trash? You know for real estate professionals I feel like the thing we hear all the time is I don't need an emergency fund I'll just put it into my next flip and wake way more money than that like I don't really need that Yeah, your thoughts on that. Yeah, I mean it it's true. We see more than many other professions Realtors have trouble managing cash flow or feeling like the money's there. I'm gonna spend it which it's not for everyone Yeah, you know I've got

licenses and certifications and finance and if money's in my checking account just sitting there, I'll put it to you somehow. Right? So without having, you know, specific intentional purposes for this, it's just going to get spent. But in real estate, most real estate investing, most real estate sales, they're really cash intensive transactions that we're doing. Right? They're the biggest transactions you're going to do, whether it's, you know, a flip, purchasing rental real estate, even just doing the retail buying and selling for clients.

A lot of that requires a heavy amount of cash. So we get these commission checks in, we're spending them for our personal life, we're putting it straight into the next deal. And we see this kind of cyclical cash crunch, the cyclical stress of like, where's the next dollar going to come from? Even though on paper you're making hundreds of thousands of dollars, you're innovative, you're investing it in different places, but that can create a lot of stress through just

short-term instability. and I think it obviously makes sense. We want our cash to do something. If I invest it in my business, I usually make more money as I invest into it. But keeping cash on the sidelines, if you always are putting in the next real estate deal when emergencies come, what do we see people rely on? Yeah, mean, the first thing in real estate that we see is heat locks. It's like, OK, I've got these huge commissions. I want to do this flip. It's going to need

$50,000. I'm going to, you know, put this money in there. Oh wait, well now I have this other issue over here or I need to pay for XYZ thing. My own roof needs to be replaced, whatever it is. It's like, okay, I'm going to use my heat lock in order to kind of bridge the short term cashflow crunch or worse credit cards. We see lots of realtors because you can get approved for these insane credit cards with especially business cards and they're maxing them out because they in their head.

are counting the next commission before it hatches. They're counting their... month, right? Yeah, it's only a month. It's only... In two or three months, this flip's gonna sell and I'll be able to reimburse all of it, which isn't not true, right? But we see then you're just skating on thin ice because we've had situations where, I've got this flip that's gonna be closing. crap, there was an issue that's more expensive than we thought. It's not gonna profit like we thought.

this other opportunity came up. went with that too. And, you know, my kid's tuition bill is due. And so now I'm on credit cards and I'm actually not getting reimbursed as much as I thought I was going to be. And that can become a really dangerous place. And in general, just like I said, just creates an unnecessary amount of stress and risk in someone's financial life. And I think it makes a lot of sense for for real estate professionals. Right. You make a very large commission. Maybe it's thirty thousand dollars. Right.

you only need a few thousand for your personal life. Now, what do I do with the next thing? Obviously, you go and put it towards something. What would you say about like you hear this term emergency fund? What does that? What does that really even mean? Because I'm a business owner, like I'm to make more money. Like, do I really need something on the sidelines for that as I'm continuing to make my commissions? Yeah, we we talk a lot about the the real estate winter, this like three or four month window that can happen. 

depending on where you live or your market. most agents, whether it's every single year there's a slower window or whether it's we know every handful of years the real estate market changes and it just becomes more challenging and we have to bridge ourselves through more challenging economic environments, we know that there's seasonality to it. It's a very seasonal business. And so when we think about an emergency fund, whether that's in your personal life or your business life, we tend to want you to have both.

It's really insurance for you. It's a buffer. Yeah, it's short term buffer. It's short term cash insurance. So when a deal is taking longer than you think or it falls through or the season is slow, hey, your personal life isn't going to suffer and your business isn't going to suffer. You're not going to get to a point where you're putting your personal money back into the business just to make ends meet. And you're not going to get to the point where, crap, I'm taking money out of my business because I need it personally. But

the business also needs it and now we're in a liquidity crisis, which is truly, it's just something we see all the time. And so when we think about these emergency funds, think that's a helpful term for some. think it can be buzzwordy for others, but we do want your business to keep a buffer amount in there and to say, hey, this is money that's gonna be here and it's the insurance to you to be able to allow you really the freedom to go do more.

projects without incurring a liquidity crisis. And I would say like in your business life, right, we create buffers for business expenses, but then your personal life can look different depending on what phase you are in your business. You got to keep a certain amount, but in your personal life, that's going to be so independent, you know, for a single income household, maybe it's closer to six months of expenses, you know, or for dual income, you probably closer to three to six months is kind of a buzzword, but it's going to be completely dependent on like where you are. Yeah. So when we say with realtors, we're typically looking

at both their business books as well as kind of their personal quote unquote books and say, all right, what do you need? know, in a situation where crap hits the fan, what does your family need if commissions aren't coming in and you're not able to pay yourself for a few months? What does your business need if you're trying to drum up business or invest in real estate or do things, but you haven't had a stream of income come in to replenish that for a while? And so we like to create a buffer in both because that creates a lot of safety.

creates a lot of opportunity for you. And from there, you really, once you have that built, now it's to the moon. Now every dollar can take a lot more risk. Yeah, you can take a lot more risk. You can jump into a lot more ventures. You can invest differently and really begin to think towards growth. But the problem is we get distracted by shiny things. so, you know, opportunities come across your desk. You're not really in a place where you can't afford it, but you jump into it because it's a great opportunity. But then you're kind of in the cycle of, you know,

Stealing from Peter to pay Paul just passing money back and forth from he locked a credit card paying off a credit card with my HELOC Just trying to make ends meet and it becomes very very stressful And I would say we're not anti debt like debt has a place in our society. We're not Dave Ramsey zero zero debt But I think it creates this cycle if you're not prepared and something we see pretty often is you see these great deals and you want to you know Jump on it

right, and you use your emergency fund for that. But then, you know, obviously in real estate, you know, that things don't always go the way they were planned to go. The flip doesn't go as planned. The rental is not as profitable as you thought. And so it requires some cash. so, you know, setting what you were just saying, right, having that buffer allows you to take so much more risk. But some things we see is like we see people with multi-million dollar real estate portfolios who are

you know, short squeezes with credit cards. It's very common. Obviously, it's a short-term problem. They're gonna make more money. The realtor rental property is gonna be more profitable. But if you can avoid that short-term pain so that you can experience life in a way that, you know, what you're doing, you're being successful, you you wanna still have some discretionary income. Yeah, it's a conversation of is your foundation secure, right? Like we don't wanna, you would never build a house on an unsecure foundation in a swamp.

You're like, hey, this is a really great house. It's also sinking, you know? And it may have the best countertops and best, like, everything else inside of it, but if the foundation is insecure, it's not gonna stand up to a storm. And so we really, likewise, want your business and your personal life to have a firm foundation, which then allows you to do these other things. And what we see is too often we jump in prematurely. And even things like...

Hard money lending, I've seen that go south where someone hard, like, man, this is a great deal, I'm gonna get a great return, I'm just gonna hard money lend this to this person. Well then that person runs off with it or it goes south or, you know, then they're tied up in a legal battle and that takes time and money and so again. There's no free lunch anywhere. Yeah, everything has its own risk associated with it. We love these opportunities. We love flips, hard money lending, rentals, we like to get creative and think outside the box and real estate is a huge investment opportunity.

We just want to make sure we're doing that the right way with the right security systems in place so that you can really do them well.

So on the flip side of that, I feel like we also see people sitting on cash because they don't really have anything. They don't know what to do with it. And so what would you kind of say like, hey, I'm just, you know, now I've got way more than that emergency fund. It's just sitting there. I'm like, I don't really know how much I'm going to owe in taxes. So I'm just keeping all of it in my bank account. And obviously there's a, you know, an opportunity cost there.

What are some thoughts you have there? Yeah, it's amazing how many times people come into our office and just say, well, I've got this hundred and fifty thousand dollars just sitting in my checking account and you're like, oh, this hurts. This hurts my soul because anywhere you put money, there's going to be risk. Right. Like if it's in the stock market, we all know that can go up and down. If it's in real estate, you can have a liquidity issue. And if it's just sitting in cash in your checking account, it's losing money to inflation.

recently in the last few years, we've had a really high inflationary environment. And I think for younger generations, that's the first time many of us have experienced that first time for me. And so, you now we're all aware of like, crap, if this money is not keeping up with inflation, you know, my hundred dollars can only buy me ninety three dollars worth of stuff because, you know, things have become more expensive. And so we don't want you to overpad cash because that's not healthy either. You're you're I say inflation risk is like the monster hiding in your closet.

You're like avoiding all these other risks, kind of backing up away from them and secretly there's a monster behind you eating up the value of your money. Yeah, I think that I would say there's a big risk in keeping too much cash because of what you're saying. Totally. It might be way more risky than the things you're considering. long term. Definitely. I would say if you're afraid of taking risk with the stock market or other investments, like you're taking a lot more risk. just it just feels nicer in the short term. And I mean, there's a there's a.

When we talk about cash, feel like with money, our money touches all areas over lives, but I feel especially around for some people, they can hold really tight grips on like, need to be able to see X number, right? And that's a comfort level thing. Like I tell people all the time, know, if even if you have an

Abundance of money. I've got hundreds of thousands of dollars and that's where you feel comfortable and we say hey You really only need to keep 40,000 here. So we're gonna do the rest Yeah, we're gonna put the rest into these great things that are gonna achieve your other goals And you know, we're gonna grow your wealth with this Seeing a bank account go from one number down to another even if it's a healthy number and it's a healthy thing You still kind of tighten up. Yeah, and so I mean we don't want you to sit on too much cash and that's why we really like Creating a plan that says hey

What is the right amount of cash? We don't want too little and we also don't want too much. We just want enough that you are safe and secure. We want short term financial security that says I can handle anything that comes my way in my business or my personal life because I have cash on hand, which is my short term liquidity needs. Beyond that, well, now we want to be, you know, using vehicles that can get us tax breaks. We want to grow our wealth long term. We want to, you know, invest well. We want to make our money, make money.

which is truly the passive form. When people talk about passive income, it's like if I can put my money somewhere and it's gonna make money, well, that's passive. I love passive income. I don't have to do anything to But it doesn't really exist. Yeah, and so I just would say everything comes with a risk. And so we see the two extremes most often where someone's not holding enough cash and they're exposing themselves to unnecessary risk and short-term liquidity issues, or they're sitting on too much because that's where they feel comfortable.

But now that money is really losing value for them to inflation. It's not growing for them in ways that it could be, whether that's through traditional stock market investments or real estate ventures or things like that. We want to put your money to work because I think everyone wants to build wealth. I think everybody wants to build a better life for themselves and the next generation. And we just need to know how. And most of time I find these two main issues are just out of a lack of knowledge. It's just a lack of what should I do?

Well, I don't know about you, but there wasn't a lot of personal finance education in high school curriculum, but I do know the diatomic ions. Yeah. Yeah. I mean, I know way too much about, you know, the powerhouse of the cell, but I just don't know. That'd be the mitochondria, by the way. Yeah, I know. That's why I said I know what it is. Mitochondria, powerhouse of the cell. But what is compound interest? I don't know. You know, Einstein said it's the seventh wonder of the world. And those who understand it will benefit from it. And those who don't will.

What does it be? Destroyed by it or something? Beats me, but it's a thing. It's a great quote. Google it. So yeah, when we work with business owners, we really like to put systems in place for them that help this. Because even just saying, hey, you need to keep more money in your business isn't helpful when in reality that's a black and white number. But business, personal life, that's not black and white. It's very static. Some seasons you need more. Some seasons you need less. Especially with variable income, right? Yeah.

Some seasons you have more, some seasons you have less. And so for a little practicality, we would just say, we like to have a business bank account. We call it your OPEX account, operating expenses. And we like to keep a floor and a ceiling, a little bit of a range in there. The floor says, hey, this is the amount we know you're going to need for the real estate winter. This is your safety number, right? Like we don't, anything below that, when that account starts dwindling below that, we kind of need to tighten the belt. We need to start prioritizing building this back up.

Between the floor and the ceiling, it's up to you. What do you need? Do you need more money in your business? Because there's a deal going on. it quiet and you need more money in your personal life? Take a distribution. Great. Once you hit the ceiling, which I really find once we set this in place after a handful of months, it's just always at the ceiling. If you're making more money than you're spending, truly. But once it's at the ceiling, don't keep it in your business. Distribute it to yourself. Invest it. Do something with that money.

whether you build a bigger life for yourself, you live off more or you invest it. But if you're above the ceiling, the ceiling says, hey, you've got more than enough in your business. Anything above that doesn't need to just sit here because it may not be getting put to good use. And so we find kind of giving people just these guardrails that say, know, below this number, tighten up, we gotta get more money back to be in a safe place. Above this number, automatically distribute it.

anything between there, it's kind of up to the discretion of the business and the seasonality of the business owner. That's kind of where what we really like to see and almost I would say the same thing inside of your personal life. We don't really care as much about this, the ceiling. We just like the floor saying in a high yield savings account where you're making something, keep this amount in here. If it's going below that, we need to kind of tighten up, build that back up. If you're above that, let's invest it. Let's put it to use.

And I would say for the people that we've got to kind of implement this for, I would say that framework is really freeing too. now I know what to do with some of those next dollars, right? Yeah, and when a commission check comes in, I can look at my accounts and I have the guardrails that give me the tools and the knowledge to be able to make a healthy decision for it, which again, most financial...

insecurity, most financial scarcity or fear comes from just a lack of knowledge or a lack of a plan that says, what do I need to be doing with this? And so kind of giving people these things, it's like, okay, your personal emergency fund is saved and you're at the ceiling of your business and you just made a huge commission check. Well, now you can take a vacation, you can invest, you can make the improvements on your house you've wanted. And now you're living in an abundance. Now you're in a, in a spirit of abundance that says, you know, I'm free, not just

can I handle anything that comes my way? But I can handle anything that comes my way and I can do these other things and choose what I want to do with this money. Yeah, because you didn't work nights, weekends, and holidays and miss your kids' soccer game to go make that deal just so you could pad the bank more. Yeah, right? Yeah. Realtors don't sign up, I find, in order to basically be on work calls at Thanksgiving dinner. Typically, their desire is not to do that.

and to build the freedom, again, you guys are great at making money. It's now what do we do with that money that really drives that vision. Yeah, and get a plan. I think that you're making the money, but find a plan of action for that. Exactly. Well, this has been a great conversation. I've really enjoyed it. So as always, go forth, manage your cash well, make sure you've got your buffers and your ceilings and all these things.

Build the life you long for and prosper.