How You Should Reinvest Your Real Estate Profits
After you complete your first deal, you will have money to reinvest in the next deal.
If you want to build your own Flipping Machine, the key is to save your profits and reinvest. A lot of people tend to make the mistake of spending their profits. As soon as they get that check for $35,000 they go out and buy a new car, electronics, etc. But in order to keep making money, the best thing to do would be reinvesting your money and building your cash reserves.
The key is to recognize the business side of this business. Most people fail to realize that house flipping is a business. Good business people reinvest a portion of their profits, and it’s no different with this one.
Bad Debt vs. Good Debt
Credit cards can be used for good or bad debt. Consumer debt is bad debt.
The latest electronics, clothes, shoes, a fancy new car, and paying other bills on your credit card is bad debt. Yes, credit cards represent other people’s money (OPM). BUt remember, the wealthy use other people’s money to generate income, not debt. Most people use credit cards on a whim, mostly on things that do not produce income. You should be using OPM for things that do generate income.
You need to create your wealth. You need to create cash reserve. A cash reserve is not built by jumping from being broke and having nothing to making money and spending it so that you’re still going broke.
As you create your Flipping Machine, those numbers are going to change. Then you can start putting 30% to 40% towards lifestyle, but for now stay focused on creating wealth.
Good debt is using credit cards to build your future and education.
You can use credit cards to build up small amounts of creditworthiness, because you’ll need revolving accounts to do this. You can do this, and pay the cards off monthly.
Credit cards are also in investing in education. Education is something you can pay over time, because it’s an investment in your business and, more importantly, yourself. It’s also a business expense. Use it as a business loan to grow your knowledge and wealth.
Real estate loan are also good debt. If you have a $150,000 property and $120,000 in
Fix Your Credit
A lot of people who get started in real estate have bad credit, and they worry about where they’re going to get the money. But this is actually a really easy solution.
After you make your first deal and have pocketed the profit, take $500 to $1,000 and repair your credit. Although I can teach you how to buy and flip houses with no money and bad credit, once you turn this into your business, bad credit is going to to be a hindrance down the road. You’re going to want to accumulate rental properties, to let your wealth grow passively. In order to do this, you want to start repairing your credit immediately. It will pay off in the long run.
You can use a credit repair agency can help you repair your score so that your path to real estate investing is that much easier.
Open an S-Corp
When you structure your business through S-Corp, you start keeping more profits in your pocket. How is this possible? When you own your own corporation, you pay your car, phone, meals, travel, and more before the government takes their share in taxes. This means you reduce your profits on items you normally spend money on, which gives them a smaller amount of money to tax.This means less money out of your pocket and more money in your pocket.
With LLC’s (Limited Liability Corporations) and LTD’s (Limited Partnerships), taxes flow through the company and then to your personal expenses. These are useful for rental properties. You can deduct for depreciation while enjoying all the corporate protection. Even if the property appreciate in value, you can still deduct for wear and tear.
S-Corps are a tax entities that stand alone, independent of you personally. So when you’re flipping, you have more than 400 expense you can deduct. Because you’re flipping and putting large sums of cash in your account, you can reduce a lot more from taxes.
Start Your Next Deal
You can start expanding your business immediately after you first deal.
After you have available cash, you may be able to do deal number two and three simultaneously. Even if your payments are not rolled into the loan, you will have enough cash to cover payments.
This is how the Flipping Machine gets started. The Flipping Machine grows as quickly or as slowly as you want, and you’re always in control. Real estate flipping creates wonderful opportunity to grow your business just after a couple deals.
There are multiple ways you can fund your real estate deals. If you’re interested in learning more, pick up a copy of Armando’s Master Course for a detailed, strategic method of how you can start flipping houses.