Although virtually everyone who has an interest in real estate investing would say that earning a profit is a good thing, surprisingly, their actions often show the exact opposite. This subject permeates the entire real estate universe because our profits are front and center in every transaction. Rarely, is the money you are earn in a real estate deal hidden from view. So you either embrace the economic worldview that earning a profit is a good thing, or you don't. And actions speak louder than words so even if you think you believe in profits, your actions may reveal that deep down, you think the exact opposite. This information in this video is extremely relevant in today's marketplace and should be mandatory that all real estate investors watch before they ever do their first deal.
In today’s society, the idea of earning a profit has become completely demonized. I would like to share why making a profit is important if you are in business; especially in real estate, so that you can embrace the economic worldview that earning a profit is, a good thing.
Profit in Real Estate
In real estate, the subject of profit is at the forefront of everything you deal with because the profits are front and center. With website platforms like Zillow, a potential home-buyer can see when a house was purchased and what the purchase price was. If you are a house flipper, it doesn't show how much you spent on renovation costs, interest, holding costs, or closing costs. They will only see that you paid $130,000 for the home and are now selling it for $210,000.
In real estate people can see your profit, especially if you are a real estate agent, because your 3% commission is listed right on the closing statement. Oftentimes, people not only see the profit, but they can actually envision the difficulty or lack of difficulty it takes to produce the results.
Let’s compare this idea with the of latest IPhone. Do you know how much the IPhone costs to create? Assuming you haven’t been studying Apple’s financial statements, it’s pretty complicated to come up with an exact cost. There are a lot of components involved with creating an IPhone, so unless you are capable of building one from the ground up, it’s difficult to comprehend the exact cost of creating it.
Certain products and services in business have some cloudiness over what their true profit is, so they do not deal with it as much. But in real estate, because people can see how much you are earning off a deal, you will often find yourself having to defend those earnings. That is why this subject is so important to those in the real estate community.
Why Making a Profit is a Good Thing
When you are earning a profit in business, you are sustaining that business. My apprentices and I have been working with a company for literally 10 years. They provide a service that has been truly valuable to my team and our vendor network. For the past year I have been predicting that this company is going to go out of business, because their pricing model is all wrong, and they are charging too little. My team didn’t understand my complaints, because we were getting a great service at a great price, but I was concerned that it was unsustainable. If the company were to close, there are no other good alternatives to the service they provide us, so I thought they should raise their prices and earn more of a profit.
Help Others to Sustain
This is the reason that profit being a good thing is more of an economic worldview than just a concept. Because it means that you want the companies that you do business with to make a profit. I know it sounds backwards, because real estate investors want to be great negotiators and get the absolute best deal possible, but that is not how I work. I want the companies we work with to earn enough profit to be sustainable so that they can stay in business. Because when they stay in business, they can be a service to you as a business owner.
Do you want Google to go out of business? Or Amazon? Or what about Apple? Is this something you have ever really thought about? If the owners of these companies were not responsible enough to produce a profit, they would become unsustainable, and go out of business. Then where would you be? What would you do without these businesses and the services they provide?
The companies that produce profits produce sustainability, but they do more than just sustain. If they make enough profit, they can invest in research and development to create a better product or service. A real estate investor’s definition of research and development might be different than Apple or Google, but the idea is that when you make a profit, you can reinvest it into improving yourself or your business.
Improve Your Results
When I earn more money, I do not hoard it, I reinvest it, which is what most wealthy people do. They don’t sit and let their money rot. I often say, “Money is like manure. If you let it pile up, it stinks. But if you spread it around in many different places, it's like fertilizer and will build life. " When you earn a profit you can use it to improve yourself and your business. You need to feel good about earning a profit so that you can not only sustain, but also improve your results.
Provision meaning that you can survive and thrive, because things cost money. This includes the ability to pay your bills, your employee’s bills, and the bills that accumulate due to your business. There is a cost for everything. When you get a free book from me, or watch my Youtube videos, I am only able to provide these things to you, because I make so much profit with the apprentices I work with when we are sharing profits and closing deals. So you are benefiting from that massive profit.
Now there are still costs, the difference is those costs can be shared across many different platforms. You should feel good about earning a profit because it creates sustainability so that you can improve your services to make them better. Plus it provides provision for both you, your employees, and those that you serve.
4. If You Have More You Can Give More
You cannot give what you do not have. Earning a profit allows you as a corporate body, and you as a person, to be able to give more. Profit is good because of all of these wonderful reasons. It allow you to do these things and not feel bad about it. When you have a twinge in your stomach that makes you feel guilty about making money, I want you to look over this list. You need to make money, produce, and be a results-oriented person.
There is one caveat to this. It comes from the word, “Greed”. Now I am not going Gordon Gekko on you from the movie, "Wall Street". I am not saying greed is good, because greed says it is okay for you to make a profit and nobody else.Greed is not the same thing as profit. Profit is good, greed is bad. What this means is, "What is good for the goose, is good for the gander." If you have never heard that phrase, it means if it's good for you to make a profit, it should be good for everyone around you to make a profit. Greed is the selfish attitude that only you benefit and everybody else is hurt.
Everyone Should Win
The real problem is when you're in a business where in order for you to profit, everybody else has to fail. Everybody else along that supply chain including the material providers and even the contractors have to fail. This is a very bad business model. That is why you have to purchase properties cheap enough so that everybody can win. You pay for the materials, the contractors, and all of the other services
What is Good for the Goose is Good for the Gander
This means you want to be in a position where everyone wins. In real estate there's this notion that you should be this incredible negotiator that cuts everybody to the bone, to get an amazing deal below cost. So you talk the carpet guy down, the paint company down, and do some amazing negotiation on the materials all below cost which gets everyone very excited.
- Pay Good Money for Good Service
Well, I don’t. I pay good money for great services and great materials. The people that work with me make a profit and you know what? I am not mad about it. I don’t worry about them somehow pulling the wool over my eyes and taking advantage of me.
Quite the contrary. I do deals where everybody wins so that people want to come back and work with me again. You know what ends up happening? They put my jobs ahead of others because working with me is a win-win for everyone.
- Budget Wisely
Sometimes when I am looking over a deal's budget and receive a job bid that seems way too low, I will ask them about it. I say, “ "This looks too low. I know the numbers really well, I'm a numbers person. Did you misjudge what it's really going to take to get this job done? Or do you really want to cut yourself to the bone like that, just to get the job?"
Put Together Good Deals
I want everyone to win because if they don't, they will come to despise you. For those of you that think that the best way to be a real estate investor, agent or any real estate practitioner is to be this amazing negotiator that just cuts people down, you're wrong. The best kind of real estate practitioner is someone that puts together deals that are so good that everyone wins.
When a seller is asking what my all cash offer is, I explain and they'll say, "Wow, that's so low." I reply, "Yeah, because there's a lot of expenses." We have invented some creative techniques and strategies that help us allow the seller to win along with everyone else, and sometimes it doesn't always involve an all cash offer. The idea is that if everybody doesn't win, then you have failed as a business owner.
Learn to Make a Good Profit
The best way to learn about making a profit, is from someone making a profit. If you try to learn from someone who isn't profitable, you won't learn how to make a good profit. I have seen people get angry and accuse me of making all of my money from selling my books.
First of all, I make very little money from selling my books. I make most of my money from flipping houses, doing deals with my apprentices, as well as buying and selling my own portfolio of real estate.
Learn From People Making a Profit
The point is, I'm making a profit and if you want to learn to make a profit, work with people who make a profit. Learning from someone who is not making a profit is like trying to learn how to be a surgeon from someone who doesn't believe in modern medicine. How are you going to learn to be a surgeon from someone that doesn't even believe in it?
- It is Okay if People Make a Profit
You need to learn how to make a profit from people making a profit. Many people get upset at the idea that someone is gong to make money off them, but that is not the case. You need to think in terms of, "Is what this person or company providing going to ultimately help me produce a profit as well?"
It's okay if other companies and other people make profit from the transactions you do with them. You want that because profit is good. But obviously it has to be a fair exchange. So you have to work with the right people, that are going to produce the right results in your life.
Profit is good!
Now you can feel good about earning profit when you're doing a real estate deal. If someone says they want $90,000 for their home, you can offer $70,000 with integrity and then explain why." Then let them make their decision, because it's up to them whether they sell or not. All you can do is point out why you need to pay what you need to pay. That's the way I've done it my entire career. It works incredibly well. I do a lot of deals, make a lot of money, and create a lot of profits. But I also make sure I pay the people I work with good money, so that everyone wins.