The Mark Perlberg CPA Podcast
The Mark Perlberg CPA Podcast
EP 74 - Mastering the Numbers of Real Estate w/ Michael Glaspie
Ready to slash your tax bill? Schedule your free consultation and let's strategize your tax savings together! Book now at: https://www.prosperlcpa.com/apply Or, if you still need more time, here are some other ways to begin winning the tax game...
At the very least, get on our newsletter to gain access to free live events and exclusive insight you won't find anywhere else: https://www.prosperlcpa.com/newsletter-subscription
Unlock the secrets to saving big on taxes for high earners—join our FREE live Tax Q&A calls Wednesdays at 3pm EST Reserve your spot now at: https://www.prosperlcpa.com/live-qa
Get your FREE Personalized Tax Planning Video at: https://www.prosperlcpa.com/5minutetaxplan
Make the most of the available tax strategies for real estate investors and gain access to reliable guidance, expense templates and workpapers with our Essential Tax Planning for Real Estate Investors Course
Discover key strategies for real estate investing with insights from Mike—a seasoned investor and fractional CFO. Learn how mastering cash flow statements can drive smarter investment decisions and higher returns. Mike shares his journey from military service to building a strong real estate portfolio, highlighting the importance of aligning strategies with personal goals. Whether aiming for tax savings or long-term cash flow, this episode provides practical tools for financial success.
We discuss how CFOs can transform business strategies beyond numbers. Mike shares a case study where shifting from wholesaling to double closings boosted profits by 300%. Clean bookkeeping and metrics like gross profit and cash flow ratios offer a competitive edge, even for small businesses navigating market cycles.
With rising interest rates and tight supply, investors are adapting strategies—moving from fix-and-flip to direct seller deals, wholesaling, and novations. We also cover strong business practices, team empowerment, and systems like EOS for sustainable growth. Improve leadership, communication, and efficiency to retain talent and thrive in today’s market.
You can email Mike at: michaelglaspie@g2businesssolutions.com
and to learn more about his company, go to https://www.g2businesssolutions.com/
Your tax savings is going to give you all your down payment back. The rest is just profit coming in. It's like you're investing in real estate for free. He was a limited partner, so there was zero risk and he really liked you. This was one of our more risk adverse clients. All right, welcome to the show.
Speaker 1:I always love nerding out with experts in the world of money and finance.
Speaker 1:Welcome everyone. It is that time of the year, it is Q4, tax planning and we are grinding to do everything we can to drive down taxes and looking at projections and all these different combinations of strategies and how they come together to really not only create tax savings but prevent future taxes. But when it comes to looking at the numbers, there are things that we do not do and that are extremely important. And when it comes to looking at systems and making key decisions, there are things that should, can and ideally will be done by you, with the help of someone who does additional analysis and looks into your numbers and your systems and what's going on Non-financial information as well, making sense of all the data and information associated with you and your business and, in particular, your real estate investing. So I have a guest today who specializes in just that doing CFO work for real estate investors and helping you make sense of all that stuff before it's tax time and making decisions to maximize profitability and grow your wealth. Mike, why don't you?
Speaker 2:introduce yourself in 60 seconds or less and tell us about what you do. Absolutely so. I spent 11 years in the military. I traveled the world quite a bit, but during the military I realized that I need something a little bit extra, started real estate investing. At the height of my portfolio I had over 130 properties. I also co-founded a real estate team that grew to 150 agents, and I also had an opportunity to work as a CFO for a small private equity firm. During that time I realized that my passion kind of relies in problem solving, critical thinking. So I ventured out, started my own fractional CFO firm and we decided to focus in the area that we know best, which is real estate, where we found a lot of entrepreneurs in real estate tend to struggle with the cash flow management. So that's what we do.
Speaker 1:Wonderful. So we have clients and it's really hard when we try to make sense of how their year is going. And profitability, because there's so many different ways to evaluate profit. Right, because you could be cash flow negative but pretty profitable.
Speaker 1:I mean, think about it here If all the money leaving your pocket is to pay down a mortgage and you're building equity in the form of a mortgage pay down and it's appreciating, you may find that more money leaves your pocket than comes back in from your real estate investing activities. So you may feel like a loser, but at the same time you might be getting rich, yeah, and at the same time you might be cash flow positive. You might be bringing in more rental revenue than what you're spending and it may look pretty good, but maybe your properties are diminishing in value and you have a major expense on the way. So there's to me, I feel like there's an incredible challenge and there are just endless variables to consider here when you're trying to make sense of the numbers and all this information and ask yourself how is my business really doing? Here Are we actually achieving our goals.
Speaker 1:What's the health of this investment portfolio? So how do you help people think about these matters?
Speaker 2:Yeah, you actually touched on something that's really important in the real estate space.
Speaker 2:There is yeah, you actually touched on something that's really important in the real estate space.
Speaker 2:Oftentimes what's educated in the real estate space is profits, equal cashflow, and that is not the case when we look at just the general understanding.
Speaker 2:Most of what we do is educating our clients, because just understanding how to read a financial statement can impact a lot of decisions that they ultimately make. Most of our clients and I found that most bookkeepers and oftentimes even some tax preparers they don't ever look at the company's statement of cash flows, which really is eye opening to determine. You know, hey, after we account for those mortgages, after we account for all of these other things, really and truly what's coming into my pocket. And so one of the things that we do specifically is we really take our time to identify kind of the motivators and the goals of the individual, because once we understand that, then the strategy of how the business should run, we can actually customize it, because it's not the same for everybody, as you might say. Some people want appreciation, some people want cashflow, some people are saying, hey, this is a retirement play for me, so we have to look at all of those factors before we really start to niche down.
Speaker 1:Yeah, I imagine that the dentist looking to put his money into short-term rentals to get immediate tax savings and have wealth and appreciation that's untaxed isn't really so concerned that much about the tax savings and part of their return on I didn't mean to say tax savings they're probably not as concerned about the cash flow coming in because some of that cash flow is in the form of tax savings.
Speaker 1:But then you have a guy who's like a lifer and is a full-time real estate investor and owns different mobile home parks, and this type of person. If all they're hearing is that their, their land is appreciating but they're not bringing any cash from these, these projects, you know, those same numbers wouldn't really look so hot here. So I imagine there's different archetypes and different types of ratios and and and outcomes you're looking for. How would you describe what types of outcomes you see and are looking for here?
Speaker 2:yeah. So you, you brought up a good point about ratio, so really it's aligned with what they're looking for. Now. There's some benchmark ratios that we always look at, some benchmark k KPIs, key performance indicators. We are always going to look at gross profit margin, operating margin, net profit margin. We're always going to look at your current ratio. We're always going to look at your debt to assets and your debt to equity, these certain things that kind of dictate overall company health.
Speaker 2:However, all of those ratios, we can't just earmark it and say it's a flat, whatever number, because a fix and flipping company is going to look extremely different than a rental company. It's going to look extremely different than a syndication where we have a bunch of investors in and the company really is only a 20% owner of the asset or something to that effect. So, as we really start to iron out the individual KPIs, really what we're looking at is three key factors how are you making your money, how are you spending your money and, more importantly, how are you keeping your money? Is it in cash, is it in depreciation, is it in something else? And that seems to be an oversimplification, but that's really the concept that we follow as we start to dive into the details and the nuances of it, because everybody's different. Every situation is different.
Speaker 1:Can you give me some ideas? So for the people listening here now, I imagine some of the people I imagine a lot of our audience here who we have a lot of real estate investors as clients they're almost all real estate investors or have some form of real estate Probably don't even know what a CFO does and never even considered it. Me some good examples of some key insights where you came in and a lot of people think of bookkeepers and just tell them everything they need to know about their financials. They don't realize there's a lot of analysis to be done here. What I'm curious to know is, because you've worked with just real estate investors doing this CFO level consulting, what kind of insights have you gathered that would be maybe lesser known and less common and epiphanies and game changing insights for some of these people?
Speaker 2:Great question. So I'll give you a couple of different case studies to kind of illustrate the idea. So to your point, you know, most of this audience and most people in general just really don't know what cfos do. They just don't. And a cfo is much more than just the numbers. We are heavy into the policies, the procedures, the uh, the strategy, the overall strategy of how, what direction the company is going to go in. And so in that case, you know, we have our process of doing it. We start from the income statement, work our way through the financial statements to kind of build up and build backwards. But part of this is having a conversation to say, okay, we now know with a very, very high degree of confidence where the issue is in your company, so let's focus on it.
Speaker 2:So one of our clients his operations were pretty tight, he just struggled with revenue. Now he was out there doing all the things. His marketing conversions were good, his deals they were just slim. So what he was doing was he was assigning real estate, or wholesaling as it's referred to. And as we looked at it, we looked at the opportunity for him to just simply transition from wholesaling to go to a double close. Now, how did that come up? As we were evaluating the assignments, we realized that his price of what he projected was decreasing every time he sold. As we narrowed in and found out why it's because the sellers would see how much he was going to make. Then they would renegotiate. So, but double close takes care of that. Then we identified, you know, gap funding or transactional funding. We identified the right legal process to follow. With the double close, we got all that ironed out and what ended up happening is the profit on his deals jumped by 300%. Wow.
Speaker 1:Right, and so that's just a yeah go ahead.
Speaker 1:And that's the little things here, that what people don't realize is it's more. It's about, obviously, statements of cash flow, roi, irr and all these ratios that you'll see on an income statement or looking at other financial reports are important, but when you really know the business owner here, there's non-financial data and patterns and trends and information where you can look at this stuff and you have the time to do it and you can really find some very interesting stuff here. Now I in particular. I know this because I know there's a lot of data swirling around in my organization and if I had the time and if I had my own CFO, I'd make more sense of it.
Speaker 1:So when business owners are looking here, one of the things that I need to do is evaluate the profitability associated with every service line we offer. Yes, and what am I paying my staff? What is the staffing costs associated when we do cost-sets, planning compared to prep, domestic versus international, and understanding, at the end of the day, what type of profit do we generate from these activities and hires or losses, and how does that determine our comp model, our recruiting model, the direction of our services? There are so many important decisions that can come from that analysis, but I'm too busy doing tax planning and teaching the staff and taking out fires, so I could probably use a CFO too here.
Speaker 2:Yeah, and to your point, I mean there's so much data it truly is limitless, right, because we can choose that. We want to narrow down on the most minute piece of data, and we can go forever. And so we also have to balance, like where are we spending our time and energy? What's going to have the biggest impact for us to really hone in on? And, as you mentioned, including yourself as a business owner, oftentimes we're focusing in on our superpower, as I like to call it. What are we really good at? What's really keeping the business running?
Speaker 2:And there's so many, especially smaller entrepreneurs are, you know, budding entrepreneurs who'll say, ah, I don't see the value in bookkeeping, tax planning or CFO services. Uh, you know, I don't want to. I'd rather spend the money over here than doing all this. And ultimately, what I believe that they're really missing out on is that expertise, even working with you being able to say, hey, taxes are just inevitable one, but it's arguably one of the largest expenses that we'll ever pay throughout our life. So an immediate return is seen, because what you learn today can be utilized for many years. And it's the same thing with CFO services. We don't just, yes, we do a lot of the work. We do the work to give you the results, but we educate along the way. So, whether you're working with us in the future or not, you now have the KPIs you need to look at. You now understand how to do strategic pricing models. You now know these more. You know these more interactive types of strategy and analysis. What are?
Speaker 1:some things for the folks who maybe are just getting started or aren't ready. What are some things that they can do on their own in the meantime to make more sense of the numbers and the data and information on their rental portfolios. The numbers and the data and information on their rental portfolios.
Speaker 2:I love this is a very simple answer, but I've seen that this is one of the biggest gaps with most people as they come in, I don't care if they're making $1 million, $25 million this is one of the biggest gaps. You need bookkeeping. You need clean bookkeeping that's accurate, that you understand. That's the biggest caveat there. If you open up that financial statement and you can't read it, you can't make decisions. Plain and simple. So understand you know. Take that time on your own. You can go to Investopedia, you can do all types of things to understand how to read financial statements. Understand what that really means for you. Focus on some key metrics. I always say gross profit, net profit margin, operating margin. Look those things up On the balance sheet. Look at your current ratio debt to assets, debt to equity. And on the statement of cash flows, look at your operational cash flow ratio. Just stick with those. Just know those and understand how to read it from your financial statements. That alone will give 95% of business owners small business owners an advantage that they currently may not have.
Speaker 1:Of all those you just listed, what do you think are the top three most common things that if people were to pay attention to, they'd gain the most insight?
Speaker 2:most common things that if people were to pay attention to, they'd gain the most insight. Great question, one of the things about gross profit and net profit. So I'm going to count this as one, as a top three. But the difference is how effective are you at producing your product or how effective are you after you sold your product? I like to think of it as before earning your dollar and earning your dollar. So the gross profit margin let's stick to real estate, for example that represents after you've purchased and after you've renovated it. Right. So you sell it for $100,000, you put $70,000 in purchase and renovation, so your gross profit margin is $30,000. So that 30% margin in this example reflects that I was 70% efficient in this piece or you could do it by 30% efficient, excuse me before I earned a dollar. Now, after the fact, we see that we've spent maybe 10% in overall expenses and I'm left with a 20% profit margin. Now I know that I'm 20% efficient in the overall company, but 10% was after I earned it. The reason this insight is powerful is because when, immediately when something goes wrong, our immediate knee-jerk reaction for most entrepreneurs is we need more sales, we need more revenue. Instead of that, let's look where are we inefficient at and focus on that area. So those are let's say that those are two big ones.
Speaker 2:The second one I would say is the operational cashflow ratio. Operational cashflow is something that's really misunderstood. We don't have to go into it too deep here. But operational cash flow dictates how much money came in in excess of, went out purely off of your operations. And then now we're going to compare that to our current liabilities, basically our liabilities that are due in the next 12 months. The higher that ratio is, that's good news. That means we don't have to stress to pay off debt Right. The lower it means we're operating a little bit tighter. So just just that alone now gets to dictate, especially in real estate. Can I afford to borrow more money? Can I actually afford to get a high interest loan, hold our high interest line of credit that I'm paying on throughout the year as I'm doing flips? Or do I need to get private loans for each individual property? So little things like that can be derived between just those three ratios alone.
Speaker 1:Yeah, and I imagine there's some nuances too that you really have to understand the client's overall goal and objectives and circumstances in each scenario.
Speaker 1:Because we have some investors like what if a lot of cash is coming in more than cash is coming out, but some of that is in the form of refi.
Speaker 1:Well, you say well, I'm going to discredit this because I'm taking on more debt, but the refi may be a result of you adding a ton of value and enhancing the real estate in excess of the cost to do it.
Speaker 1:So maybe you do give yourself a pat on the back for that and add that to the profitability of it. Or we've seen we have clients where their whole game plan is they raise capital for these large real estate projects and all the rent just goes right back into maintenance and repairs. And maintenance and repairs and fixing it up and fixing it up, cashflow is not that great at all until they exit. So for those guys evaluating the profitability on a day-to-day, you have to look at maybe some alternative figures on maybe your progress towards the improvement value and your ability to maintain a budget and all sorts of other factors. So it's really interesting on how you really have to look. I imagine that the custom DNA of each person's goals, objectives, liquidity needs and cash flow to diagnose the proper understanding and metrics of what you're going to look for here 100%.
Speaker 2:That's what makes well one. That's why I enjoy this so much is because it's you can literally have the same portfolio in front of you, but if you're talking to two different people, it's a completely different strategy, completely different plan, and that type of customization takes a little bit of a higher level thought. So you know, it's not just me. We got an amazing team that looks at it from all different avenues, but we're constantly trying to problem solve. And the best part about business well, I'm going to call it the best part.
Speaker 2:I guess some people wouldn't like this too much, but business is cyclical. I mean it goes through phases, it has its different cycles, but it always comes back around. I mean it goes through phases, it has its different cycles, but it always comes back around. So you know, I tell people a lot of times they say, well, oh, I don't know if I'm making enough money for a CFO, or I don't think my company's big enough for a CFO. It's probably a better example. And in reality, it doesn't matter what phase you're in. You always need a strategy to get to the next hurdle. So that's something that we constantly face. We're changing and adapting as the market and as the time change for each of our clients.
Speaker 1:Yeah, absolutely, and sometimes that cyclical nature can really hurt.
Speaker 2:Yes, it can. Yes, it can, and it doesn't matter if the cycles are like six months apart or six years apart. Sometimes they can hurt pretty bad. And I think, if matter if the cycles are like six months apart or six years apart, sometimes they can hurt pretty bad. And I think if you've been in business long enough, you've experienced quite a few cycles.
Speaker 1:What are you seeing in this current state of the market? I imagine you're talking to all sorts of real estate investors. What do you think is the current? What are some common things you're seeing in your real estate investor clients in in terms of their challenges and successes, and and are you are you, are you picking up on any current trends and in what you're seeing with your clients?
Speaker 2:Yeah, 100%, one of the biggest ones for our well, for all of them, really but it's really prevalent in the high volume clients, the clients that are doing, you know, 60 plus transactions a year. They're really struggling to find quality deals, profitable deals, right now. Now the market has dried up for everybody, but it's very apparent in their business model because they need so much volume to operate. There's a lot of thoughts behind that. Some people are blaming interest rates, which we know is maybe a portion of it. Some people are also blaming private equity firms for coming in and snatching up a ton of houses on the market, decreasing the supply. So that's one of the biggest trends there. In addition to that, what we're also seeing is how we're navigating it.
Speaker 2:A lot of investors are changing their strategy now. So what may have been primarily fix and flips from a third party, maybe like a wholesaler, or maybe fix and flip from the MLS some of them are shifting to go back to direct seller, so they're picking back up their cold calling habits and things of that nature. Some of them, like I mentioned, they're just changing their strategy altogether. I'm not going to do wholesale, excuse me. I'm not going to do flips, I'm going to do wholesales during this time. Or I'm going to do novations, or I'm going to do something else, so I can try to increase my profit margin little by little. So a lot of adapting during this period, for sure.
Speaker 1:Yeah, and this is what I'm seeing. I'm seeing we have a lot of short-term rental clients. They certainly were incentivized by the tax savings bonus and there was a time you just had to put a bed in a building and you would cash flow. And now the word is out and the bonus depreciation is phased out and folks aren't making the money they used to and a lot of people are losing a lot of money and realizing that being a landlord isn't glamorous at all. And we have other folks that entered the real estate space in like 2016. And they just had, they really made a lot of benefit. They had a lot of benefits from the appreciation and just the the you know, the really low interest rates and cash out refis, and I think maybe they thought they were on top of the world for a little too long and now they're really struggling to make ends meet. But then we also see the clients who are fully dedicated and focused and really getting strong at their craft and they're going to continue to buy deals and close deals and be very active.
Speaker 1:And then I also see a lot of folks are pivoting. They realize they don't want to be landlords after a while and now they're doing other, you know, and we got to still find opportunities if we're not doing cost sex, and so you know what we're pivoting. A lot of them are pivoting into passive real estate, investing oil and gas, where you do nothing at all and still can offset 80% to 90% of your contribution into the oil and gas and it's very similar tax advantages as real estate but you don't do anything, which is pretty neat. So that's kind of what we're seeing high level and then occasionally people are pivoting level and then occasionally people are pivoting. So we see people pivoting from short-term rentals to glamping sites and things that are more unique, because it's just been a little bit overpopulized doing these log cabins. So people are trying to differentiate themselves and branch out and separate themselves from the masses.
Speaker 2:Yeah, I would agree.
Speaker 2:On the short-term front, that has also dried up.
Speaker 2:A lot of our clients have sold off a lot of their Airbnbs or transitioned them back to long-term, and I do have a few clients who are buying those kind of resort style you know, glamping sites or things of that nature as well.
Speaker 2:You know, you brought up a really good point about kind of the unprecedented growth from, you know, let's just say, 2016 to 2020 or 20, actually 2022. And there was a lot of people who just happened to be good at sales, who just happened to be good at kind of putting a deal together and they're good at negotiating, but the deal was going to work regardless, because numbers are just so great and not many of them actually focused on being a good business owner. And we're finding that people who can survive these lulls have good business practices in place, and so that's another thing that we really focus on is when we talk about policies and procedures, what are your procedures, what are your standard operating procedures, your SOPs, what are you doing that we can consistently evaluate and adjust when the market shifts? And a lot of people are missing out on what I would consider simple, but a lot of them are missing out on those basic fundamentals of operating a business.
Speaker 1:Oh, absolutely. And what I've learned, the most powerful skill you'll ever have is the ability to empower other people and ignite and mobilize a team. So when you think about where you want to improve at whether it's your marketing, your sales, your productivity, any area of the business, cybersecurity all of it is enhanced with effective marketing and empowering other people to support you and enhancing those initiatives. So I've kind of taken a step back. I've compromised that I can't meet with as many clients anymore, but spending more time in building a system where others can thrive. I got an EOS implementing coach as well and put a lot of time into building EOS. I'm more of a teacher and an educator than a practitioner these days, and that's really where now is the best, the best use of my time. You know through just my own observations and learning and you know really driving into where. Where are we going to have the most impact? Which is in impacting others to do things instead of doing them ourselves yeah, I'm glad you said the eos system.
Speaker 2:I follow the eos system too, entrepreneur operating system. I love it and it's really done wonders for my company as well. But something as simple, it's very simple and easy to follow, but it's a system, it's a process. Conversations kind of falter. Back to EOS. You know my clients I'm not an EOS implementer so I don't push it on them but the conversations go back how are you educating and empowering? And sometimes those are difficult conversations because you know I've had some clients. They're strong minded and they may have a more rough background, let's say, military background and the way they talk to their employees is as if they would talk to, you know, a junior grade in the military. It's more directive, it's more aggressive.
Speaker 2:And then when we look at what's going on, why are, why is your employee cost so high as well? There's a lot of employee turnover. I got a fire, I got a rehire, I got a train. They only last for, you know, two, three months and they go. And all of these small things. Just like you said, how do you empower others? How do you operate your business? All these small things can impact the bottom line. So it all takes a degree of attention, and that's hard to do when you're wearing all the hats. It's hard to do it that way.
Speaker 1:It is. You've got to continuously ask yourself, as a business owner why am I doing this? Sometimes you have a good reason why, but oftentimes you forget that other people could probably do it better, because they aren't overburdened with nine other things at the same time.
Speaker 2:What is one of the most impactful books or podcasts or audio books you've consumed in the past year. So there's two, but I'm going to give one. The one book that I found valuable and I highly recommend everybody that's listening read is the psychology of money. Right, that book really helps you understand your relationship with money the whole nature versus nurture concept. How did your childhood or your parents rhetoric influence your thoughts around money?
Speaker 2:The reason this is so, as an example, let's just give you an example if we did did not have money growing up, we may be hoarding money now because we're fearful that it won't come back, but if we had money in abundance growing up, we may not respect money or you may be spending a little bit more frivolously. Those are just examples, but the reason it's so important to understand that is because, as we start to design what's your budget plan, what's your marketing plan, all these things around financing certain activities in your business, we have to know what your triggers are, because we have to safeguard. Let's say, you're just frivolous with your money. We got to safeguard. How are we going to prevent you from not doing that? Right, if you're hoarding your money and you're scared to spend it, how can we empower you to spend it? And I mean, I've recently read that book and it it honestly has changed the way I conversate about money, how I talk about money, how I address money, so I would highly recommend that book. That's been a very impactful book for me.
Speaker 1:Wonderful. Tell me so. Tell. Tell me in the audience. If people want to get ahold of you, or if you have an offer or call to action. What's the next steps here? If they found this interesting, you want to get a hold of you, or if you have an offer or call to action, what's the next steps here? If they found this interesting and want to know more?
Speaker 2:Yeah, absolutely so. You guys can go to the website, which is wwwg2businesssolutionscom, or you guys can find me on all social media at michaelsglaspie. And if you guys are interested, there's obviously on the website there's a way to schedule a call. And if you guys are interested, there's obviously on the website there's a way to schedule a call. And if you reach out to the social media, the social media team will be able to respond for sure. I'm always here to answer any questions. So anything you guys need, just let me know.
Speaker 1:Fantastic and if you guys are interested in learning more about our services, you can go to prosperl P-R-O-S-P-E-R-L cpacom. Slash apply. Hope you really enjoyed this conversation and you're enjoying your Q4 playing and you know you've done everything you can to minimize your taxes by now and you guys stay tuned for some more great insight. Have a good one.