Episode 153: Brandon Cobb, co-founder and CEO of HBG Capital, discusses how he expanded his business operations to include real estate developments.
The Profit First REI Podcast
February 6, 2023
David Richter
Summary:
Joining us today is Brandon Cobb, CEO and co-founder of HBG Capital, an investment firm dedicated to providing risk-adjusted returns that are transparent and insulated against market volatility. He is also the host of Recession-Resistant Real Estate Radio, which I’ve had the pleasure of guesting on before.
Brandon started his journey in the real estate industry in fix-and-fliping and wholesaling but has also expanded his ventures into developments. He is also the CEO of HBG Construction which focuses on land developments, new buildings, and rehabilitation.
In this episode, Brandon shares his story, from his transition from fix-and-flipping and wholesaling to development to the difficulties he experienced before applying the Profit First approach in his business. Jump in!
Key Takeaways:
[00:47] Introducing Brandon Cobb
[02:35] Brandon’s Quick Start in the Real Estate Industry
[11:29] The Adjustment from Fix-and-Flipping and Wholesale to Building and Development
[13:08] On Knowing His KPIs
[15:56] On Applying the Profit First Method
[25:20] Having a CFO and the Benefit of Collaboration
[30:33] On Why Having a Team is Key to Success
[33:40] Advice for Investors: Double-Down on KPIs
[35:40] Connect with Brandon
Quotes:
[14:35] “That’s one of the reasons that actually helped me transition into the Profit First mode…You spoke to a very specific demographic, and you were very specific on the types of problems that this industry faces that are quite frankly very, very endemic.”
[30:48] “You’re not going to be able to scale without a team, so having really good hiring systems and processes is really key.”
[33:53] “I think now more than ever, with the uncertainty of the market and the changing economy and interest rates…it’s important to run a tight ship. Now you have to have a really well-oiled machine that’s going to make it through whatever times [we are in]…Be ready to make quick and decisive decisions.”
Connect with Brandon and get their free resources on this website: HBGcapital.net
Tired of living deal to deal?
If you are a real estate investor or business owner who is tired of living deal to deal, and want to double your profits, head over here to book your no-obligation discovery call with me. Either myself or someone from my team will hop on a short call with you to get clear on your business goals, remove any obstacles holding you back, and map out a game plan to help you finally start keeping more of the money you work so hard to make. – David
Transcription:
Brandon Cobb:
And that’s one of the reasons that actually helped me transition into the Profit First Model, you know, specifically with your company, is because you spoke to a very specific demographic and you were very specific on the types of problems that this industry faces that are quite frankly very endemic.
Outro:
If you’re a real estate investor who’s sick and tired of living deal to deal, then welcome home. Hear from everyday real estate investors just like you, and discover how they’ve completely transformed their business by taking a profit First approach. This is the Profit first for REI podcast, where we believe revenue is vanity. Profit is sanity. It’s time to start making profit a habit in your business. So here’s your host, David Richter.
David Richter:
If you listened to this episode today, I promise you’ll have a better grasp on a direction you could head in real estate investing. Brandon Cobb is our guest today and he talks about his journey. He’s was a fixed and flipper and a wholesaler and he’s graduated into building houses and development and he talk and it hasn’t been that long. And he also talks about the key points that have helped him along the way. He talks about how Profit First revolutionized his business and his world, but he also talks about the key points of even knowing when it was time to pivot from wholesaling and fix and flipping into different areas of real estate investing. You can learn something from this episode. He goes into it, he goes into some very emotional type things as well too, with on his journey and how it, you know, is the ups and the downs. So I want this episode to help you and to either avoid some of the pitfalls that he talks about or some of the success that he’s seen as well too. So I know that you’re gonna get something from this and thank you so much again for listening to the Profit First REI podcast. Here we are on the Profit first REI podcast. Thank you for joining us. We have Brandon Cobb in the studio. He owns HBG capital. He does some pretty cool things. I was just on his podcast as well. You need to listen to that one. Recession resistant real estate radio cell. That one’s a great one as well too. Thank you for having me on that. But Brandon, thank you for being here today. Really excited to hear about your story and your journey.
Brandon Cobb:
Yeah, it’s an honor man. I appreciate you having me. It’s good to see you.
David Richter:
Yeah, it’s good to see you as well too. But Brandon, and we’re just the disclaimer too, he is also a client as well. So he’s experienced Profit first firsthand and that implementation. And he’s also working with one of our CFOs. So we’ll go into that. But I wanna just give a little bit of background about who you are, what’s your claim to fame, and just give us a high level overview so people can get a context of where you’re coming from.
Brandon Cobb:
Yeah, sure. So, uh, my name’s Brandon Cobb, co-founder of H B G Capital. Our firm primarily focuses on unique real estate investments that are designed to be insulated against market volatility built to be transparent. And our whole goal is to help investors build their legacy, achieve their dreams, and impact those close to them through unique real estate investments. But once upon a time, that wasn’t the case. Um, I actually don’t, a terrible, awful story about my background and how I really wanted to get outta corporate America. I actually loved what I did when I was doing medical device cells. I thought I worked for a great company.
David Richter:
mmm-hmm <affirmative>
Brandon Cobb:
I was in my mid twenties, loved what I did. I was in the surgery room every single day hanging out with surgeons and hospital staff. My products were being used to benefit patients. So there’s a lot of intrinsic satisfaction in my job and my career and what I did. And I remember I had a meeting set up at Starbucks with my boss and I was finishing up a surgery with a new surgeon that we were about to hopefully onboard. It went great, right? He loved the product and he actually was interested in a bunch of other stuff I wasn’t expecting him to be interested in. And so I was so excited to sit down with my boss and I roll up to Starbucks with a smile on my face and I’m so excited to tell him how the surgery went. And you know, I sit down with him and he fires me.
David Richter:
Ah,
Brandon Cobb:
And the first three, four hours I was in absolute shock. Cuz here I am running around, you know, working crazy hours. I was single at the time. All I did was work and I thought I was loyal. You know, I had this rookie of the year award that I had gotten and I just wasn’t prepared for it. And, uh, you know, eventually the shock did, did subside and
David Richter:
yes
Brandon Cobb:
Honestly, you know, it was a blessing. Um, I’m so happy that he did do that cause it helped pave the future to where I am today. But that’s when I learned that nobody was gonna look out for my financial well being but me.
David Richter:
Mm.
Brandon Cobb:
Um, you can be as low as you want to accompany, you can put in the hours, you can put in the blood, sweat and tears, but at the end of the day, they have to do what’s best for them. And it’s nothing personal. So that started my real estate journey, got into house flipping and wholesaling, joined masterminds, invested in coaching first three, four years, took all the profits, invested it back into the company. We started growing and scaling. Eventually we graduated into doing a lot of spec new builds that, and ended up pushing us towards doing new development in order for us to scale. And so we’ve got a lot of development going on, mostly centered on affordable entry level housing cuz there’s, they’re just, there’s just not affordable housing right now. And we’ve got a focus on doing bill to rent developments currently.
David Richter:
Awesome. Very cool. So, can I ask a question? Did he give you a reason why he fired you?
Brandon Cobb:
You know, he basically said that he didn’t think that I was a fit for the organization anymore.
David Richter:
Huh.
Brandon Cobb:
Um, and you know, he and I, it was kinda weird whenever him and I sat down, it was like, there’s always, uh, I always felt like there was a lot of pressure there. Like I was always sort of walking on eggshells around,
David Richter:
Okay,
Brandon Cobb:
I didn’t wanna do anything wrong. So I think there could have been a little bit of a culture fit right there. Um, you know, if I’m being completely honest, the past few months the business wasn’t great, but I don’t really measure performance by the past few months. I measure it, I’m like, did I hit quota that year or did I not?
David Richter:
Right
Brandon Cobb:
And I’d just gotten this rookie, the year award, the year before that, um, just finished training a new associate that he hired. And so again, you know, I was confused. Do I know the real reason? maybe he thought I was under per underperforming. I don’t know. But his reasoning was he didn’t think that I was a good fit for the organization anyway.
David Richter:
Ah,
Brandon Cobb:
And he probably was right.
David Richter:
Yeah. Sounds like it. Now that you’ve done so much other stuff, it sounds like you have no regrets for him firing you and like, it sounds like you like the job a lot, but then at the same time where you are today with
Brandon Cobb:
I’m just blessed for the opportunity. Right.
David Richter:
yeah
Brandon Cobb:
I’m a big proponent of don’t ever burn that bridge. You know, I’ve, I still occasionally talk to him. Uh,
David Richter:
Okay.
Brandon Cobb:
Time to time. I think he’s,
David Richter:
you should ask him again. I’m just kidding. <laugh>.
Brandon Cobb:
Yeah, I know, right?
David Richter:
Hey love, like why did you find back real neck?
Brandon Cobb:
But, uh, no complete blessing. You know, him and I are still, you know, friends to this day. There’s no hard feelings, you know, like I said, it’s, he had to do what’s best for him, right?
David Richter:
yeah
Brandon Cobb:
It’s his business, not mine. And uh, you know, at the end of the day, all the skills that I learned was what catapulted me into my success in real estate. I was able to take a lot of that sales acumen and apply it to the real estate world. And that’s what really got me started on a pretty high growth trajectory compared to what I had just not been in the sales industry beforehand.
David Richter:
How long ago was that?
Brandon Cobb:
How long ago? 2016 or 2017. One of those two years
David Richter:
wow
Brandon Cobb:
Was 26 or 27.
David Richter:
So you’ve come up through the real estate ranks pretty quickly then. Like, you know, there’s some people that were wholesaling, flipping, you know, 2009, 10, 11 that are still doing that and haven’t graduated spec in new builds and development and build to rent. So how did you go that quick, you know, like through those processes? Was it the masterminds or like that you mentioned or like how did you progress in your journey?
Brandon Cobb:
Uh, you know, it was really recognizing opportunity. You know, if you’re a really great wholesaler or house flipper and you’re business is working for you and it’s building the life you wanna live, don’t change anything.
David Richter:
Okay.
Brandon Cobb:
For us, we just pivoted with the market. So when we first started wholesaling and, you know, flipping houses, I thought the market was great. We were flipping homes at $250,000 making 45, 50 $5,000 a lick. You know, those are,
David Richter:
yeah
Brandon Cobb:
Those are 20, 25% profit margins.
David Richter:
Yeah.
Brandon Cobb:
Those are really good, especially at that home price. And at the time we had all of our KPIs measured. We knew exactly how many calls it took to get an appointment, how many appointments it took to get a close. Everything was dialed in. We knew what our cost per contract was. It was like $3,300. And then we noticed that, you know, two, three years later it wasn’t as easy.
David Richter:
Hmm.
Brandon Cobb:
It didn’t feel like it was as blue of an ocean anymore.
David Richter:
Okay.
Brandon Cobb:
Prosper contract shot up to like $6,600. It doubled the number of calls to an appointment went from like 25 to 50. The number of appointments on a contract went from one out of every six to like one out of every 14. So we just, we saw the writing on the wall and the margins slimed down.
David Richter:
Yeah.
Brandon Cobb:
There was more risk. We weren’t flipping $250,000 homes anymore and making $50,000 a lit. We were flipping, you know, 380 400,000 homes and only making like 25, 30 $5,000. You know,
David Richter:
okay
Brandon Cobb:
And if the more turns
David Richter:
yeah
Brandon Cobb:
That hits that really quickly. And we had everything pretty dialed in because at that time we had the acquisition company up and running. We had the construction company up and running. We were controlling and mitigating a lot of risk.But the light bulb moment went off when we had this home that was a fire damaged home and we could buy it for less than what the land was worth. And we’re like, why don’t we just cut out all the black stuff, hire a structural engineer, reframe on top of the foundation and you know, just give this a shot because we were just approaching
David Richter:
Yeah.
Brandon Cobb:
Like a really big rehab. And we ended up building that home faster. I think we built it in like six and a half months faster than one of our full gut rehabs we’re doing.
David Richter:
Wow.
Brandon Cobb:
And we made three times the amount
David Richter:
<laugh>
Brandon Cobb:
Of profit on that new build. And then we, because I think our costs at the time were like a hundred, $105 a foot to do new building.
David Richter:
okay
Brandon Cobb:
We just looked at what we did and recognized that we had an advantage. We had the construction company, we didn’t have to pay a builder fee. We could control a lot of those costs in house. And we said, holy crap, there’s an opportunity here. And so literally we just completely got rid of all of the house flipping and the wholesaling and we just strictly focused on building in certain neighborhoods. So rather than building a big huge giant like net 40, $50,000 mailers a month, we knew which neighborhoods we wanted to build in and we were able to laser focus. And so our project managers were only having to show up to the same,
David Richter:
Yeah.
Brandon Cobb:
Same place every single day. Materials were going to the same place every single day. There was economy of scale. And so we saw that there was a lot of advantage to that. And then after we really got that set up, we said, well why are we talking to sellers who only have a property or two and we can build, you know,
David Richter:
Yeah
Brandon Cobb:
Two or three houses on it? Why not talk to sellers? We can build 40 or 50 houses.
David Richter:
Yeah.
Brandon Cobb:
What’s holding us back? And that’s what got us into development and networking with the local communities and the mayors and the planning commission and really trying to figure out what the vision for their community was so that we could give them that.
David Richter:
Yeah. Well I know this is the profit first our REI podcast. We’ll get there. But I have two questions from, and an observation from what you just said. I wanted first know when you went from fixing and, you know, to in the wholesale to the new builds, was it hard to make that adjustment even after you saw the numbers to say, we’re gonna stop what’s been making us money over here and now we’re gonna start building? Or was it like you still had some flips and you wet those peel out and then you started ramping up your, you know, the new build side to make sure it was good? Cuz a lot of people, I feel like they hang on forever, you know, like to the old thing and then it’s just they keep adding things and then that’s where our company failed years ago. We added too many verticals and they all had to support themselves. So how was that transition period?
Brandon Cobb:
Yeah, I mean it was a transition, right? We still had quite a few flips and wholesales that were going on. We’re in the process of it. But we did shut down the marketing for it. So there was no new leads incoming.
David Richter:
Okay.
Brandon Cobb:
We got rid of, uh, you know, at the time our acquisition rep or the acquisition rep left, it was perfect ,
David Richter:
<laugh> perfect timing.
Brandon Cobb:
We left the exact time, you know, we got rid of our lead intake. She quit too. So that was, it was like
David Richter:
yeah
Brandon Cobb:
Literally perfect timing. I couldn’t have timed it better.
David Richter:
Yeah
Brandon Cobb:
I didn’t have to do the fiery cuz I was
David Richter:
right
Brandon Cobb:
Regretting it cause I absolutely hate firing. It’s just
David Richter:
yeah
Brandon Cobb:
Something that I really struggle with. But we shut all that down so we, you know, we saved the marketing dollars. We didn’t have any coming leads. We had a small pipeline of projects that were finishing and at the same time we were starting these new builds.
David Richter:
Okay.
Brandon Cobb:
And so it really worked out perfect on the timing.
David Richter:
Yeah, that’s awesome. Cuz you hear people, you know, they think, oh, this thing’s gonna save my butt. And then they’ve still got the other things and they’re just trying to do too many things at once. So that’s very fascinating. Another thing that really struck me from what you said, you knew a lot of KPIs, you knew how many leads were coming in, how many we were converting, what is our margin on these flips? When did that, did you have that from day one in this company? Or was that you that came up with that? Was that someone in the company? Like how did you do that from in, you know, when you first started?
Brandon Cobb:
Yeah, so it came from networking and masterminding.
David Richter:
Okay.
Brandon Cobb:
Most notably net masterminding. So I’m not, I don’t consider myself a very innovative person. I love copying and pasting what’s already worth
David Richter:
<laugh>.
Brandon Cobb:
I’m a big who not how guy. So all I did was I took akp sheet from somebody else that was in the mastermind that I was a part of at the time and took his KPI sheet and literally just had my lead intake start plugging in the numbers as she got ’em.
David Richter:
Yeah.
Brandon Cobb:
Having my acquisition reps start plugging in the numbers as we got ’em. And then of course I did weekly sales calls
David Richter:
Yeah
Brandon Cobb:
And we would go over the numbers, we’d review it and kinda see where we’re at with our sales funnel. So it took probably two years to get that up and running.
David Richter:
yeah
Brandon Cobb:
I knew how important it was to have certain business styles in place because I was hearing about what other people in the business were having success with. And I saw this as something that was crucial. I compare business dials to dials on an airplane
David Richter:
yeah
Brandon Cobb:
That pilot at night or in the daytime. I mean, if he doesn’t look at his dials, he’s flying blind.
David Richter:
Right.
Brandon Cobb:
And if the dials aren’t accurate, you have no clue where you stand as business.
David Richter:
Right.
Brandon Cobb:
And that’s one of the reasons that actually helped me transition into the profit first model, you know, specifically with your company
David Richter:
yeah
Brandon Cobb:
Is because you spoke to a very specific demographic and you were very specific on the types of problems that this industry faces that are quite frankly very endemic. Right. Everybody’s got cash flow issues in real estate and I knew that I needed to have my dials really plugged in, especially when we started scaling doing, you know, 30, 40 plus houses a year in the new build sector.
David Richter:
Yeah. Well that’s awesome. And that’s where we’ll get into that portion too working with us in the prophet first. But I think it’s very telling that, you know, going to those mastermind events, like if you’re listening now, he just gave you a big secret that two things, one, how important the KPIs are to your business. And number two, getting around people that even if you’re not like, oh I’m the KPI king or queen, that there’s other people out there that have built this before too. It’s like, get around those people. Man, that was really good because I also was, when you were telling the story or your story, you said you were making the decisions based on these numbers too. Like our margins went down, we were doing higher end flips, but making less profit and like that didn’t make any sense. So, you know, then it was a natural progression but you don’t know that if you’re not tracking it. So I thought that was pretty cool. Okay, so let’s go into it now with the prophet first side. So what got you interested or excited about the prophet first message?
Brandon Cobb:
Well I had read Mike Macallan with his book Prophet First, so it wasn’t new to me.
David Richter:
Yeah.
Brandon Cobb:
And I can’t remember where it was. I wish I could pinpoint, I know you were recommended to me in another pow uh, in another mastermind that I was a part of.
David Richter:
Yeah.
Brandon Cobb:
But I read your book and at the time I was interviewing fractional CFOs. I knew that we didn’t need a full-time CFO, but we needed somebody who had worked in the construction space, specifically in the new build sector who knew exactly how to properly cash flow forecast. Cuz at the time my CFO sucked
David Richter:
<laugh>
Brandon Cobb:
And I really needed to hire him. You know who that person was?
David Richter:
Yeah.
Brandon Cobb:
It was me.
David Richter:
Okay
Brandon Cobb:
I could never get the cash flow forecast. Right. It seemed like when it came down to the closing table, there was always more money on that sheet that enter or I guess more money in the bank account than I had expected from the sell of that, and I’m like,
David Richter:
Okay,
Brandon Cobb:
Why are my profit margins so off? And it, you know, it was funny, you do a really good job in your book of really speaking to the problems that real estate investors have.
David Richter:
Yeah.
Brandon Cobb:
I mean it’s like you’re talking to their soul and I remember taking that example and you were talking about how, hey, do you ever wonder why the money you project at the end is usually like a little bit more that you get in your bank account than the profits. It’s like, because you have your own money sunk into it. And I was like, holy crap, that’s exactly what’s happening. And when you’re going over budget, you know, 10, 20, $30,000 among a 30 40 unit portfolio, that’s a lot of money
David Richter:
right
Brandon Cobb:
And they can give you the false premise that your business is not doing so hot. Where’s all the money? Realistically you need to figure out how to get it outta your projects. So that was what sparked me to have a conversation with, uh, simplecfosolutions.
David Richter:
Okay. Well that’s, I love that you said that because <laugh> I remember writing specifically that portion of the book because I when I first got into real estate, I was like, why is my HUD different than like what we just projected on this spreadsheet?
Brandon Cobb:
Yeah.
David Richter:
And it just drove me nuts all the time. Then I’m like, okay, now I finally figured it out. It’s either we’ve got two the private lender and we have still some of the error leftover money or it’s our own money sunk into it. It’s like, it’s either one of those two scenarios more than likely than not. So I totally get where you’re coming from there <laugh>. Cause like I said, I ran into that all the time. So then how has that journey been like before Profit first and before that mindset and the cashflow? How did the business look like? Were you running out of cash or like just beating yourself? It sounded like you beat yourself up a lot because you were the cfo at that point. Like what did it look like beforehand?
Brandon Cobb:
Well we had pivoted on our entire structure and I’m not gonna go into the structure a whole night.
David Richter:
Yeah.
Brandon Cobb:
Cause I don’t know if it’d be beneficial for your audience and it might just confuse ’em, but we had somewhat of the profit first model set up. I’m gonna say that it was very infant say in other words.
David Richter:
Yeah.
Brandon Cobb:
We had specific bank accounts for different syndications and we had a bank account for the private lender’s money and we had a bank account for operational expenses and we had a bank account for any kind of construction expenses. Cause I think the biggest mistake I see people make is running their business outta one bank account. And that’s what we did the first two years
David Richter:
yeah
Brandon Cobb:
And we were starting that. We recognize that that was a no-go. Cause if you’re putting your private money into the same account as your operational expenses and your construction budget, that operational machine’s gonna keep eaten and before you know it, you’ve eaten some of your capital away that was designed to go to a project. And then
David Richter:
yeah
Brandon Cobb:
You get in this Peter Rob Paul moment. Right. We see it every single day in the real estate industry. And I knew that I needed to really set up each syndication as its own business. In other words.
David Richter:
Yeah,
Brandon Cobb:
It can’t have just one account. It needs to have an income account, it needs to have a profit account, it needs to have a construction budget account. We set it up where all these different syndications will invoice the, basically the syndication llc. So like our construction company will invoice each different L L C and then as money flows into the construction account, it immediately is sent to all the contractors through
David Richter:
nice
Brandon Cobb:
Stroller, and that way you don’t get this Peter Rob Paul stuff that happens with the construction company. That, and I knew that it was going to take somebody that could build this and implement it like for my team to do that. It’s very difficult and it’s very time consuming for me to try to execute the profit model. We were just at the point where we really needed a fractional C F O.
David Richter:
Yeah. Okay. So then let me ask this too before we go into the fractional C F O portion. Up to that point, how were you paying yourself? Like were you able to pay yourself what you needed? Because that’s a big portion of like the profit first message. And I’m just wondering for you personally, like was that another thing that it helped you with or were you like No, I was getting what I was, what I needed from, you know, before that message
Brandon Cobb:
I had salary set up for myself and my partner.
David Richter:
Awesome.
Brandon Cobb:
So we were getting a salary from it, but we had no clue when and if there would be distributions. Right.
David Richter:
okay, yeah
Brandon Cobb:
Cause real estate’s this I’m rich, you know
David Richter:
<laugh>
Brandon Cobb:
I’m poor, I’m rich, I’m poor. As all the closings come. And we didn’t have a method for really boiling things down when all the money came in and wondering, well how much do we need to set aside for operations? How much do we need to set aside, you know, uh, we need to pay investors out this so much, how much do we set aside for um, you know, the interest payments. We didn’t know how to like what to do and how to divide the money up afterwards. So we would just keep all the money in the business. And when you just keep all the money in the business, what does the business do?
David Richter:
Right.
Brandon Cobb:
Business gonna eat all the money.
David Richter:
Yep. Exactly. Awesome. So now do you have a better viewpoint of like distributions and being able to take the money out and you know, put it where you need it to go?
Brandon Cobb:
Uh, yeah, 100%. What I’ve been most impressed with is the cash flow forecast sheet because it shows exactly how much cash is going to be realized. That closing, because Lori, our fractional CFO is able to track exactly what we have in each project and can tell me, Hey Brandon, you need to go raise a little extra money for this project. You’re going over budget budget and you’re gonna have to use company funds.
David Richter:
Mm-hmm <affirmative>,
Brandon Cobb:
That’s huge. Especially when you’re doing the amount of projects that we’re doing. So being able to see exactly where we stand and have accurate cash flow forecasts that allows us to see, okay, we’ve got this amount of money coming in at this month, we’re gonna have to pay investors out this much. We’re gonna have to pay taxes on this much.
David Richter:
Right.
Brandon Cobb:
We’re gonna have to set aside this much in case we go over budget on whatever projects and we’ve got a leftover amount that we can now make a decision. Do we wanna reinvest that back into the company or do we wanna take distributions, which is exactly how a company should be run.
David Richter:
Yeah, no that’s awesome. I love that the clarity sounds like you’ve got a lot more clarity now of where the money really needs to go and where it has been and where it is going. Because if you’re doing 40 projects ahead of time, you know, even a few thousand dollars starts to add up really quickly to the six figure mark <laugh>. You know, like you’re on your way there very fast. So that’s another Yeah, I a hundred percent agree with where you are of like, you gotta make sure we know where that cash is going. So that’s what it sounds like it’s helped you a lot with uh, with the cash flow and being able to know <laugh> where every dollar’s going in the business.
Brandon Cobb:
Oh yeah. I mean we can get as granular as we want. I mean we use cost codes so every single subcontractor light ’em, we have a budget for it.
David Richter:
Yeah.
Brandon Cobb:
And we track it. So if we go over budget, we’re able to see exactly which line items we’re going over budget. And that allows us to hyper-focus efforts on trying to reduce, cause uh, reduce overages in like that specific, I mean having the cost code knowledge is why we set up a warehouse and started importing building materials from Turkey. One to reduce our costs and two, to mitigate the supply chain issues. And
David Richter:
Yeah.
Brandon Cobb:
You know, we wouldn’t have been able to do that without our fractional C F O.
David Richter:
That’s awesome because a lot of people have these grand visions, but then the real work happens behind the scenes. And I feel like with you, I mean this is, I love this podcast episode because it sounds like you’ve gone from where a lot of people start wholesaling and flipping. You had the right numbers which pivot you into a more profitable area and especially in like, it could be market specific or whatever and like for your business you pivoted at the right time than you went to a different, you know, channel and now you have more clarity of like, okay, now as it’s getting more complicated, more systems to put in place to be able to say, do we need our own warehouse? You know, supply chain issues and all that as well too. Uh, so if you’re listening to this podcast and you’re just getting started, like it’s your first deal, this is how important the numbers are from the very beginning, knowing where you stand because then it’s like, okay, how are we doing it? I’m not saying you have to follow Brandon’s path either, you know, it’s just knowing, knowing if it’s time to do something different or to pivot or to go into a more profitable area of real estate that you can get into. This has been awesome. I like the journey that you’ve taken. I think a lot of people can take a lot from this cuz we, it’s not just the journey. I love what you said too, like you didn’t come up with the k p sheet, it was a network, you know, so, and anyone, anyone can get a part of a network. So there’s, that’s been a lot of good stuff there. So then I guess, so you’ve talked about working with your CFO and all of that. What, uh, is there anything else having a CFO provide you or whatever that you working with the CFO that you thought maybe I didn’t know this was gonna happen or I didn’t know it would be this helpful or like anything else that you would say like working with someone on that side of the business?
Brandon Cobb:
Well, I’ll tell you. I’ll answer that questions, but just going back to what you said real quick, I’ll tell you a painful story
David Richter:
Yeah.
Brandon Cobb:
Of what it’s going to cost you if you don’t get your
David Richter:
<laugh>
Brandon Cobb:
Bookkeeping and your numbers cleaned up from the beginning.
David Richter:
Yeah.
Brandon Cobb:
You know, back my first, you know, year and a half in business, I wore all the hats. I was the guy managing the projects. I was the guy taking all the phone calls. I was the guy going all the sales appointments. I was the guy doing all the bookkeeping, which was a mess at the time. And I remember finishing one of the you know, the new builds. Funny that the third project we ever did was like a new build. Like we wholesale ‘
David Richter:
hmm-mm
Brandon Cobb:
On, we flipped one and then we did a new build and we’re like, oh my god, new build was at nightmare. We’re never doing that again. We, I think we lost like $40,000 on that new build. But it was a
David Richter:
okay
Brandon Cobb:
Great burning experience. But I remember
David Richter:
yeah
Brandon Cobb:
Finishing that new build project and I’ll never forget this project, cause that’s when I realized it was a terrible project manager. And I did not want to ever do construction ever again myself. I wanted to build a team around that. But I had to do the bookkeeping and I had all of these, uh, like receipts in a folder, right? That’s how I was keeping up with everything. It was like a sh like a Google album folder in um, uh, or an Apple folder in my phone. And I needed to be able to clean everything up. In other words, like itemize it to the credit cards. Well I was using like seven different credit cards to buy all this stuff
David Richter:
hmm-mm
Brandon Cobb:
And just taking pictures.
David Richter:
yeah
Brandon Cobb:
So when it came time to actually get good accounting on that project, my accountant at the time explained what I had to do, which was to print 80 pages worth of statements. You gotta think it was 10 months worth of stuff. That’s
David Richter:
yeah.
Brandon Cobb:
Seven, eight credit cards, that’s 10 pages
David Richter:
yup
Brandon Cobb:
That’s 80 pages. And I had to go through the 200. I think it was like like 224 receipts. I mean that’s how ingrained this is in my brain,
David Richter:
Wow
Brandon Cobb:
How painful it was. And I had to find every single one of those 224 expenses somewhere on that 80 pages worth of stuff. It took me like nine weeks
David Richter:
Wow.
Brandon Cobb:
To figure that out and actually do it. And I was, and I swore, I was like, I’ll never again do this. I’ve gotta get the books in proper order and I’ve gotta get the accounting in proper order.
David Richter:
<laugh>, that’s really good. It, that’ll save you a lot of hurt and heartache if you listen to him right now. And you’re just starting out making sure everything’s in order so you don’t have to go through nine weeks of cleanup or just headaches of trying to get the transactions in place. That’s very good advice on this podcast.
Brandon Cobb:
Yeah. As far as some other unexpected expectations, when I was hiring the CFO role, it was different than any other role that I ever hired before because it was new. So I didn’t have a list of expectations.
David Richter:
Mm-hmm. <affirmative>,
Brandon Cobb:
I honestly had an idea of what some of my needs were, but I want, again, who, not how I wanna bring somebody into the organization that cannot just solve the current problems
David Richter:
Yeah.
Brandon Cobb:
But foresee issues and advise me on what we need to be doing. And to this day, that’s a hiring best practice that I use. If I don’t see them as a strategic partner, if they’re not coming into the organization and able to build that department out better or execute that job better or punch holes in our systems and processes during their ride along during the interview, we don’t hire that person. So as I was going through this, this process and, and getting to know Lori, I was asking her, Hey, you need to advise me. I want you to see what holes and gaps and efficiencies you see in the business. So she was the one that actually came in and said, Hey, for your bookkeeper, here’s, you know, here’s a KPI sheet that we need to start using. Here’s the list of expectations that this bookkeeper needs to do. Here’s how to measure the bookkeepers performance. That was really big. Um, again, utilization around cost code, future, cash flow forecasting, uh, being able to actually tell me how much money we’re in and out on each project. There was a lot of stuff that was unforeseen that she was advising on. That’s the number one thing I look for when hiring. So she was able to, uh, bring a lot of that unknown information on board.
David Richter:
Yeah. And I, she even has experience in the building and uh, that part of real estate. So we were talking about that beforehand and she was like, she raised her hand. She’s like, I’d love to really work with Brandon because you know, I’ve got that experience. So that’s where I love being able to pair up people that have those same mindsets and just being able to help and, you know, get people exactly where they need to be. But, uh, now I really appreciate that we’re gonna transition to just a few final questions here. But I’d like to know, you’ve talked a lot about your journey, which has been amazing journey and I love all the different stories and how they’re relating then uh, your profit first journey as well too. And then working with the CFO you’ve had, I would say looking at from, you know, my viewpoint or from the listener’s viewpoint, you’ve had a lot of success over the last, you know, few years and especially in the real estate world here. What would you say is one key habit that you’ve had that has helped you on this path of real estate investing?
Brandon Cobb:
You know, I’ve probably beaten a dead horse at this point, but you know, really it’s the who not how mindset. You know,
David Richter:
Okay
Brandon Cobb:
You’re not gonna be able to scale without a team. So having really good hiring systems and processes is really key. And again, I can give you a few dominoes that if you do these things, you can screw up pretty much the whole other hiring process part and still experience some level of success. You know, number one is hire a strategic partner. Don’t hire somebody who’s you felt like you’re gonna have to train and kind of get up and running. You know, in the beginning stages when I was hiring people, I think I was scared to hire people that I thought were smarter than me
David Richter:
Okay
Brandon Cobb:
Because of what they would think about me in my business.
David Richter:
Sure.
Brandon Cobb:
And that is just not true anymore. I’m like, if you can’t outthink me and you, you know, bring a strategic partnership to the organization and I really hop on like strategic partner cuz that really what they are, right.
David Richter:
yeah
Brandon Cobb:
Because they’re coming on, they’re advising, they’re building this out better than you can. That’s absolutely huge. Um, we could do a whole freaking episode on hiring, so I won’t go down the rabbit, so I’ll leave it. That’s my answer. Hire strategic partners, don’t hire employees.
David Richter:
Okay. I really like that. I feel like they’ll have more vested in the company as well too. And they’ll be more, uh, more apt to, you know, like we even began the <laugh>, it’s coming full circle. We began the call with you saying, you know, no one’s gonna be as loyal to you as you are in like, making sure or looking out for your financial situation. And I think what you’re talking about here is one way how you can engender loyalty in the group is giving them ownership of different areas and having them be strategic thinkers and not just worker bees all the time. So I think that was, I think that’s really key too.
Brandon Cobb:
Yeah, and I’ll give you a nuance just so people aren’t confused. We don’t give away ownership, you know, I’m thinking from a psychological standpoint, think of them as a strategic partner. You know, one of the things that we’re working on right now is how do we give ownership more like shadow ownership?
David Richter:
Yeah.
Brandon Cobb:
So like a profit share.
David Richter:
yeah
Brandon Cobb:
That’s how I would set up, I would set up profit share, but
David Richter:
Awesome.
Brandon Cobb:
I wouldn’t like give away equity. So just, I don’t want people going away and just giving
David Richter:
<laugh>
Brandon Cobb:
Away equity and signing people that they hire on the LSC operating agreement. You know,
I’ve got 20 employees and they all have Massive amounts of value in that.
David Richter:
Right.
Brandon Cobb:
But just how you think about hiring people.
David Richter:
Yeah. Oh that’s awesome. That’s really good. So make sure you hire people that are strategic partners. His habit that he said is the who, not how look for those people that are good at what you aren’t. I think it was very, uh, revealing as well too that was very, being open of like when you first started hiring people and like, oh, they’re smarter than me. I don’t wanna work with them. That’s something I think a lot of people run into. They are embarrassed at that point. And I love how you said now nope, <laugh>, that doesn’t matter to me. I want them to be smarter than me and especially in this area I’m hiring them for because they’re gonna be the ones leading the charge in that area. So now that’s really good. That’s couple last questions here. Um, last minute advice for the real estate investing community that could be on the market, could be anything. We definitely know the who, not how, but is there anything else? Just general real estate investing advice.
Brandon Cobb:
I think now more than ever would the uncertainty of the market and the changing economy and interest rates now more than ever, it’s important to run a tight ship. If you’ve been lenient about things in the past, if you’ve been on the verge of firing that person, if you’ve been on the verge of getting your stuff cleaned up, getting more strict on people, creating those key performance indicators for your team, now’s not the time to sit on anymore. Now you have to have a really well oiled machine that’s going to make it through, you know, whatever times it are. We try to keep as much operational cash on hand to be able to weather whatever storm, but be ready to make quick and decisive decisions that you need to, you can’t sit on the people that are bleeding your company anymore. You can’t sit on the big operationally efficient decisions that you need to make. Now is action time.
David Richter:
Yeah, that’s really good. Um, especially in a market that might tighten the ship for you if you don’t
Brandon Cobb:
Yeah.
David Richter:
<laugh>. So make sure you’re doing that. So that’s really good. This has been awesome. I loved hearing your journey and just telling and I think giving them people a lot of hope here of wherever they are. And I love that your mission as well too of your company, like helping investor fulfill their dreams, you know, and like just having that overall vision. So this has been a really good episode. Make sure you know your KPIs. I mean he beat on that several times in this episode. Like make sure you know that hire the right people, higher strategic partners, the who not how, making sure you have someone that’s there that helps you with the financial side as well too. So you don’t go into a nine week cleanup and you wanna come outta, you wanna go into rehab after you come outta that cleanup, you know, or whatever. So that’s where I wanna make sure that you have that and that’s where, uh, Brandon, that was awesome. So now you’ve dropped a lot of knowledge here. How can people get in touch with you or what are you looking for or how can people connect? I want them to be able to give the value back.
Brandon Cobb:
Yeah. So you know, if you’re interested in passive income investments, if your goal is to build a legacy for your family and impact those close to you, uh, I would invite you to visit hbgcapital.net. That’s harrybobgarycapital.com. I joked that the.com sorry was already bought up and we’ve got a ton of free resources. Um, you know, if you’re in the real estate business and you’re looking to diversify or you wanna keep your day job and have additional streams of income set up to go direct your bank account, we’ve got a ton of free resources on our website. You can grab our free e-book, uh, recession resistant real estate. You can grab our free e-book. 100 questions. Passive Investors should Be Asking Before Investing actually wrote that book because I had investor call me and he lost all of his money on investment,
David Richter:
hmm-mm
Brandon Cobb:
Giving it to a real estate investor and he was wondering what his options were. And after sitting on the phone with him for 30 minutes, I was like, holy crap, what can I do to prevent this from
David Richter:
Right
Brandon Cobb:
Happening right here? And he just wasn’t asking the right questions before investing questions are powerful and if you’re new, you don’t know what questions to ask. So, um, again, you can go to our website, hbgcapital.net, you can grab that book and you can schedule a call with us directly. Everybody gets FaceTime with me so I don’t outsource that. We really do take the time to get to know each individual investor and build a relationship. So, uh, we look forward to getting to know you.
David Richter:
There you go. So we’ll make sure, we’ll put that in the show notes as well. But hbgcapital.net and sounds like he’s got some awesome eBooks there as well too. I would take advantage of that. I’m sure they’re just right there on the website for the you to take there and to be able to read those. I trust Brandon with, uh, whatever he puts out. So go there, get his information, download those eBooks and I think it’s gonna help you a lot. Uh, on the other end if you’re listening to this and if you are a real estate investor like Brandon and you say, I know the numbers are important, but I am running around like a chicken with my head cut off and I have a bunch of receipts that are going different places or, or you just say, I need what he was talking about. I need that clarity. You can head over to simplecfo.com, click the schedule call button, we’ll get to know you, see if we’re the right fit. If we’re not, we’ll pin you to someone in our space. I wanna make sure you get help if you want that help at this point, if you are running around like that. Thank you so much for listening to this episode. Brandon, thank you so much for being a part of this episode and for dropping all the knowledge that you did today. I know it’s gonna help a lot of people, so thanks so much for being on.
Brandon Cobb:
Hey, thanks for having me. It was an honor.
David Richter:
Thank you so much. And I really appreciate all the knowledge you dropped here. And if you are listening to this, remember to make profit a habit in your business.
Outro:
This episode of The Prophet First for REI podcast is over, but there are plenty more where that came from. Are you ready to learn how David and his team can help implement the Profit First system in your business? Schedule a discovery call at simplecfo.com right now. We’ll see you next time on the Profit First for REI podcast with David Richter.
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