How Ryan David of We Buy Houses Pennsylvania Launched and Grew his Business
Pro Tips
Ryan David had already suffered two layoffs when he was confronted with losing his job a third time in 2017. Despite his stellar background and passion for customer service, Ryan found himself struggling to hold onto a steady job. Broke, with a family to support, he knew something had to change.
When his brother-in-law handed him a copy of Rich Dad, Poor Dad by Robert Kiyosaki, Ryan began to realize what was missing. Three hundred pages later, Ryan had his heart set on fusing his passion for helping others with building a real estate business. At that moment, We Buy Houses Pennsylvania was born.
In our recent episode of the Cash Flow Show, we spoke with Ryan to learn more about how he started and grew his business.
As you can imagine, control over your cash flow is fundamental for anyone interested in making money through real estate. House buyers and rental companies looking to invest in property need money upfront for home purchases, maintenance, restoration, or refurbishing their new property and marketing it.
All of this means that real estate professionals juggle multiple activities—from ensuring strong vendor relationships to meeting clients, vetting tenants, and possibly reviewing new potential investments.
Challenges with cash flow in real estate
Buying and selling real estate is expensive. It requires a significant upfront investment. You may need several thousand dollars to purchase your first flip or rental to get started.
Whether you choose to sell your investment or rent it out, you also need to consider long-term costs. Common expenses include:
Utilities
Maintenance
Insurance
Closing costs
Appraisal and broker fees
Home inspections
Property and income taxes
Pest control
Vacancy costs
Repairs and upgrades
Business permits
Legal and accounting fees
Marketing and Advertising costs
You'll also need to understand and prepare for housing market fluctuations. When prices bottom out, it’s possible to go through dry spells. That’s why it’s critical to set aside a cash reserve. Ryan and his partner set 30% of funds aside for repairs, vacancy management, expenses, and significant, unexpected costs. For most projects, they end up using 10-20% of this buffer fund.
Scaling your business with year-to-year projections
Despite starting the business during the pandemic, Ryan has bought and sold dozens of properties, and We Buy Houses is now one of the top three organizations in its market. He says the three following strategies are critical to scale like they did:
Keep your overhead lean
Create key relationships with suppliers
Understand the long-term value of each property
At We Buy Houses, Ryan has kept overhead as small as possible by limiting headcount to just himself and his partner. In lieu of a large team, Ryan has established strategic relationships with other house buyers and investors in other areas. This has created a referral system that brings a steady flow of leads.
“We have had investors reach out to us from other markets with leads that are useless to them but are very valuable to us. So we give them a flat percentage on the leads we close,” says Ryan. “And that is a really great win-win.”
In a hot market, the business can appear to grow quickly. But in this scenario, maintaining inventory can be tough, which can limit your ability to scale. When properties sell too quickly, it becomes harder to preserve a list of valuable homes. It’s also essential to consider potential dips in the market. Ryan uses cash flow projections to stay on track and flexible during market shifts.
“Especially after COVID, we only look at year-to-year projections. That gives us enough headway to know what’s going on, but not too much, in case the bottom falls out of the market,” says Ryan.
How to figure out what you can do with a property
Before buying any property, Ryan and his partner use spreadsheets to determine the net value of a property and decide what to do with their potential investment. They use this calculator to determine if a property would be best as a rental property, a rehab, or a flip:
They look at several factors, including:
Adjusted Gross Income (AGI) - The gross income minus any adjustments, such as self-employment tax or other business expenses
Net Operating Income (NOI) - The estimated profit after operating costs, without considering taxes. This metric is used to determine if a rental property will pay for itself.
Cash-On-Cash Return - How much is earned annually on a property after factoring in mortgage costs
Ryan has broken down his calculation further to hash out his max offers, flip costs, repair costs, potential cash flow, profit, and down payments. These items provide analytical insight into the value of an investment and give him a blueprint for how much cash to invest in each property.
Note that profit and cash flow are differentiated here. Profit is remaining revenue after all expenses. Cash flow represents cash coming in and out of his business. While making a profit can be an indicator of good health, cash flow helps you understand where your money is going and how sustainable your business is.
“In a nutshell, this simple calculator that my mentor and I built teaches us so much, because just by plugging the numbers in, it can tell us exactly what we can do with the property, how much we should pay, and what it will produce,” says Ryan.
Detailed calculators like this one can significantly reduce the risk of overspending while providing a plan of action for each property.
Use cash flow as a guide
Every business needs positive cash flow to survive. But as we’ve seen, real estate professionals need an incredibly organized approach to handle taxes, mortgages, investments, and overhead. With so many pieces to juggle, having a transparent view of your finances is the best way to stay ahead.
You can design intuitive reports and visualizations of your cash flow through Pulse without spending hours on a complex spreadsheet. Try it out for free for 30 days and be confident in your cash flow.
