Show Notes
Mike asks: "We've used our own cash reserves for deals, but we're contemplating using other people's money—not because we need it, but to deploy our capital elsewhere. We've been debt-averse but see value in this if done correctly. How would you view this?"
In this episode, Scott breaks down the decision using the Investor Priority Pyramid, explains why capital is foundational (use it first), when debt makes sense (only when levered and proven), and shares a cautionary tale about six-figure credit card bills that worked—until revenue shifted. You'll learn why debt is fine until it's not, and why you should never take on debt without a proven model.
The bottom line: Use your capital first. Take debt only when you KNOW it returns more than it costs.
Got a business question? Ask Scott here: https://scotttodd.net/ask
📜 Full Transcript (Click to expand)
Scott Todd (00:00)
Welcome to Fix My Business, the show that helps you fix your business. And we do it by answering your questions. My goal is to get you unstuck so that you can keep growing the business and enjoy it again. I'm Scott Todd. And our question today comes from Mike. And Mike's question is this. Our team handles a nice portfolio of owner finance deals. But when it comes to cash deals,
where we can purchase anywhere from $10,000 $20,000, we have typically utilized our own cash reserves. We are now contemplating using other people's money. I don't truly need other people's money, but the thought is we could deploy our capital into other longer term assets to diversify our portfolio and use someone else's money to run the cash flips. Not sure if this makes sense. Trying to
problem solve it and we keep flip-flopping back and forth. Traditionally, we have been debt adverse, but we see some real value in setting this up if done correctly. Curious to know what you would view the situation and how the investor priority pyramid might help solve this mental dilemma. the investor priority pyramid is talked about in the book, Fix This Next for Real Estate Investors, and at its base level,
it says, core need number two says, you have to have capital to do your next deal. Look, if you're an investor and you don't have capital to do your next deal, then well, you're not an investor. That's just the way that it is. So in this situation, Mike, where you have the capital to do your next deal, I would deploy that capital. Now, the argument might say, well, I wanna go do long-term investments with this.
If you have a long-term investment that you're looking at, then you go do that deal, right? So that's the way that it works. While you have capital, you have enough capital to do the next deal. Therefore, you do the next deal. If it's with your money, cool. If it's with somebody else's money, cool. No problem. No problem there. Where we get into debt, when we start to take on debt, what happens is we now elevate that
And when it's elevated, what's happening is it's dealt with at the profit level. It's at the very next level up. Capital comes at the base level. Liquidity and debt comes up at the profit level. So with that said, I only want to take on debt when I know that I have ⁓ leverage, that it's going to give me leverage to do something else. So in this case,
where I've deployed my capital and I need more capital and my only option is someone else's money, well then I'm okay taking on that debt because it's levered. It's gonna bring me back more money. So like you, I'm debt adverse. I don't want debt in my business. Look, business is risky as it is. It truly is. And I know a guy, he went through and his company was producing all this revenue every single month.
and he was running every transaction through his company credit card. He's collecting the points and the miles and all the other stuff that you get with the company credit card. And his bill was six figures. He's paying six figures a month. No problem, right? Like no problem. The revenue is coming in until the revenue shifted. And then in order to pay that credit card bill in full every month, he had to go back
and start pulling money out of his bank account, his personal bank account. He's like, ⁓ hmm, maybe I shouldn't have been running the payments through the credit card. Yeah, that's a great example, right? So it's fine, debt is fine until it's not. And the more risk that we put into the business, the more risk that we inject into the business, the riskier business becomes. So that's why I'm debt adverse. I don't want debt in the business.
So if I don't have to put it in there, I don't want to, if I have the capital to do a deal today, I'm gonna do the deal today with my capital. If I don't have the capital or if I've deployed that capital to a longer term investment, then I go and get the capital from somebody else, whether it's a partnership or it's debt, whatever that is, whatever that lever is, it's fine. And that's how we're gonna apply the investor priority pyramid.
to this problem and to this challenge.
I don't like, I'm telling you, I don't like when we just take on debt. see people that go out and they're trying to get into real estate investing and they're like, I'm just gonna go take on a home equity loan. ⁓ boy, don't do it is what I wanna scream. You don't have a proven model yet. I only wanna take on debt when it's a proven model and I know that, I know, I'm not guessing, I know for a fact.
that that debt is going to bring me back more money. Otherwise, you're potentially writing a big check. So Mike, thanks for your question. And look, that's the way that we work around here. If you have a question, you can submit it at scottodd.net forward slash ask. We will get your question queued up and keep you moving in the right direction with clarity. And I'll see you in our next episode.
Welcome to Fix My Business, the show that helps you fix your business. And we do it by answering your questions. My goal is to get you unstuck so that you can keep growing the business and enjoy it again. I'm Scott Todd. And our question today comes from Mike. And Mike's question is this. Our team handles a nice portfolio of owner finance deals. But when it comes to cash deals,
where we can purchase anywhere from $10,000 $20,000, we have typically utilized our own cash reserves. We are now contemplating using other people's money. I don't truly need other people's money, but the thought is we could deploy our capital into other longer term assets to diversify our portfolio and use someone else's money to run the cash flips. Not sure if this makes sense. Trying to
problem solve it and we keep flip-flopping back and forth. Traditionally, we have been debt adverse, but we see some real value in setting this up if done correctly. Curious to know what you would view the situation and how the investor priority pyramid might help solve this mental dilemma. the investor priority pyramid is talked about in the book, Fix This Next for Real Estate Investors, and at its base level,
it says, core need number two says, you have to have capital to do your next deal. Look, if you're an investor and you don't have capital to do your next deal, then well, you're not an investor. That's just the way that it is. So in this situation, Mike, where you have the capital to do your next deal, I would deploy that capital. Now, the argument might say, well, I wanna go do long-term investments with this.
If you have a long-term investment that you're looking at, then you go do that deal, right? So that's the way that it works. While you have capital, you have enough capital to do the next deal. Therefore, you do the next deal. If it's with your money, cool. If it's with somebody else's money, cool. No problem. No problem there. Where we get into debt, when we start to take on debt, what happens is we now elevate that
And when it's elevated, what's happening is it's dealt with at the profit level. It's at the very next level up. Capital comes at the base level. Liquidity and debt comes up at the profit level. So with that said, I only want to take on debt when I know that I have ⁓ leverage, that it's going to give me leverage to do something else. So in this case,
where I've deployed my capital and I need more capital and my only option is someone else's money, well then I'm okay taking on that debt because it's levered. It's gonna bring me back more money. So like you, I'm debt adverse. I don't want debt in my business. Look, business is risky as it is. It truly is. And I know a guy, he went through and his company was producing all this revenue every single month.
and he was running every transaction through his company credit card. He's collecting the points and the miles and all the other stuff that you get with the company credit card. And his bill was six figures. He's paying six figures a month. No problem, right? Like no problem. The revenue is coming in until the revenue shifted. And then in order to pay that credit card bill in full every month, he had to go back
and start pulling money out of his bank account, his personal bank account. He's like, ⁓ hmm, maybe I shouldn't have been running the payments through the credit card. Yeah, that's a great example, right? So it's fine, debt is fine until it's not. And the more risk that we put into the business, the more risk that we inject into the business, the riskier business becomes. So that's why I'm debt adverse. I don't want debt in the business.
So if I don't have to put it in there, I don't want to, if I have the capital to do a deal today, I'm gonna do the deal today with my capital. If I don't have the capital or if I've deployed that capital to a longer term investment, then I go and get the capital from somebody else, whether it's a partnership or it's debt, whatever that is, whatever that lever is, it's fine. And that's how we're gonna apply the investor priority pyramid.
to this problem and to this challenge.
I don't like, I'm telling you, I don't like when we just take on debt. see people that go out and they're trying to get into real estate investing and they're like, I'm just gonna go take on a home equity loan. ⁓ boy, don't do it is what I wanna scream. You don't have a proven model yet. I only wanna take on debt when it's a proven model and I know that, I know, I'm not guessing, I know for a fact.
that that debt is going to bring me back more money. Otherwise, you're potentially writing a big check. So Mike, thanks for your question. And look, that's the way that we work around here. If you have a question, you can submit it at scottodd.net forward slash ask. We will get your question queued up and keep you moving in the right direction with clarity. And I'll see you in our next episode.