How to best re-invest cash flow?

[Account Closed]

I'm curious to hear from seasoned "buy and hold" investors....when thinking about growing your portfolio how do you best re-invest your cash flow proceeds from a property?  Do you think it's a better idea to pay it toward paying off current mortgage principal OR put that money toward a down payment on your next rental property?  

[Steve K.]

@Ned,

there is a continuum of strategies.....boiling down to how much debt/leverage you're comfortable with. On one end of the continuum, I know a widow who put her life savings into a $250k duplex in Denver and has zero leverage. She is a valid REI and is thrilled at her cash flow (no mortgage payment) on the one property. She is also happy that Denver's been appreciating at about 10%/year for several years. Her one property is cash flowing and appreciating.

Others, could have bought 4 similar properties, each with 25% down payment (75% LTV). If in an appreciating market, they'd arguably have 4x the appreciation as the widow. They'd be growing wealth more quickly with the leverage.

If you read about the BRRRR strategy (I'm a big fan), the same $250k could have bought 4 fixxer uppers, then cash out refi, then buy 4 more (per year?) and own the appreciation on 16 properties in 4 years (or faster)....with higher leverage, or even 100% leveraged in the ideal BRRRRR.

To prepay your mortgage with your rental cash flow, is to accept the slower path to wealth. If acquiring a new rental could be 10% or 20% ROE on your cash, consider doing that, instead of earning 4 or 5% yield on your money (by prepaying the 4% to 5% APR loan).

Only you can decide how much risk/reward you see in the leverage, and what's right for you.