Use cashflow to reinvest or torwards principal of mortgage?

Question

What do you guys do with your positive cash flow? Do you put it towards the principal on mortgage or save to reinvest it?

Peter M. · Answer

First use it to build a reserve fund for each property-enough for at least a new HVAC system, just like a personal savings account. Then I would use it to reinvest either in existing properties or for new ones. I have paid down principles in the past but ended up refinancing to get more money anyway. Would have saved myself some of the refinance fee if I had just been holding onto it. Honestly, the tenants are paying the mortgage so I would rather put the money towards acquiring more.

Karen O. · Answer

Either of the options noted or use for living expenses. Depends on the needs of each.

Account Closed · Answer

I'm amazed at some answers and other answers are great. To me it is very simple and you seem to be on the right track. Aggressively pay down / off a couple of your more valuable properties. Then put a heloc on them and use that as your liquid cash. You can store your excess money back in the heloc to pay it down to $0. If you need that money, in a heloc it is - or should be instantly available. I send my heloc guy an e-mail any time during the night or day and the next morning when they open I have my money and he makes sure I Can write a check that day. VERY powerful!. Not may people understand that if you run a spreadsheet on each mortgage you can play "what if" and easily put money against principal and choose the mortgage that give you the most value for your money. ie a new loan typically will cut months off your payments while a mortgage in the last years does not ,,, however you want the heloc property totally paid off giving you more money so I pay that off so my heloc has more $'s for me to invest! I even store my rainy day fund in the pay down of the heloc ... my opinion is it is better not to pay them 5% than to store future emergency funds as dead money while still having access to it. Just thinking - its all about making more money for the future and pretty soon you will have enough cash flow that the need for heloc drops way down. :)

Ali Boone · Answer

I typically keep it in a 'rental properties only' account and use it as a nest egg should anything come up. But once I accumulate enough in there to possibly invest or whatever else, it comes down to the numbers. Will I get a higher return paying down the mortgage or investing in more properties? (I usually go with the latter to build wealth. I prefer multiple leveraged properties over properties paid in full.)

Josiah Kay · Answer

It really depends on your goals. If you are looking to scale quickly, saving the cashflow to reinvest would probably be your best option. Otherwise, if you are just looking to acquire a few rental properties, aren't interested in quickly scaling, or don't like the idea of multiple mortgages hanging over your head, using your cashflow to pay down the mortgage would be a good option. In the end though, you just need to know what your goals are and run the numbers to see what strategy is in alignment with your goals. At first, I was using the cashflow to pay down my mortgage. Then, after clearly defining my goal, I realized that I had to shift my strategy and reinvest the cashflow into more properties to meet my goal in the time frame I allotted.

Patrick Jung · Answer

@Dewayne Stiers Makes sense. Instead of having my cash flow sit in a savings acct it is better to pay down balance of HELOC. Would also be saving that interest payment too by having a lower heloc balance.

Thomas S. · Answer

I am at the point, and have been for years, of no longer growing and actually will be selling everything off in the next 3 years to retire. For years now I have taken all my cash flow and equity out of my properties and invested in mutual funds that have averaged a 10% return over the past 10 years. Following 2008 I lost 30% on my funds but recouped within 18 months. That was far faster than real estate bounced back. I also dumped all my cash reserves into the funds after the crash and did very well.I do not allow cash to sit at risk in real estate. Instead my equity is diversified. I still have the same amount of cash value as I would if I paid down a mortgage but it is earning a higher rate of return than a mortgage interest rate, it is easily accessable and it is at lower risk than if it were sitting in real estate….In my opinion.

Luke Sass · Answer

@Patrick Jung Depends if you looking to scale then invest, if your happy with where your at then pay down your principal to guarantee a return by saving the future debt service.

Sean Lambert · Answer

I'm trying to grow, so cash flow goes into a reinvest bucket.

Frankie Woods · Answer

I use my positive cash-flow to fund more deals. It's getting tougher to find deals that make sense in this environment.