So my property has a positive Cashflow, now what?

[Jamie Montpellier]

Hello everyone,

We have all one end goal in mind and that is to create wealth for ourselves and our families.  Now that you have found a property that cashflows and you are seeking to build your small real estate empire, what is the best use of that extra dough on your first property.

Option 1 : Use it to buy more properties?  Really???  At 100$ for one door, let's do some simple math, it might be awhile before I can move on to the next purchase unless of course we get creative with financing but let's assume we want to keep it simple for now.

Option 2 : Pay down the rental properties mortgage FASTER...  Really???  The cost of borrowing is so cheap at 2,6% that I think I can make my money work harder in the long run.  However, the home would be free and clear sooner, allowing me to pull it's equity to buy more properties.

What do you guys think?

[Landon Elscott]

Currently, with only one rental property, I'm putting a huge emphasis on just getting sufficient cash reserves for both known and unknown repairs, vacancies, etc.  I have my eyes set on a second property in the "near" future, but I'm not necessarily in a huge rush.  I, personally, am trying to stay pretty conservative and not get over leveraged - I want to feel comfortable in knowing that if for whatever reason I hit a streak of bad luck, I'll still be able to make my payment obligations.  So as of right now, cash reserves is really my main concern.

That said, there are some other options out there where your cash can work for you and not make you feel like it's just sitting there in a bank account doing nothing.  Although the stock market can be pretty speculative, Real Estate Investment Trusts (REITs) are a way to get involved in additional real estate investing without necessitating additional loans and down payments, of course it is important to save up enough to buy in a lump sum that keeps your cost basis low even with the addition of a commission.  I find most of the REITs pay anywhere from 5-9% dividend yield, but again there's no guarantees as to capital appreciation.