Positive cash flow- reinvest in the mortgage?

[Jerry Hill]

What is the best way to manage positive cash flow? Do you put it all back into the mortgage or save for future deal?

[Andrew Johnson]

Jerry Hill I don’t put it back into the mortgage. Money is “cheap” right so I don’t think it makes too much sense to do additional principal pay down. There are cases where it might make sense. If it lets you get ride of PMI then that a real savings. Commerical debt needs to be refinanced every (in general) 5 or 7 years. So principal pay down today will have a material effect on cash-flow in 5 or 7 years (lower loan balance at refinance time). But I’d still rather try to find an investor that yields better returns. Or maybe you can take that additional money and upgrade the property in some way to yield better rents, etc.

And, of course, if you’re just plain saturated and don’t want anymore more Investments then pay down your principal. I know people here love expansion and debt-until-you-die but it’s not for everyone. Sure, it’s a little lousy from a tax perspective and it doesn’t maximize ROI but it’s a way better option that chasing the “next deal” out of some reflexive reaction.

Half of the reason you should want “financial freedom” is the “freedom” piece of it.