What to do with my extra rental income cash flow?

Question

So here’s the breakdown.

Let’s say I just bought 3 rental SFH properties this year cash flowing $500 each unit. That’s $1500 total per month in cash flow after paying all expenses, property Mgt, and mortgages etc.

The $1500 gets deposited into a rental income checking account. That account has enough money sitting there to cover like 3 months of operating the 3 homes in case something happens.

So what do I do with all the excess money and where to invest it so that I can make more money quickly so I can build up cash to buy a 4th rental property?

Cryptos or stocks or what?

FYI I already invest into all of this already with my own personal money

Eric Schultz · Answer

@Kevin Lanphear

Alright, glad to see there are a lot of people familiar with BlockFi already. Definitely merit to that advice.

Here’s another approach.

Assuming you have a strong credit score, why not take a HELOC out on one or all three of those rental properties once you have some equity beyond the 20% mark? (Yes, there are lenders starting to offer rental property HELOCs now). If you own a primary residence with greater than say 25% equity, maybe HELOC that first. Then use the the velocity banking method with the combination of your HELOC(s) and monthly rental income cashflow. The interest only charges on HELOCs right now are basically at the rate of inflation. In some cases, you can even lock at a 1.75% fixed rate for a year or sub 2.75% fixed rate for 3 years. With the fixed rate locks, your short term downside is protected. Then go acquire more positive cashflowing assets with those lump sum HELOC funds, use the growing monthly cashflow to payback the HELOCs every month via velocity banking method.

With this method you have put that dead equity in your properties to work, and have monthly purpose for that $1,500 / month cashflow to grow your portfolio much faster than just saving the $1,500 / month for the next down payment.

Chris Seveney · Answer

@Kevin Lanphear

I always caution newer investors to take their time scaling. Those who scale to quickly and have never been through a downturn are very good at one thing, making experienced investors wealthier.

Joshua McMillion · Answer

@Kevin Lanphear

I am more conservative when it comes to money and finance, but I use all my cashflow toward my next property. For example, if I have $500 per month in cash flow, I will save that towards my next property in a high-performance savings account or money market fund with Vanguard. If I need to save for a conventional loan, that $6000 extra yearly passive income will help me reach that goal. In your case, you would have $18000! Eventually, it becomes a snowball where you can rapidly acquire new property.

My advice is centered around my long-term buy and holds strategy with a specific avatar and narrow search criteria. I also have a $5,000 CAPEX saved before entering the deal as a general rule of thumb. Crypto and stocks could provide you significant growth, but in turn, could also prevent you from scaling due to bear markets.

Sincerely,

Josh

Kevin Lanphear · Answer

@Johnny Potts it depends.... I am in my beginning stages building my real estate wealth so the goal for me is make as much cash and quickly as possibly so that I can buy more doors..... then once I hit a nice goal of cashflow per month where I am satisfied, then you can start paying down mortgages..... Thats why i HATE retirement accounts, I can make millions way quicker doing this method than waiting 30 years..... hope that helps....

Kevin Lanphear · Answer

Thanks @Joshua McMillion, I hear ya but dang .... How I HATE low crappy yield savings accounts lol. I may invest the excess in my Blockfi account since I can earn up to 8.6% APY and that interest rewards pays out in bitcoin ;)

Jason Shackleton · Answer

@Kevin Lanphear Great question. I would consider a crypto like savings account paying a higher amount of interest and taking on a bit more risk. I have a little over at NEXO, very similar to Blockfi. However this likely is not the best path for either of us in reality.

Having 3 properties all paying $500 a month in cash flow with 3 months in reserves at all 3 properties is a very safe play. What are the odds of all 3 properties needing to use their emergency funds all at once? I think it is close to zero. I would take on a little more risk personally. However this is situational. I am in a very similar spot to you at the moment.Also cash flow has no real tax advantages. It gets taxed quite hard. If you were to refinance one of the properties and eliminate the cash flow on one property to access capital on a (tax free loan) to expand it might make sense.

I refinanced one of my properties and brought the cash flow down to around $100.00 a month to expand and buy another property that cash flows $1200.00 per month. I could now do this again if I wish but playing it safe at the moment.

It's all a situational ROI game. Like will the cash flow you are saving and investing be significant enough to actually add up to another down payment over time? Or in your market will your savings not keep up to the speed of property appreciation? Thus not being your best play and a refinance would get you there quicker. If you wait 3 years to save up 100k lets say and in those 3 years the average property went up $100k what was the point?

I also love cash flow too as it is what makes one financially free. Lots to consider.

Good Luck!

Jason

Tucker Cummings · Answer

You have a lot of options in front of you. I’ve only started dabbling in crypto so I can’t speak a ton to it.

But I really like keeping my extra money in dividend stocks. Yes, dividend/value stocks usually don’t appreciate as fast, but they also usually don’t tank as bad either. Plus the dividend pay out is great too, so I just think of it as trading one cash flow asset for another, once I cash out and buy RE with it. I also usually keep the stocks I’m invested in to a select few. Right now I’m building positions in Pfizer, Verizon, AT&T and PPL corporation. I also have duke energy and Kellogg, but I’m not adding to those positions.

Btw, stocks are on sale this week :)

John Foresman · Answer

@Kevin Lanphear you should try nexo. You can hold stable coins like usdc and usdt to avoid the volatility and get 8% interest paid out in that stable coin. It is paid out daily and there are no lock in times. Withdraw whenever you need. If you keep enough of the nexo token in your wallet to equal 10% of your portfolio then you get an extra 2% interest.

Jason Shackleton · Answer

@Kevin Lanphear Yes there is a chance.Very volitile space atm. Good luck!

Ernesto Pinedo · Answer

@Kevin Lanphear

I have the same problem. Money sitting in the bank. I am considering merchant cash advance. Monthly returns and short term but I am still looking for opinions, someone that has experience with this.

What to do with my extra rental income cash flow?

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