What does one do with the positive cash flow?

[joeiannuzzi]

In real estate investing, it is often more desirable to purchase a positive cash flow property rather than a negative cash flow one with all other factors being equal. I am very curious as to what other REIN members do with the remaining funds after all the expenses have been paid and a sufficient reserve fund for each property has been put established. Two options that I like are to make extra mortgage payment(s) throughout the year or to invest the funds into paper assets such as uranium, gold, oil, etc. Leaving the excess cash in the bank is not an option for me as inflation and taxes will erode their value on most interest bearing accounts.

Please comment as to what you all do and how you arrive at your decisions.

 

[timk519]

There`s always investing in more properties...

 

[RedlineBrett]

QUOTE (timk519 @ Nov 28 2007, 05:17 PM) There`s always investing in more properties...


Naaaaaaaaaaah... that makes too much sense.

I reccomend getting addicted to fabergé eggs and then trying to give that up.

 

[navaz]

Firstly -I would look at my goals - once you have hit the desired number of properties, then look at your goals again - either pay down the mortgage or ask yourself - why did I get into real estate? to create a lifestyle -if so - get a nice bubbly - get your lovely partner in tub and celebrate - enjoy the fruits of your persistance and hardwork!

 

[RobMacdonald]

Direct the cashflow and payoff the mortgage on your principal residence, which is not tax deductible and eventually readvance the funds and reinvest, thus improving your tax postion.

Rob

 

[timk519]

QUOTE (RobMacdonaldCMT @ Nov 28 2007, 08:02 PM) Direct the cashflow and payoff the mortgage on your principal residence, which is not tax deductibleWhat makes paying the mortgage off really sweet is that reduces the amount you`re paying with after-tax dollars.

How does one figure that out?

Before-tax interest rate = after-tax interest rate / (1 - income tax rate)

So, if the mortgage is at 5%, and your net income tax paid to the gov`t is 40% of your income, then dividing 5% by (1 - 0.40) tells you that that 5% loan is actually costing 8.33%! But if you pay the mortgage off and then borrow against the house to invest elsewhere, it becomes a business expense, and it`s actual cost is 5%, paid with before-tax dollars.

 

[timk519]

QUOTE (RedlineBrett @ Nov 28 2007, 07:40 PM) I reccomend getting addicted to fabergé eggs and then trying to give that up. I knew there was something missing from my life.

 

[BobHudson]

Many of our JV partners have asked if they can have some up earlier profits from our 2- and 3- year lease option deals.

My response has been that as soon as I can build a sufficient reserve in the project bank account, then I will look at early distribution of profits. I also warned them that we will need to consider the time value of money and we will need to ensure that all JV partners in a deal are treated equitably.

With the strong positive cash flow from the lease option deals, it is quite possible to give the investors sufficient `early profit` so that they can use it to pay the line of credit interest that they used to get in to the deal in the first place. Yes, they realize that the interest on the line of credit is tax deductible. But they feel better knowing that their monthly expense can be covered.

What they do with the early profits is up to them. But if I can give a JV partner enough money to pay for his or her line of credit interest, then it opens up a vast source of OPLOC (other peoples` lines of credit) that I can use to set up more deals!