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positive cashflow, what to do?

bigbabba

bigbabba

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Oct 3, 2008
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To get the best experience and results out of RE investing, I am trying to figure out what is the best way to spend or not spend positive cashflow.

1. Put it towards the principal of the unit that generated it?

2. use it to buy more property?

3. Use it as monthly income so you don`t have to work anywhere else?

4. Save it?


Thanks in advance
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It depends on your personal goal, current cash flow, future financing options and more. Therefore, impossible to answer without additional information.
however, I`m guessing you need more properties to achieve your goal, therefore#2 and don`t leave work....yet. good luck.
 
I guess the question was a little broad



This question is not specifically for me. I am trying to figure out what people are doing with their cahsflow. The reason I ask is before I really started researching RE investing I always thought focusing on paying down principal was the number one priority, but now I am starting to believe that increasing monthly cash flow is the number one priority. The problem with the former is that it can take a very long time before you reap the rewards but less risky I guess. I might have answered my own questions. I would like to hear what others are doing.
 
What is "a very long time"? 2 years? 5 years? 10 years? The lengh of time depends on the purchasing frequency and other factors. if you purchase every month, then perhaps it can take you 1 year. now that`s not very long, right? if you purchase 4 a year it can take you around 3 years. that is also not that long compared to working another 30 years as an employee, is it? so back to "it depends" which is still the best answer to your question :-) hope it helps.
 
If you are running a business then the positive cash flow is your pay check. If you do not need the income then re-investing is the best option but this does not necessarily have to be in more real estate. Additional payments on the mortgage on a rental property would be my last choice.
 
QUOTE (investmart @ Oct 14 2008, 07:42 PM) What is "a very long time"? 2 years? 5 years? 10 years? The lengh of time depends on the purchasing frequency and other factors. if you purchase every month, then perhaps it can take you 1 year. now that`s not very long, right? if you purchase 4 a year it can take you around 3 years. that is also not that long compared to working another 30 years as an employee, is it? so back to "it depends" which is still the best answer to your question :-) hope it helps.

sorry but you missed my question. I gave 2 examples..one was to put all cashflow in principal and the other is to build a large monthly cashflow. So I said the former..being the first example will take a long time to reap the rewards because until you pay it off you are not getting anything out of it.

I will focus on building cashflow and not worry to much about extra principal payments.
 
QUOTE (bigbabba @ Oct 15 2008, 08:56 AM) To get the best experience and results out of RE investing, I am trying to figure out what is the best way to spend or not spend positive cashflow.
Use excess cashflow from rental properties to make extra payments on your primary residence mortgage (your home).

I go so far as to believe in having lines of credit on all rental properties with interest only monthly obligation... this is to ensure I have the lowest possible monthly payment amount on those.

The idea is that the rental properties should have as high a mortgage/LOC as possible and not pay it down. This is for maximum tax efficiency (the interest on rental properties is tax-deductible).

The interest on your primary residence mortgage (your home) is NOT tax deductible. Thus, the idea is to work to eliminate this mortgage first before you start eliminating your other rental property mortgages. Excess cashflow on rentals should be used to make additional principle payments on your primary residence mortgage (home).

If the mortgage for your family home is already paid off, then you`re in fabulous shape. Should that be your case then maybe allocate that excess rental property cashflow to RRSP investing? Or to start saving each month for another rental property?
 
QUOTE (bigbabba @ Oct 22 2008, 04:03 PM) good info DWB, thanks

No Problem, thanks for posing the question...

One other thing, once you succeed in paying off the mortgage on your home with the extra payments from the rent received from the rental properties, then consider isolating your family home in a legal family trust.

Once your home is in a family trust it is far away from greedy people looking for ways to legally harm you financially for their benefit. Your home and your family are protected. Furthermore, if everything goes to hell in a handbag with your rental property business, and god-forbid you are forced to into forclosure, your investment properties and their mortgages will vanish but your home will not. This is because you insulated your family home in a legal family trust.

I`m not a lawyer by any means, but that is how I understand family trusts work. I`m still doing my research on that, so speak directly to a lawyer about this if this interests you!
 
I`m wondering if incorporating the RE biz would serve as a protectant for personal belongings such as your own home, cars or anything else worth soemthing, incase something does happen in the biz?
 
Actually when it comes to real estate it works just the opposite. Usually if the Corporation buys property a personal guarantee is required. This ties you up more than a personally bought conventional mortgage does.
 
The cashflow from our properties sit in the accounts set up for those properties. They aren`t huge right now but over time will become large enough so that any repairs, maintenance etc. will be able to happen with that money from that account for that property. None of the money will come out of my or my investor`s pockets. In our JV agreements, we have a clause where the partner or the expert can request a payout from the account if it gets too large and at this point all partners get an equal share payout from the account of the agreed upon amount if there happens to be "too much" in the account. We`re not there yet with any of our accounts...

Another good thing with having extra cash in those accounts, is when you need to apply for your next mortgage you`ll have a downpayment waiting in those accounts, even though you intend to use your JV`s money and the bank can see a record of those accounts for multiple months in the past.
 
QUOTE (MikeMcCrae @ Oct 23 2008, 03:32 PM) Actually when it comes to real estate it works just the opposite. Usually if the Corporation buys property a personal guarantee is required. This ties you up more than a personally bought conventional mortgage does.

good to know
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Sean thanks, I guess there are different ways of dealing with PCF, all ideas welcome.
 
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