BiggerPockets

We are putting our rental income into an account which will pay loan servicing. The leftover funds will remain in the account to be used in the future for repairs, vacancies, etc.

If the fund reaches a point where we believe reserves are adequate, we will consider moving some over to put towards another investment.

I am with @James Vermillion

at first we use rent to pay off any loans or repairs and then any overages will go into our next project.

my first rental has funded 4 other projects, through rents and equity

I don't understand the "live in first investment purchase". how are you renting it out too?

our first rental was our first home, we lived in it for 5 years, and then rented it for 7 years now.

we did a live in flip also, bought the home lived 4 yrs and flipped it

@Rob K I like your system Very straight forward. I can only imagine the look on my wife's face the first time I handed her an envelope with money and told her that was it.. don't spend it all in one place.

I plan to live in my first investment purchase... if that changes anything?

Eh? A property is either an investment that you rent out and (hopefully) generate some income, or its a residence. A residence is just an expensive liability, not an investment. Yeah, I know there are organizations that promote the idea "your home is your biggest investment". IMHO, its not. Add up the price, the interest, the taxes and insurance and its just a place to live. If you buy one, live in it for 15 or 30 years and pay it off, you may well have a valuable asset. But its likely you will have paid as much into that asset as its worth. And if you fall for the "starter home, move up home, mini-mansion" strategy, transaction costs will kill you. Great strategy for folks who make their money from RE transactions. Not so great for the person that's paying those.

So, I don't get your question about "What do you guys do w/ the rental income?" if you're going to live in the house.

I accumulate the money from the rentals. Two reasons. Once, is that the good months - i.e., when you have a tenant and no expenses beyond taxes and insurance - don't always happen. Stuff happens with rentals. So, you need to have cash set aside to deal with it when it happens. And, if the properties are truly profitable, I want to roll the accumulated earnings into more properties.

I self manage, and I'm willing, for now, to put in my labor for free. So, I would consider about 36% of gross rents should stay with the property (i.e., 50% less the 14% I would pay a PM). Then I have to pay the P&I out of the remaining 64%. Anything in excess of that is the true cash flow that I can put into the next property or spend or whatever. More practically, I want to accumulate six months rent for each property and then the excess can go to something else.

Well I'm planning on living somewhere where I will generate not only enough to cover the bills, but also put some money in my pocket. Also, even though 2 others will be paying my bills, I will still be contributing the cost of the mortgage from my personal paycheck into the same account.

I plan to do this until I have enough money and energy saved up to purchase an even larger investment property (think 10-20 units). Then I will rent out the last opening in my first unit (a triplex), and will get my own place to call home.

So with that being said, it seems the consensus is to make sure I have enough funds to cover any "oopsies" that occur, and then start transferring funds to another account that I will use for my next investment.

We've put putting most of it back into capex - we are in our fourth year, 48 units, all cheap and run down, so we've been putting everything backn into business. Now the plan is
1. $1,000 pe rmonth extra on most expensive mortgage
2. $1,000 mo in capex account
3. $1,000 mo in other savings account (redistributed as it reaches certain thresholds)
4. anything left over will just padd the checking account a bit

Originally posted by Matt M:
Rob K So every property deposits to one bank account, you just keep separate books and spreadsheets for each account? I suppose that would be far less work than my idea of totally different accounts per rental property.

What I'm asking though, is how much excess do you require before you say "I'm doing good, I can take this extra money out and put it into an additional savings/investment account"? Is there a percentage?

Yes. One account and lots of spreadsheets. (I know that Quickbooks is better. I haven't yet made the switch). I leave a few grand in that account for emergencies. I usually know ahead of time if I will need to replace a roof. A furnace can go out at any time, but it's usually only $1,000-1,500. The money could always come out of savings in an emergency. It's not a life sentence. I would recommend having enough liquid cash to float you through six months.

I find it very interesting that @Jon Holdman figures 36% for taxes, insurance, and repairs. That's the exact percentage I spent in 2012. Must be a good rule of thumb.

I do, yes. I have an LLC and it has bank accounts. A savings account that I use to hold security deposits (those aren't income) and a checking account for everything else. Income goes into the checking account and all bills for the rentals get paid out of that account.

Some states have specific laws that may dictate exactly how you handle security deposits.

@Jon Holdman great idea about keeping securities separate.... I like that.

@jenn do you live in any of your rentals?

I lived in my first condo for 5 yrs....then rented it out when we moved out if state.
Still renting (going 8 yrs)

Bought new construction as live in flip, sold after living 4 yrs. We knew our time line. Military town.
Then got into retail commercial shop rental...etc