best use of monthly rent

[Gil Ganz]

hey

not sure if this is the correct sub-forum but i'l give it a go. planning on buying a property, long term rental, all cash. now, say i have around 500$ coming in to my account every month (this is in theory, after all expenses are paid and taking into account vacancy, small repairs, capex etc'). current plan is buy a property every once a while (at least every 2 years, could be less once mortgages will be an option for me, non us citizen starting to invest here. talking about properties in the range of 60-80k). letting the money sit in the account until i buy my next property does not seem optimal to me, but on the other hand investing it in the stock market or something like that does not sound good either because i will need that money in a short period. perhaps i'm overthinking it but i'm trying to see i'm leaving any money on the floor so to speak :)

what do people around here do? 

[Joe Villeneuve]

Use the cash flow as income.  If you run the numbers, you'll find the using the cf to invest with is a losing strategy.  Run the numbers.

Based on your scenario of $500/month, $6k/yr & an $60k property (low end):

1 - It would take you 10 years, if all goes perfect, before you got your money back...and then invest in the next property, where...

2 - You would immediately fall behind by another $80k (assuming after 10 years, $60k property now costs $84k), and it would take 6 more years ($7k x 2 properties) to break even again, before you invested in another property (assuming all has gone perfect for 16 straight years now...not going to happen).

3 - After the 2nd property is made whole again, you buy your next (3rd) property, and you would immediately fall behind by another $105k (property now costs $105k), and it would take around 5 more years ($7.5k x 3 properties) to break even again, before you invested in another property..

Let's take stock of where you would be at this point.  After 21 years, you would have:

a - 3 properties

b - No debt

c - $22.5k/year in income/cash flow

d - Made no profits during those 21 years, and...

e - Will have at least had to replace (pay for) 7 - 8 roofs, 6 kitchens, 10 floors, 8 furnaces & HWH, and various other repairs not covered by any hold backs.  Which means, since you would have put all your cash flow into paying off the properties, and kept no profit, all of these costs came out of your pocket.

So, you would be at a constant loss...and that loss would be growing with every property you buy, and with every year of ownership.

As long as you are buying with cash, you are losing money.  Profit comes ONLY AFTER you recover all money you put into this from out of your pocket.

My suggestion is to not buy rentals...yet.  First, take your cash and flip it for immediate profit.  Then take those profits, and add them to the original cash, and invest that again in flips, and repeat this over and over.  You'll be getting to your rental goals much faster, and with more money to work with.

Keep doing this, until you are able to get those loans,  Then, keep flipping, but take the profits (ONLY) and use them as down payments on your rentals.  This way, you only need to recover the DP money before you start showing a profit.