First time investor: What to do with with cashflow

[Charley F.]

Greetings all:

I recently purchased my first investment property and I need advice on what to do with the additional cash I make from rent.

The rent is $1,175 and my expenses are $717.93 (Include principal, interest, taxes, hazard insurance, home owner association, property manager and commission).

That leaves me positive income of $415.07

My question is, what would be the best way to make use of this money? Save it? Add it to the principal? Or Both?

Your help is much appreciated. Thank You in advanced

[Will Barnard]

Charley,
Every area is slightly different but on average, most long-term buy and hold investors who are seasoned will show approx. 50% of the gross income going to expenses including operating, vacancy, loss to rent, and capital. The balance 50% is what is left for debt service and cash flow.

If you would post your actual mortgage payment (not counting any taxes/insuarance/HOA - which are operating expenses), that would better help us evaluate how much "true" cash flow you have.

Before you do that, here it is without having that info:
$1175 gross rents less $587 for expenses less your mortage payment = your true cash flow.
So the $415 cash flow you stated is not true as you must allow for vacancy expenses, loss to rent, eviction costs (you will have them over time), repairs, tenant damage beyond the security deposit, capital expenses like new roofs, new AC, new water heater, etc., advertising/marketing costs, accounting costs, and more.

I would highly suggest you pack the entire $415 away into your business account for the expenses that are not monthly but pop up from time to time. This way, you will not be coming out of pocket for them.