Orchard Park, NY · Member since 2012 · 82 posts · 1 vote
Do you pay off the mortgage at a higher rate? Do you put the money into savings for THAT property incase it needs work? Do you put it into its own savings account to use for future investments?
Lexington, KY · Member since 2009 · 2k+ posts · 1k+ votes
13y
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.
Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
13y
I deposit all rents into a business chacking account. I have all of my mortgage payments set to be automatically paid from that account each month so I don't have to write any checks. I then have a set amount that I put aside for taxes and insurance. (It's my own escrow account). It goes into a different account that I don't touch. Next, I have an amount that I transfer to savings each month to be used for new purchases. After that, I transfer an amount to my joint checking for household bills. I also put cash in envelopes for the wife to by groceries, etc. It's the Dave Ramsey system. Whatever is left stays in that original checking account for repairs, etc. When that account gets over a certain number, I transfer more to savings for additional purchases. So far, it has worked out pretty well.
Residential Real Estate Agent · Pearland, TX · Member since 2013 · 163 posts · 32 votes
13y
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.
Orchard Park, NY · Member since 2012 · 82 posts · 1 vote
13y
Jennifer Lee what do you consider an "overage" that you can use on the next project?
Rob K you dont have a separate account for EACH property? Rather, all of your properties deposit into a general account? If that is what you are saying, that idea makes me nervous as it makes it tougher to track gains/losses/etc for that individual property.
Also Rob, how do you know when its considered "enough" in order to start xferring to another account?
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
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.
Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
13y
Originally posted by Matt M:
Jennifer Lee what do you consider an "overage" that you can use on the next project?
Rob K you dont have a separate account for EACH property? Rather, all of your properties deposit into a general account? If that is what you are saying, that idea makes me nervous as it makes it tougher to track gains/losses/etc for that individual property.
Also Rob, how do you know when its considered "enough" in order to start xferring to another account?
My accountant has me set up with an internal management company. All rents are made out to one company and deposited to that account. I do not have a seperate account for each property. I would go insane. I keep a seperate Excel spreadsheet for each property and record everything there. I'm a total nerd when it comes to money and receipts. I religously input each number that day.
I'm not sure what you mean by "enough" to go to another account. For example, I put $5,400 aside each month for taxes and insurance. Is that what you mean?
As far as how much for groceries each month, there was a real learning curve. We started by using a credit card. Total nightmare. We then switched to a debit card. I cut it up with scissors after the first month. We now budget for groceries, eating out, etc. It needs to last the month. I looked over receipts from previous months to come to a number. It has worked out fine since we started using cash. We did have to raise the amount as food prices have gone up. We also eat organic food, so milk is $7 per gallon. Worth it for my daughters to not to be over developed at young ages from all of the growth hormones. I guess that's another discussion.....
Orchard Park, NY · Member since 2012 · 82 posts · 1 vote
13y
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.
Orchard Park, NY · Member since 2012 · 82 posts · 1 vote
13y
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?
Rental Property Investor · Winslow, ME · Member since 2008 · 826 posts · 281 votes
13y
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
Investor · Southeast, MI · Member since 2012 · 2k+ posts · 1k+ votes
13y
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.
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y
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.
Real Estate Broker · Gibsonia, PA · Member since 2013 · 828 posts · 260 votes
13y
I keep all my property separate (llc or personal)
I have several rentals now.
we, or I, don't like DEBT. so overages = when I can pay cash or enough down.
it helped that I moved from a city that 1-2bedroom condo started 450,000+ to a 4-5 bedroom single family for <200,000 town
I am not like most investor here... I m a slow steady, turtle.
we invest for future not to put food on table.
I buy a property every 2-3 yrs. only this year I have investors that are asking me to invest for them. hence I am getting my license b/c I need one to do that here!
Rental Property Investor · Milwaukee, WI · Member since 2013 · 6k+ posts · 4k+ votes
13y
The thing that stood out to me in this discussion so far ... holy cow (pun intended) -- $7 for a gallon of milk??? I buy it at $2 per gallon.
What I do is have all rent money deposited into two accounts ... one account is for the properties I co-own with someone else, and the other is for properties I own myself. Expenses come out of those accounts depending on properties. I account for money per property using simple accounting. (Credit cash, debit repair expense for example.)
Real Estate Broker · Gibsonia, PA · Member since 2013 · 828 posts · 260 votes
13y
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
Investor · Union, NJ · Member since 2011 · 838 posts · 295 votes
13y
First and foremost I pay all mortgages, taxes and insurance and then any repairs and or maintenance that may be needed next.
I then take what is left and split it in half, investing half in the stock market (usually dollar cost averaging into some mutual funds and stocks I like, and the other half goes towards cash reserves for capital expenditures and or savings for another investment.
I like to invest a fair part of my rental income into the stock market to diversify and hold hard assets as well as securities that pay dividends to create additional passive income.
I am very disciplined have have stuck to this system for about 8 years now andf have created a decent amount of passive income via dicidend paying invesstments as well.