Hilo, HI · Member since 2014 · 30 posts · 10 votes
27 year old from Hawaii. I recently bought my first cashflow property in Orlando, Florida. I own the property free and clear. It cashflows $700 a month. Honestly, I dont know what to do with this money that is coming in. I do know that I want to re-invest the money coming in back into real estate, but I don't know exactly know what to invest it into. Should I just save up the money and invest it later? If someone could help me with this then that would be great! How can I use this money being made and have it grow for me? Book: "The richest man in Babylon" style! Any advice will be greatly appreciated!
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
Mana,
what you should do is put some money aside for emergencies, new roof, furnace, hot water heater, you never know when something will go, this way you can pay for it no problem. if you wanted to invest in another property, you could use the equity you have in that property and use it to purchase another house, by taking out a HELOC.
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
Mana,
what you should do is put some money aside for emergencies, new roof, furnace, hot water heater, you never know when something will go, this way you can pay for it no problem. if you wanted to invest in another property, you could use the equity you have in that property and use it to purchase another house, by taking out a HELOC.
Hilo, HI · Member since 2014 · 30 posts · 10 votes
10y
@Patrick Liska Thanks Patrick for the advice. I thought about doing that, but do you think I will be over leveraging myself if I am trying to create true wealth?
Orlando, FL · Member since 2015 · 42 posts · 32 votes
10y
Personally, I'd save up a nice nest egg with the cash. Obviously keeping reserves for replacements separate. After a while of saving, you can pull an equity loan and grow your business. Asking about long term wealth, it'll be difficult to grow without using leverage. Just be sure to use it wisely.
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
true wealth ? true wealth isn't determined by the amount of money you have in your bank account, it's what you do with it. having all that money vested in a single asset only opens you up to people wanting to sue you for the money you have. having other assets will increase your wealth, if you make a profit from each one, if you buy and hold and you do your math right, the tenants pay for the property and you make income on it. the real estate also becomes a tax vehicle to help diversify the income. you would rather be taxed at 25% on say a $2000 income on a paid off property, or taxed on $800 of income monthly because you borrowed money to buy other properties producing the same ? don't get me wrong, i applaud you for being able to pay it off, a lot of people struggle to do that. here is a blog i wrote recently, see what you think of it.
Real Estate Agent · Lowell, OR · Member since 2016 · 33 posts · 11 votes
10y
@Mana Silva A lot of people seem to be buying in Florida. Any particular areas that have good deals right now? I will be traveling there soon...always looking :)
Hilo, HI · Member since 2014 · 30 posts · 10 votes
10y
@Lilia Andrew Hi, I bought my cashflow property in Orlando. I have an entire team that takes care of everything for me. The entire process has been great with this company. I bought it for the cashflow now and in a few years the appreciation will be Awesome.
Hilo, HI · Member since 2014 · 30 posts · 10 votes
10y
@Thomas S. Hey Greg, I have a property management team that handles everything. It rents for $995 per month and cashflows for $700. There hasn't been any repairs so far, but I just bought it.
Hilo, HI · Member since 2014 · 30 posts · 10 votes
10y
@Patrick Liska Hey Patrick, using my scenario right now, Could you make an example of exactly how I can grow from here? I bought a cashflow property for $108K with cash, I have $700 flowing in each month, so what should be my next steps? Also, enjoyed reading your blog that you wrote.
Hilo, HI · Member since 2014 · 30 posts · 10 votes
10y
@Mitch Larrivee Thanks for the great advice. I do want to learn as much as possible about leveraging assets and building wealth. Do you have any cashflow properties in Orlando?
Investor · Verona, NJ · Member since 2014 · 1k+ posts · 832 votes
10y
Mana,
First and foremost, even though i read you have not had to do any repairs, i would set aside money for the day you do have an Emergency. i like to save at least $ 10,000 for emergency repairs and then $15,000 if you have more than one property. then you can do what you want with the extra income. not everyone has the same investing strategy, but in your case you have the option of getting a HELOC and using that money for down payments on other cash producing properties. at $108 you should be able to borrow at least $80,000 with that you can purchase at least 3 more properties at the same price and pay the closing costs. If you get 80 @ 4% int for 25 years you will pay about $400 / month, now that property and the ones after it will cash flow roughly $300 each ( if they cash flow the same ). now you have $1,200 flowing in and all your loans are being paid by tenants. your cash on cash return increases because now all you have invested in each property is the $20,000.
Investor/Realtor · Wentzville, MO · Member since 2014 · 846 posts · 431 votes
10y
@Mana Silva Is your 700 cash flow net after accounting for taxes, insurance, vacancy, maintenance/capex, and property maintenance? This would clarify your situation to better assist you with advice.
Mana your numbers do not work. There is no possible way a property worth $110,000 can cash flow $700 on a rental income of $995.
I believe you are confused about the definition of "cash flow"
The necessary return on equity, at a very conservative rate, is $250 $300 a month by itself . Deduct that from your rent and you are at $700 before any expenses. There is no way you can cover your long term expences including management and see any cash flow at all.
Bronx, NY · Member since 2015 · 50 posts · 12 votes
10y
Hey Mana!
Although I am new here, I would try to help you as best as I can. I'm 20 BTW lol. Anyways IMO ( again just my opinion ). You can refianance the property, save some of the money, and you can pull some equity out of the property to purchase a new one. BTW I have read think and grow rich, but not the richest man in Babylon yet. How was it?
Rosemead, CA · Member since 2014 · 35 posts · 7 votes
10y
If he were to purchase this with a 30 year with 20% down, how long would it take before he can pull money from a HELOC? I assume it would be at least 5 years to give room for appreciation and equity build up.
Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
10y
@Mana Silva bank the cash and resist thoughts of spending it on unnecessary items. You will have future expenses and some could come FAST. What if your A/C fails? Or your water heater or? Your tax bill comes ever year in Nov. You should have insurance. Investors get into trouble not planning ahead. Once you have strong cash reserves, then you can start looking at places to deploy the extra cash such as a downpayment on another property, etc.
I don't know what your numbers are. Based on the price, you're at least paying 2k in property taxes and 800 - 1k in dwelling. I would save anywhere from 1 to 2% of purchase price for repairs or 1% and supplement systems with an AHS warranty.
That ~330 isn't even including your PM fee.
You're probably really looking at ~400 per month in cashflow. I would just save it for right now until you have enough to down payment or until you cash out refinance down the road and combine your money.
I usually set aside money for income taxes as well. Does anyone else do this?
Investor · Honolulu, HI · Member since 2013 · 3k+ posts · 1k+ votes
10y
You could turn that $700 into a $150,000 mortgage to put 20% down on a $750,000 Honolulu property that will blow the doors off and FL profitability. Just the appreciation alone on that Honolulu property will be about $70,000 a year! It would take you over 8 years to get that amount in your "cash flow". In eight years you should have $560,000 in appreciation. You're losing money in FL.
Sacramento, CA · Member since 2014 · 513 posts · 319 votes
10y
That's awesome! @Mana Silva. There's a lot you can do with that extra cash flow too. I would set aside a percentage of that for each of the following:
capital improvements or sink fund for big ticket items such as roof, HVAC, etc
vacancy and normal maintenance repairs
cash reserves (if you finance future property, you'll want need to show cash reserves for any properties with a mortgage). And cash reserves to purchase your next property.
Yes, you can grow your property business by refinancing and taking out a chunk of the equity to purchase your next property. Or you can bank your money and buy another property with cash. Ultimately, it's really about what you feel comfortable with doing.