Best thing to do with cash flow?

10 Replies

I just picked up my first rental income property. I am in the process of having it rented out and have a tenant scheduled to move in within the next few weeks. 

If everything goes the way it should (the tenant pays the rent with no issues and no surprise repairs come up) I will be on track to begin cash flowing $650/month. 

What would you suggest is the best thing to do with this income? I plan to stash 10% into a side account for any issues that arise. But what is the smartest thing to do with the extra cash? Put it back down on the on principal? Pay down other debts? Use it for the shopping bill? 

I intend to purchase another property as well in the not so far future so perhaps stashing the money to plan ahead for this? Im all ears...  

@Vincent Plant

Do you mind if you clarify what other debts you have?

I was already leaning to the side of just stashing the money away so it will serve either/or function, first as a down payment for your next property or money to pay major capital repairs or improvements.

However, that aspect may change once you tell us what debts you have.

@Vincent Plant You want to to build your portfolio. Don't get used to extra spending money. Save it for repairs and for the down payment on the next property. If you have some really high interest CC debt or a lot of CC debt then you should probably start putting it on these bills to boost you credit score and improve your debt to income ratio.

The best thing to do right away is save it so you have a hefty reserve fund in case something happens. Next best thing is save it for your next investment. Of course, this is assuming you have your personal financial house in order, i.e. no large credit card debt or large personal loans.

It will also depend on your own financial goals.  Though my order would be to:

1) Set up a healthy reserve fund.  Enough to cover at least one major repair.

2) Pay off any high interest debt, ie credit cards.

3) Start saving for the down payment on your next investment, since you mentioned you do want to buy more rental properties.

Which is not to say you can't do some of all three, but my focus would be in that order.

I agree with @Jennifer T. and save it for a 6 months reserve fund. Banks and lenders will want to see that if you're looking to expand the portfolio. 

@Vincent Plant

  1. It sounds like your cash flow is slightly less: consider setting aside 10% of the rent for repairs (paint, carpet, plumbing, etc.) and 10% for capital improvements (new roof, new HVAC).
  2. Consider paying any debt with high-interest rates (anything greater than your cash on cash return).
  3. Save the balance for your next deal.

Good luck,

@Vincent Plant if you have any bad debt ie. credit cards pay them first. And ensure you have a little nest egg on the side in case of any repair/maintenance issues as something always comes up. Good on ya for at least picking up your first investment. Keep truckin

1.  Save three to six months in cold cash reserve for emergencies. There are high apy checking accounts out there, I have one at 4.0+% apy.

2.  Remove bad debt, if any.   Make a list of all accounts and associated interest rates. Then snowball, refinance, eliminate the highest, etc. There are many options.  

3. Max your retirement accounts ( low cost index funds by Vanguard or similar) / buy more properties

First buy yourself a small reward, you worked hard - celebrate!

Build cash reserves, 

pay off credit card debt starting with the lowest balance, not the highest interest rate, 

save for your next purchase