Real Estate Investor · Cedar Springs, MI · Member since 2015 · 39 posts · 10 votes
Hello BP,
Any insight and opinions would be great but I think this might be a depends answer. We recently bought our first duplex and it cashflows a little under $500 a month. My wife and I are trying to decide if we should pay the cashflow towards the mortgage of the duplex or to save the money and reinvest down the road to purchase another duplex. I appreciate the time of any responses and look forward to hearing from the BP community.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
7y
Why would you do what the tenant is already doing for you? The tenant is making your mortgage payment...not you. Won't help him. You're not gaining anything.
Rental Property Investor · Cleveland, MN · Member since 2017 · 518 posts · 354 votes
7y
Save the money and make yourself a reserve fund. Things will go wrong, tenants will move out, and you will be glad you have the cash to cover those things. Save it, save it, and once you have a bunch of money in the fund you can take some out and reinvest. I have an 8-plex and I like to keep my reserves at $20,000. Any more than that and I reinvest into flips. Good luck!
Grand Rapids , MI · Member since 2015 · 22 posts · 4 votes
7y
Thank you Jennifer and Joe for taking the time to respond to my question. We set aside $500 for CapEx and Vac rate and have about $480 cash flow after that. We started and still have an initial $2000 in the CapEx fund with the $500 monthly contribution to it. I will definitely take into consideration your input when making our final decision. This is why BP is so great because people can ask and get answers from other investors. Thanks again!
Why would you do what the tenant is already doing for you? The tenant is making your mortgage payment...not you. Won't help him. You're not gaining anything.
Joe is absolutely right as always!
You also have to realize that you shift the risk margin away from the bank and towards yourself with every extra payment on the mortgage that you make. The safest properties for you are the ones where you have none of your own cash on the line!
Why would you do what the tenant is already doing for you? The tenant is making your mortgage payment...not you. Won't help him. You're not gaining anything.
Joe is absolutely right as always!
You also have to realize that you shift the risk margin away from the bank and towards yourself with every extra payment on the mortgage that you make. The safest properties for you are the ones where you have none of your own cash on the line!
Exactly...with regards to your statement on risk. I'm amazed at how many REI think the more you pay off on your mortgage, the less risk you have...to the point where if you pay off a property entirely, you have no more risk. Wrong! The opposite is true. It's because of a complete lack of understanding of what risk is.
There are 3 parts to Risk: 1 - What is at Risk. ALWAYS the cash...just ask the lenders. 2 - Who is at Risk. ALWAYS the Person who sells the cash. Again...just ask the lenders. 3 - Who is the Risk. Always the person that gets the cash.
Just follow the money, and in this case, the arrow. The arrow, the direction the cash takes, always points at the person who is THE risk.
The more cash (of yours) that's in the property...the more you have at risk. When you add the cash from the mortgage payments, no matter who makes them (tenant or REI), you are adding to the risk. The difference is, when the tenant increases the cash in the property, it's the gift cash you are risking (along with anything the REI put in...like the DP). When the added cash originates from the REI, that's just more of the REI's cash that is at risk.