So I had an idea that of the money you get from a rental property (the expenses such as repairs, vacancy, taxes and CG) since you dont want to spend this and save for big ticket items in the future, where does people put that money? Would make a lot of sense to put it into something that you could gain compound interest and make that money grow even larger! Where do the savvy investors put that portion of the money?
In a high yield savings account with an online bank. You get much better rates and the money can be accessed almost immediately if you're willing to pay for a same day wire transfer or within a few days if you just do a normal wire transfer. You can get rates close to 2% just make sure the bank you choose is a real back and is part of the FDIC.
The next property.
Honestly, I put about 20-30% of my checks into
1. ETFs - they are semi-diverse funds available on the stock market. Having them essentially be a "portfolio" of multiple stocks reduces the negative (and also positive) effects. Do a bit of reading!
2. REITs - Real Estate Investment Trusts. My fave. Many of these pay monthly dividends. Specifically search for the ticker "O"
@David James I put that money into a money market account at the bank that gives me the most loans because they require that I have about 10% in deposits. I make close to 2% in the money market account.
IMHO everyone above is correct. You should consider a ladder approach:
1) You should have reserves in case something breaks; tenant stops paying; etc. depending on how conservative you are 3-6 months should do the trick. These should be invested in the bank accounts mentioned above.
2) After your reserves you could start putting that money into the market. Lucas had some ideas above. Think low cost highly diversified. I'm not a fan of the REITs in this use case. You are going to get killed in taxes and dealing with the K1's at tax filing is a pain. There are a ton of Robo advisors out there that will manage the money on the cheap.
3) Then lastly, once you have enough saved listen to Joe and rinse and repeat with your next property!!!!
You can also explore the option of putting it into the property also. Being proactive vs. reactive will help you out in the long run and improve your property. The yield from the force appreciation of those repairs and updates will pay in increase rents, property value, and taxable expenses is going to return far more than the 2% in money accounts.
Great information from everyone!!! Thank you all so much. I will definitely do some research into each strategy.
@David James I'm keeping some of my money liquid so I'm ready for the next deal. PNC bank or Capital One 360 are about 2% interest. You can just open them on-line.
Put it where it gets the highest returns possible and that is the next property . If your making 1-2% it’s better than nothing but of coarse that won’t result in much gains unless your dealing in big numbers on the balance in that account . There’s a reason money is called “ currency” ...keep it moving !