What to do with all this cash flow???
8 Replies
Some links on this page may be affiliate links, meaning BiggerPockets may earn a commission. Affiliate links do not reflect member endorsement.
Chidi Osuji Investor from Evanston, Illinois
posted over 2 years agoMy two partners and I are making about $1500 per month in Cash flow only deducting the mortgage. If we put 10% away for maintenance, repairs and vacancy, we're left with a little over $1200 per month. What to do with that extra money is a topic of conversation. We can:
1) Take the cash flow and split all of it 3 ways to help with our personal finances
2) Take no money out and aggressively pay down the mortgage over a few years (we owe ~$82K) to get it off our records, own the place free and clear and eliminate mortgage payment (P&I ~$412/mo). Re-invest in RE with the equity
3) Take no money out and accumulate cash reserves to re-invest in building #2
4) A combination of 1 & 2 or 1 & 3.
My thinking is there's no tax benefit to paying down the mortgage principal and I could use the extra money ($400/mo) now to pay bills. But don't want to be too short-sighted.
What do we do?
Mike Hartzog Lender from Redmond, Washington
replied over 2 years agoDon't forget to account for insurance, property tax, vacancy, and cap-ex on the big ticket items which will eventually need to be replaced (roof, water heater, HVAC, etc).
Assuming you and your partners have some time to go before retirement, I think #3 is the clear answer. Reinvesting your returns is a hugely important if you want to increase your cash flow over time. You should be plotting your course to position yourselves for making the next investment.
Randy Landman Investor from Lake Saint Louis, Missouri
replied over 2 years agoSounds like you're getting a great return. Well done. I would hold off on pulling out the cash flow as long as you can. Put it back into the business and let it grow. Option 3 would be faster. But option 2 would be safer. I just depends on how much risk you can tolerate.
Wayne Brooks Real Estate Professional from West Palm Beach, Florida
replied over 2 years agoYour big ticket items will bite you if you do that. Houses are similar to heavy equipment I used to own. New tracks on a dozer/excavator are about $24k. It happens about every 2 1/2 years, whether you budgeted for it or not.
Account Closed
replied over 2 years agoAaron Mercer Investor from Pokolbin, NSW
replied over 2 years ago@Chidi Osuji It seems like a tough problem...all this cash flow!
This is a personal decision - or three persons decision as is true in your case. I agree with @Account Closed however and if this cash flow is a recent 'problem' I would wait a while to let the dust settle. Time (and maintenance bills) are the true measure of cash flow.
Ames Foley from Belleville, Illinois
replied over 2 years agoJeremiah H. Investor from Tavares, Florida
replied over 2 years agoI would increase my cash reserves to more than you think you'll need then reinvest it via option #3. Since you are talking about paying bills with $400 it gives me the perception you don't have enough reserves in both business and personal.
Account Closed
replied over 2 years agobuy out your partners! become the man!
Join the Largest Real Estate Investing Community
Basic membership is free, forever.