My 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?
Don'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.
Sounds 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.
Your 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.
@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 @Joey Noel 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.
I 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.
buy out your partners! become the man!
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