I just signed a one year lease on my first rental property. Should I save the income for future expenses aka reserves or reinvest?
Personally, I recommend having cash Reserves assigned to the property when you buy and work that into your numbers. And of course I would recommend that you reinvest any profits from that point forward or save for your next investment. You want to make sure you are stable before you buy the next one, so if you don't have cash reserves already, save them up.
In your "rent roll" you should have line items for a variety of items. Things like property tax, mortgage, insurance, maintenance, utilities, pest control, capex, management, etc. Those amounts should be set aside each month and designated for the purpose intended. Some bills only come annually or semi-annually such as taxes/insurance, and I break everything out into a monthly amount. Each month, that money gets swept into a bank account designated as "set asides" as that money needs to be there when the bill comes due.
I have a separate account for capital expenses. For one single family home, about $10,000 should be enough to keep in there. ie, that would cover any typical major expense such as roof, HVAC, sewer/septic system.
Once you have your $10k saved up, then additional funds go into your savings towards the next property. If you spend it down, then you feed the account again until it fills up.
Do you have any savings personally? If you don’t then you need to save the income until you have at least 10k+. Since this is a new property you don’t really know much about the building, there could be maintenance repairs that need to be done that you have no idea about until something breaks so make sure you have at least 10k saved before reinvesting it.
As a couple other people mentioned, I would recommend having money set aside as a reserve for any unexpected events or repairs. I would also have $10k+ set aside for the reserve before moving on to the next property. Having your financials organized each month via rent roll will give you a great look at the monthly costs as well. You can also have annual or semi-annual costs as part of your financials. There are quite a few different property management software companies that can help organize financials and provide a rent roll option.
Congratulations is your rental property single or multi-family.
@Chris Herrera it was our first home, will need an HVAC unit at some point. Other than that, it’s in great shape.
@Francisco Martinez III thank you, single family home. It was our first home, our plan is to buy a home every two years and rent the one we move out of. This way we get a lower rate on our mortgage and lower down payment.
This is the plan until there are more opportunities in our area for good deals.