What is the smarter move?

Question

I have my first rental and plan on buying more throughout the years. What is the smarter move when it comes to spending your rental income? Use it to pay off the houses quicker so I can have even more rental income in 15-20 years? Or use the rental income to pay for my other bills in life? (Car payments, groceries, phone bill, utilities)

Theresa Harris · Answer

If you plan on buying more houses, the best option is to save that money, so you can use it as a down payment for the next house.  Let the tenants pay down the mortgage as interest rates are still low.

Anytime you earn more money, the temptation is to increase your spending, but the best thing is to pretend that money never existed and continue to live as if your income was lower.

Steven Goldman · Answer

@Brandon Wallace    If you do not need money to live on than put all of t he money into your real estate investments. It is a great suggestion by @Kiera Underwood to pay down your principal faster. I would suggest you set up a reasonable repair fund with some of your excess cash flow so that you do not get caught short if you need a more expensive repair.

@Theresa Harris has a good point as well. If you are building your rental empire than using the excess cash flow to build up an additional down payment fund is also an excellent use of your cash flow.

Robert Kiyosaki preaches that you should  reinvest the excess cash flow into your real estate business and not use it to increase your lifestyle. Get rich first before you try to live large! Otherwise you are a poser.

Sergey A. Petrov · Answer

Don’t pay it off. And don’t use that money for groceries unless of course you have no other income in which case get one (get a job, drive uber, do whatever you are good at to make money). Do pay off your credit cards and the car loan unless it is on a zero percent promotional loan of sorts. Use the excess cash for other investment properties  (save it, invest it, let it grow, then deploy once you have enough for a 20% downpayment)

Kiera Underwood · Answer

@Brandon Wallace I'm a big fan of paying off a 30 year mortgage in 15 years especially if you're young. The ability to refinance and double your portfolio when those loans are paid off is great! And paying yourself instead of interest for 15 years is ideal. However I personally end up spending returns to purchase more. I absolutely wouldn't recommend increasing your lifestyle though. That's the silent killer!

Ricardo Hidalgo · Answer

I wouldn't touch the rental income for personal expenses. I'd keep it the investment account and continue to contribute more money into it to buy more. Until you have a solid NOI coming in every month, the key focus will be to scale.

Bruce Woodruff · Answer

Use OPM to get more properties. Debt can be your friend.....

Caleb Brown · Answer

If you have a job then I'd use that to supplement and pay for personal expenses. Use the income to 1) pay off the loans 2) buy more deals 3) improve your current properties.

Theresa Harris · Answer

It really depends.  Why pay off the mortgage to refinance again and get more debt especially if you risk higher interest rates?  Paying it off because you have higher interest rates, or you are done buying properties and want to increase your cash flow sooner, I can see.

Kevin Manafi · Answer

Hi @Brandon Wallace, congrats on owning your first rental property!

It's difficult for anyone to give you a great answer on this since it's such a personal question and really depends on you, your life, and your goals/finances. Generally speaking, it would obviously be ideal if there was enough cash flow to pay off the homes more quickly and take a little for your own personal bills. If there's only enough to do one of those, it becomes a bit tricky and again depends how badly you need it to pay off your bills.

If you have an older property or one with a bunch of deferred maintenance, I generally like to re-invest the money into the property to make smaller upgrades over time.

What is the smarter move?

Most Popular Reply