What to do with cash flow?

Question

If I have 30k in cash reserves for one property, would it be smarter to use the cash flow to pay down the loan quicker, save for another property, or continue to build cash reserves for unexpected expenses?

Jesus Suarez · Answer

Saving for another property is generally the smartest mathematical play for maximizing long-term wealth, provided your current $30k reserve already fully covers 3 to 6 months of capital expenditures, maintenance, and vacancy. Paying down a low-interest mortgage ahead of schedule permanently locks up your liquid capital in exchange for a relatively low return, whereas reinvesting cash flow into a new asset compounds your portfolio growth much faster.

G. Brian Davis · Answer

What is your goal? If you’re trying to grow the portfolio, I’d probably keep more cash available for the next opportunity. If you’re more focused on reducing risk and paying off debt, then putting extra money toward the loan may make more sense. I’d make sure you’re comfortable with your reserves first, though. Things always seem to break at the worst possible time. Once you have enough cash set aside, then it really comes down to what you’re trying to accomplish with the property.

James Mc Ree · Answer

The answer depends on your financial plan. Do you want another property?

$30k Is a high reserve for a single SFR. It might not be enough for a large apartment building. You need to provide more context to decide what to do with it.

In the meantime, find a good investment advisor for 2 purposes: help identify where to invest your cash until you need it; and develop a full financial plan that includes your family goals, income, expenses, etc so you can map out your future with (or without) you real estate.

Denise Supplee · Answer

$30,000 sounds like a healthy reserve for one property, depending on what major expenses you may have coming up. Since you're just starting out, I think what you do with the extra cash flow really comes down to your goals. If you want to grow, save toward the next property. If being debt-free is more important to you, pay down the mortgage. I'd just make sure I had a comfortable reserve first, then put the rest toward whichever goal matters most to you.

Caleb Brown · Answer

Up to you. If you have personal income outside this that you can use to add doors then I'd leave the cashflow alone, it can be reserves for this and future properties. Once the reserves hit a point you can use some to purchase another. Paying down the loan is often ideal for long term properties you'll hold awhile. 30K is a good amount for rainy days

Mohammed Rahman · Answer

Hey Timothy,

I'd probably prioritize building and maintaining a healthy cash reserve before aggressively paying down the loan. Real estate has a way of producing unexpected expenses, and having liquidity can be much more valuable than having a slightly lower loan balance.

Once you're comfortable with your reserves, I'd look at your goals. If you're focused on growing the portfolio, putting the cash flow toward the next property's down payment and closing costs may make more sense. If you're happy with the size of your portfolio and want to reduce debt, paying down the loan becomes more attractive.

There's no universal right answer. It really comes down to your risk tolerance, the property's cash flow, and what you're trying to accomplish over the next few years.

All the best! Feel free to reach out. I'm always happy to help in any way I can.

Jules Aton · Answer

Great problem to have and illustrated the importance of having a written financial plan. It will answer these questions and avoid emotional missteps.

Timothy Patten · Answer

@Jesus Suarez this feels like the move I will be making. Thank you!

What to do with cash flow?

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