Author Topic: What do you do with excess Rent after Mortgage? Reinvest or pay more Mortgage?  (Read 1643 times)

andysandp

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What do you do with the leftover Rental Income assuming you have money left over after paying all Expenses/Mortgage and saving for a future Repair Fund?

I know many will use the leftover money to buy more properties, but what if you decide not to accumulate any more properties?

Is there a rule of thumb what to do with the money like Stocks?  For Stocks people typically reinvest the Dividends back into the Stocks. 
Is the best thing to do is keep adding the leftover money to pay the mortgage quicker?


bytre

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With any excess, make a judgement about the best new investment you can make.  Paying down your existing mortgage gives you a pretty certain return as you know what that money is costing you, but you may be able to do better elsewhere (like stocks).  Paying down the mortgage makes that equity illiquid, you'd need to refinance or sell the property to access it.

With my rental properties, excess funds I generate currently stay in the business.  As they accumulate, I move them to a brokerage account and buy stable stocks (an index or brkb).  When I am ready to acquire another property, I sell those securities off to help fund the new property.

If you don't have a "repair fund" (or a "repair funding plan"), you are missing an important part of being a landlord.  It doesn't have to be cash earning nothing, but you do need some liquid cash you can draw on if your sewer ruptures or the roof needs repair.  I keep enough around in cash in my operating fund to handle routine repairs as they come up, but if I have a major repair I either sell off some of the reserves I keep in securities or draw on a low cost line of credit I have for the business. 

My processes work for me, think through and determine what best serves your needs.

andysandp

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Great info!  Thanks for the tips!

Drew0311

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I like bytre's ideas! I have been putting a few bucks into a peer to peer lending accounts and have been earning about 6%. I set it up to automatically invest whenever there is enough to purchase a new note. It's kinda fun and I could see this becoming a very big thing in the future and it removes friction/cost from the equation and allows you to do business with your peers or even your fellow mustacians.

NoNonsenseLandlord

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I like bytre's ideas! I have been putting a few bucks into a peer to peer lending accounts and have been earning about 6%. I set it up to automatically invest whenever there is enough to purchase a new note. It's kinda fun and I could see this becoming a very big thing in the future and it removes friction/cost from the equation and allows you to do business with your peers or even your fellow mustacians.

Hopefully your mortgage is less than 4%, or you don't have a mortgage.  P2P lending is extremely risky, certainly more than 2% riskier than paying off a mortgage.

I pay ~$6K a month on my lowest balance mortgage, and highest interest rate (5.375%).  I buy dividend stocks/ETFs with the rest, things like DVY and HDV.  All my bills are paid off, I have no debt but three rental mortgages (and 6 properties already paid off)

The cash flow can be amazing with no mortgages.  Most often, from a cash flow perspective, paying off a mortgage is better than buying a new rental.