This post is aimed directly at real estate investors who are buying properties as a way to generate additional income. So often, we forget that the income that is coming in has value too. Not just in our pockets, but also as part of your long-term investment strategy.
It was not so long ago that I was fixing up homes and then selling them to end-buyers who would live int he property. I loved doing this and I had fun, but I also got a bit of a knot in my stomach as each deal closed. I may have been holding a check, but I also knew it was my LAST check on that property. I needed to find a way to make the dollars I got from each property go further.
I did not need the income to live off of. I did not need the income to cover a bill or to pay for a new car or a vacation. I could do all of those things already with the other income from my full time job. So I began to use the income from that property to purchase passive investment properties. We also get questions from time to time where an investor has a portfolio of investment properties and they are wondering what to do next. They are making a not-too-shabby income from your real estate investing business. They may not be Trump, but they are not chumps, either.
Needing to figure out how to re-invest profits from a real estate business is a great problem to have. There are so many positive outcomes that grow from trying to figure out how to improve an investment portfolio. I decided to write out a couple of other steps. Not just buying passive properties, but also ways to improve the properties you already own. Take a look and let me k now what you think!
1. Reinvest in Your Properties
Putting some of your money back into the properties you already own is a wise investment. I am talking beyond the standard maintenance costs; I'm talking about adding value to your property with cosmetic improvements and additional amenities. This kind of commitment to making the property an attractive place to live can help you keep your good renters, and it increases the value of the property should the time come that you decide to sell. This obviously speaks to a portfolio owner who has properties that he or she plans to keep for years to come. I am a big believer is fixing thing s the right way and re-investing back into my properties. I am true believer that spending $1 today on preventative repairs can save me $2 tomorrow on major overhauls.
2. Emergency Fund
We talked about this in a recent post, but it's important enough that it bears repeating. An emergency fund is for expenses that go beyond expected and reasonable maintenance costs; this is a fund for unexpected expenses that can arise throughout the course of your investment career. Lawsuits (even if you do everything right, you're not immune), extended vacancies in your properties, and unexpected repairs are just a few examples of expenses for which you should be prepared. I want to make sure I didn't scare anyone there! You can do a lot of things to protect yourself from hiring a great property management company to eliminating as many deferred maintenance items as possible. In the end, having an emergency fund is not only about protection, but it is also about being wise.
3. Pay down Debt
What many investors do not always consider when using leverage to buy real estate investment properties, is that the interest paid on a property is the single biggest expense they will have not only monthly...but over the entire length of the loan! Often times, investors using a 30 year mortgage will pay $2 in interest for every $1 borrowed - even at todays' historic low interest rates. It only makes sense to consider paying down the principle debt on an investment property - even a little - each month. If you have a good emergency fund and have completed any necessary upgrades to protect your property, then a wise investment would be to save yourself some interest payments in the long-run and reduce principle.
What other ways can you think of to reinvest your real estate profits into your business? Tell us in the comments!