Are you an established real estate investor or someone aspiring to be one? Why are you into real estate investing?
No doubt, it’s a very exciting business and investment, but that’s not the main reason why people become real estate investors. The ultimate goal of such an endeavor is to MAKE MONEY. And how do real estate investors make money? Through rental income, of course! Basically, you buy an investment property, fix it up to a rentable state, rent it out to tenants, and collect a monthly rent (i.e., rental income from your point of view). But what do you do with this rental income to put it to the best use possible? There are many options how to spend your rental income, but the best ways to utilize it are those that will allow you to make more money in the future. Let’s take a look at them:
1. Use rental income to cover the running costs of your income property
Unfortunately unless you are already rich, paying for a rental property does not end with “buying” it. In most cases, you will put a down payment in order to get the right to use this real estate property, and then you will make monthly mortgage payments for a number of years, usually 15 or 30. This is expected to be the major cost associated with owning an income property. In addition though, you have annual property tax and insurance payments, REIT fees, repairs and maintenance, and renovations (though the latter are somewhat optional). The most logical way to cover all these recurrent costs is to use your rental income. However, you should make very careful calculations and budget diligently prior to buying a rental property to make sure that your rental income will exceed your costs as a real estate investor and a landlord in order to have positive cash flow, i.e., in order to make money from your income property rather than break even or even worse – lose money.
2. Use rental income to improve your rental property
Another way in which you can use your rental income in a very productive manner is to make some fixes and renovations around the house to improve its quality and ranking. The more luxurious a real estate property, the higher rent you can charge for it. It is important in this case though to renovate smartly – choose such fixes which cost relatively little but can add a lot of value to your property.
3. Use rental income to become a better real estate investor
Another excellent way to spend some of your rental income is to sign up for real estate classes, either in a classroom or online. While these do not cost much, they cover a wide variety of topics which will make you a better real estate investor by supplying you with more knowledge and advice on how to use real estate investment tools in a more efficient way. Actually, real estate classes are one of the greatest real estate investing resources as they also provide opportunities to meet real estate investors in specific and experts in general, to expand your real estate investment network, and to build potential future real estate partnerships. No one was born a successful real estate investor, that’s a status which can be obtained over time. And the more one learns about real estate investing, the closet he/she gets to this target.
4. Use rental income to make your investment property yours
Unless you’ve already paid off your mortgage or bought your income property in cash, it’s a great idea to save up some or all of your positive cash flow to finish up with your mortgage earlier than scheduled. There are two options to refinance your mortgage: either increase your monthly payments by a certain amount or save up a lot of money and pay off the rest of the loan at once. Though banks charge a fee for rescheduling a mortgage, it is very small compared to the interest that you will have to pay overtime otherwise. Once you’ve covered your mortgage, you will have much higher positive cash flow at the end of each month, which you can put to many great uses.
5. Use rental income to grow
Last but not least, you should use your rental income as a spring to make your jump as a real estate investor. That’s one of the best growth strategies in the real estate investing business. The idea is simple: put any remaining rental income at the end of each month aside in order to save money for a down payment on a new investment property. Indeed, experts recommend adding a new rental property to your investment portfolio every 2 to 3 years. This rate might sound crazy, but you get the point – you should try to always grow as a real estate investor. Once you’ve saved enough money, buy a new income property. By this time, you will have gained enough knowledge and experience as a property owner and a landlord to make sure that you can deal with managing multiple properties. Then you can use the rental income from the first property as well in order to pay off your mortgage quickly. Alternatively, you could sell your first property and together with the saved money buy a bigger, make luxurious real estate property fully in cash. Such properties tend to provide excellent rental income and cash flow. Once you are ready to start hunting for your next rental property, make sure to include Mashvisor in your search among thousands of amazing properties across the US.
There are many ways in which you can use your rental income in a productive manner. Which option or a combination of options you choose is a matter of personal preferences and current priorities. Just remember that whatever you decide to do with your rental income, it has to be something which assures your growth as a real estate investor and which will eventually generate you even more money. After all, that’s the smartest investment move.