So, you’ve purchased an investment property. The renovations have been completed, the residents have signed a lease, and you’re ready to start earning some sweet, sweet passive income.
But what should investors be doing with that passive income, exactly?
Managing your cash flow is a key component to success in this business. After all, it’s not enough to earn passive income: you’ve got to know how to utilize it effectively.
5 Things Owner-Investors Can Do with Rent Payments
Option 1: Save Up and Scale Your Portfolio
The key to building substantial wealth in real estate investment is a growing, active portfolio. Acquiring multiple properties establishes multiple streams of income. For the investor, the primary benefit in owning multiple income-generating properties isn’t just about getting more money: it’s about reducing your overall risk.
It’s true, you’ll be earning more money (so much so that, eventually, it could even replace your primary source of income). However, the big benefit is this: when you have multiple properties generating many streams of income, if something goes wrong with one property (such as a vacancy, late rent payments, or any other disruption in normal operations), you won’t suddenly be without cash flow. Instead, your other streams of income will pick up the slack and keep you earning passive income despite bumps in the road.
That’s why one of your top priorities should be growing your portfolio! So, save up for your next property down payment.
Option 2: Keep Investing in Your Property
As the owner of a rental property, part of your responsibilities is to grow and maintain equity in the property. This is one of the big differences between a single-family rental as an investment and a personal residence as an investment.
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At one time, one’s personal home was considered an investment. However, most people simply don’t maintain their homes well enough to come out with a big enough payday unless they are extremely lucky. Investors, however, are highly attentive to the needs of their properties. Careful maintenance and upkeep over the years minimizes the work to be done when the time comes to sell. And it’s not just upkeep but improvements too!
Bolster that emergency fund and use some of your rent payments to ensure quality repairs and improvements so that you can offer competitive rates, maximize your rental income, and maintain the equity you’ve worked hard to build!
Option 3: Pay Off Your Mortgage Balance
One of the advantages in earning passive income through rent is that you’re not the one paying for your mortgage. Leverage is incredibly beneficial here, and not just from your mortgage lender. If you utilize both a mortgage and rental income to pay for your property, you’re ultimately only on the hook for the down payment. Over time, you’ll earn that back, too! This allows you to take full advantage of your equity growth potential.
Option 4: Fund Your Dream Retirement
Listen, cash flow from rental properties takes time to build. After all, paying down your mortgage debt takes time. When you do finally pay off your property, though, the cash flow you earn turns into pure profit. Granted, you’ll still want to utilize some of your funds for emergencies, maintenance, and repair costs. But eventually, you’ll have cash flow that doesn’t have to go towards the bills. And that’s a bonus on top of the equity you’re building.
Use that cash flow to establish the retirement you want. Multiple streams of income are the only way to do this! Not only will you be able to bolster your retirement funds, but you’ll continue earning income long after you retire from the daily grind.
Option 5: Enjoy It!
Of course, earning passive income through your real estate investment doesn’t have to just be about retirement. It’s really about peace of mind. Once your debt obligations and due diligence have been satisfied, you’re free to enjoy your passive income however you’d like! Whether that’s easing the burden of other debts, going on a sweet dream vacation, setting about college funds for the kids, or meeting any of your big financial goals.
As a real estate investor, you benefit from your investments in three primary ways: tax advantages, equity/net worth, and cash flow. While you should certainly manage these funds responsibly, you’re also allowed to enjoy them!
