Where to put your savings

Black Enterprise, Oct, 2005 by A. Richardson, Matthew S. Scott

Q A My husband and I own a two-unit rental property. We get $600 per month for it. We currently place the money into a savings account and use it to pay property taxes and insurance, which total $3,600 a year. We plan to use the leftover money for future real estate purchases and property repairs. Is a savings account the best place to keep our money?

A. Richardson

New Orleans

Saving $600 per month from your rental property and paying $3,600 a year in taxes and insurance leaves you with $3,600. Unfortunately, in my opinion, that sum is not quite enough to adequately take care of repairs and more real estate purchases. And keeping the amount you'd save in an account earning 2% or less won't really be helpful since real estate prices are appreciating far faster than the interest you'll earn. I would suggest using your savings to enhance the appraised value of your current rental property.

Refinish hardwood floors, add stylish lights or brass fixtures, renovate a kitchen or bathroom. If you make repairs that add value, you'll create equity you can use for purchasing property in the future.

After a year, look to establish a home equity line of credit from which you can draw when you are financially ready to take on another mortgage and increase your real estate holdings: Hake sure you factor in escalating energy costs and insurance before you increase your investment property holdings. --Matthew S. Scott