The money generated from investment income is one source used by investors to reinvest into other projects. A consistent source of income generated from a cash flowing property can be used in several ways. After taxes are settled annually, the profits leftover are sometimes retained by property owners. Making new investments is a strategy that experienced real estate investors use to grow a portfolio. Learning how to reinvest could change your investing income in the future.
3 Available Solutions to Reinvest Rental Income
1. Buy additional properties
2. Invest in REITs
3. Upgrade existing rentals
Purchasing a New Investment Property
The proceeds that are retained each year after taxes could be used as a down payment for a new property. The success that one property achieves could be mirrored with another home. Going through the investment process the first time can strengthen your ability to make future investments. Putting earned income into a new property could double profits during the next tax year. Tax breaks or tax increases should be explored before buying an additional property.
Spread Money Around in REITs
Trusts in real estate are becoming a source for entry-level and advanced investing. One advantage to investing with an REIT is the variance in property ownership that is available. Instead of investing into one home, dollars can be placed into trusts that invest into commercial real estate, apartment buildings and other real estate ventures. REITs offer property investors a simple solution to maximize investments similar to a mutual fund. The money earned from one real estate investment could help start another when pros and cons are analyzed correctly.
Remodel an Existing Rental Home
The IRS does have rules regarding the reinvestment of income earned from a rental home. It is helpful to explore and understand these requirements prior to investing into a home that you own as a rental. If reinvestments are allowed, remodeling your existing home could be profitable. A remodeled home could earn higher rent due to an increase in the property value. Tenants are often likely to pay more for rent if upgrades offer more amenities. The decision to upgrade your existing rental is one to explore if you have the cash to reinvest.