I use my cash flow to pay off my mortgages one at a time. This may not the best strategy for everyone, in fact in a perfect world where I could get as many fixed rate, 30 year mortgages as I wanted I would not pay off my rentals. If you are short on cash to buy new properties or don’t have an emergency fund you may need to save your cash flow.
If you plan to pay off your mortgages quickly, you can also save and invest that money until you are ready to pay off the properties. I currently use my monthly cash flow to pay down one mortgage early every month. I am thinking of saving that money instead and investing it until I am ready to pay off that property. This can be a risky strategy if you are putting your money in the stock market, which could go up or down in the short-term. I am not a huge fan of the stock market and I have a few other investment opportunities I am looking at.
I think it is a must that you buy rental properties with positive cash flow. How much positive cash flow you need is a decision you will have to make based on your goals, financial situation and local market. It is not easy to find great cash flowing properties, but buying homes below market value is a great way to get started.