How Much Should You Have in Reserves Before Buying a Rental? (Plus, How to Do Deals If Your Reserves Are Lacking)

How Much Should You Have in Reserves Before Buying a Rental? (Plus, How to Do Deals If Your Reserves Are Lacking)

2 min read
Brandon Turner

Brandon Turner is an active real estate investor, entrepreneur, writer, and podcaster. He is a nationally recognized leader in the real estate education space and has taught millions of people how to find, finance, and manage real estate investments.

Experience
Brandon began buying rental properties and flipping houses at the age of 21. He started with a single family home, where he rented out the bedrooms, but quickly moved on to a duplex, where he lived in half and rented out the other half.

From there, Brandon began buying both single family and multifamily rental properties, as well as fix and flipping single family homes in Washington state. Later, he expanded to larger apartments and mobile home parks across the country.

Today, Brandon is the managing member at Open Door Capital, where he raises money to purchase and turn around large mobile home parks and apartment complexes. He owns nearly 300 units across four states.

In addition to real estate investing experience, Brandon is also a best-selling author, having published four full-length non-fiction books, two e-books, and two personal development daily success journals. He has sold more than 400,000 books worldwide. His top-selling title, The Book on Rental Property Investing, is consistently ranked in the top 50 of all business books in the world on Amazon.com, having also garnered nearly 700 five-star reviews on the Amazon platform.

In addition to books, Brandon also publishes regular audio and video content that reaches millions each year. His videos on YouTube have been watched cumulatively more than 10,000,000 times, and the podcast he hosts weekly, the BiggerPockets Podcast, is the top-ranked real estate podcast in the world, with more than 75,000,000 downloads over 350 unique episodes. The show also has over 10,000 five-star reviews in iTunes and is consistently in the top 10 of all business podcasts on iTunes.

A life-long adventurer, Brandon (along with Heather and daughter Rosie and son Wilder) spends his time surfing, snorkeling, hiking, and swimming in the ocean near his home in Maui, Hawaii.

Press
Brandon’s writing has been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media.

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YouTube
Instagram @beardybrandon
Open Door Capital

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Recently, this question came in on the BiggerPockets Podcast: “How much reserves should you have when you’re going to get into rental property investing?”

How Do You Calculate Reserves?

In terms of reserves as a real estate investor, the general requirement that banks want to see is six months of your principal, interest, taxes, and insurance. This basically means your mortgage payment, which usually (but not always includes) taxes and insurance.

Now, not all banks want that. Some are OK with just your principal and interest at six months. You’ll have to ask the bank to figure out the specific requirements.

Personally, I think six months of your mortgage payment, including taxes and insurance, is a good number to have.

Here’s an Example

If your mortgage is $1,000/month for a rental property you want to buy, it’s probably a good idea to have $6,000.

So, if you’re going to buy two properties, does that mean you need 12 grand?

Yes or no… It’s different for everybody.

But I tend to think the more properties you have, the less reserves per unit you need. Why? Because it’s not likely that all your properties will go vacant at one time or that you’re going to have a problem with all of them at one time.

In the beginning, you know less, though. So, you’re going to need more reserves to cover your mistakes.

Related: The Essential Importance of Cash Reserves in a Crisis

Close up view of bookkeeper or financial inspector hands making report, calculating or checking balance. Home finances, investment, economy, saving money or insurance concept

How Much I Have in Reserves

I try to keep around $50-$100,000 in reserves for my personal portfolio. We have a couple hundred thousand dollars in reserves on our mobile home park fund. And so it kind of depends on the size of the portfolio and what you’re doing.

But you basically want to be able to withstand months of difficulty in case something goes wrong.

There’s no hard and fast number you have to have. But if you just want a good guideline, six months is a good one to abide by.

Related: 6 Ways to Get Started in Real Estate While You Save Money to Invest

What If I Don’t Have Any Reserves Yet?

Now, if you don’t have it, does that mean you can’t invest in real estate? No.

It does mean you have a good goal to shoot for: Six months after your down payment, you want that to be saved up.

But what about this…

Could you find a partner to invest with, and your partner has the reserves? Possibly.

So, maybe you bring the deal, your partner brings the down payment and the reserves. Find somebody who’s got a little bit of money right now.

Just because you don’t have it, doesn’t mean you can’t invest. However, somebody should have the reserves. So, keep that in mind.

Hope that helps!

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What do you think is an appropriate amount of reserves to put aside as a real estate investor?

Comment below.

In a recent BiggerPockets Podcast, a listener wrote in and asked, "How much reserves should you have when you're going to get into rental property investing?" Here's the amount many banks require, as well as how much I personally have and what I'd recommend for others. (Plus, how to invest if you don't have any!)