What Hurricane Irma Has Taught Me About the Importance of Cash Reserves

by | BiggerPockets.com

I live in Southeastern Georgia on the coast, which was undoubtedly impacted by Hurricane Irma. This included mandatory evacuation, temporary work closure, and scrambling for portable food and available hotel rooms. During the week-long ordeal, the constant of barrage of images of torrential rain, flooding and downed trees created a sense of gloom of what I would find upon finally returning home. Likewise, I had similar concerns for the tenants and properties of my rental portfolio in Jacksonville, Florida—further south and therefore more exposed to the effects of the hurricane.

I feel very fortunate to report that, relatively speaking, we came out of this ordeal with manageable damage both to my own home and my rentals. I define “manageable” as no significant flooding, no direct hits from trees, and no need to file insurance claims. Nonetheless, the following communication from my turnkey provider/property manager attests to the fact that I will be facing some unusual financial challenges over the next couple of months, which prompted me to write this blog.

Related: The 6 Best Things You Can Do to Prep Your Home for Hurricane Season

Letter from My Turnkey Provider

Hurricane Irma’s Impact on My Tenants’ (and My) Finances

When we screen our tenants, we are very strict on verifying that their monthly income is three times the rent. With an average rental rate of approximately $1,000, this translates to a minimum requirement of $36,000 gross annually. In most cases, our tenants’ household income is in line with the national median household rate of approximately $57,000. Their jobs include bus driver, dietician, and retirees working part-time. These are good, salt-of-the-earth people, but they’re also not necessarily able to withstand a significant short-term cash flow crunch.  

When you factor in that many of the tenants have missed five days of work or more and have extra hotel and food expenses, you can see how they might quickly exhaust their savings. 

So, not only am I faced with the dilemma of half of the tenants or more having payment issues over the next two months, but I also have elevated expenses related to tree pick-up and minor structural damages. Combine this with my debt service, and this is likely to be the first time in over three years of ownership that I will have to feed my portfolio as opposed to receiving its usual cash flow. Given the relatively measured pace of my property acquisition and prudent use of leverage, it is a position I never thought that I would be in.

This underscores the often-repeated mantra that I have read on this site and heard on the podcast: If you’re going to be in the landlord business and survive long-term, you need to have adequate cash reserves. Roofs wear out, HVACs die, pipes burst, and yes, hurricanes happen.

Related: How to Gauge Your Property’s Flood Risk by Using Free Flood Maps [Video!]

The exact amount of reserves is a matter of debate, as I have heard amounts advocated ranging from as little as $500 up to $10,000 per property. Personally, I allocate $1,000 per property, which has always been more than sufficient in the past, but will be tested during this whole ordeal. Obviously, I am hopeful that the disaster relief rent program will eventually help, but I certainly can’t count it happening in a timely manner, if at all.   

How much in reserves do you set aside? Has anyone had their rental portfolio affected by Irma or other natural disasters in a significant way?

Let’s talk below.

About Author

Kenyon Meadows

Kenyon Meadows M.D. is a practicing radiation oncologist and alternative investment enthusiast. He owns a portfolio of single family rentals, does private mortgage lending, and has participated in dozens of real estate crowdfunding projects. He blogs at AlternativeFinancialMedicine.com and is the Author of Alternative Financial Medicine: High Yield investing in a low yield World. Besides real estate, his investment interests include peer-to-peer lending and small business lending among others. His insights have been featured on MSN Money and in The New York Daily News.


  1. Mark Fries


    I could not agree more with your assessment of where you are left after the hurricane in regards to your rentals… I myself have about 35 single family homes in Jacksonville and this will be the first month that I will be negative.. I got tree damage I got minor structural issues every one of my fences is broken most of my tenants are coming up with issues with rent payments…etc..

    So I definitely feel where you are coming from!

  2. Mike McDevitt

    Everyone’s reserve level will be different depending on their ability to cash flow damaged or otherwise non-producing properties. I’m uncomfortable if my cash level isn’t roughly 50% of my annual property expenses plus their income. In my case, this amounts to $10K per SF property.

    Turns out – that was a good call.

    We don’t have floods and hurricanes here in Arizona; but September presented me with a host of “cash reserve opportunities”.
    – A tenant left one property mid-lease, and the condition it was left in warrants a complete $20K remodel before we can place another renter. (We inherited the renter in May and knew the remodel was coming when the lease was up, but when they left early we were forced to change our plans).
    – Another property suffered a burst toilet supply line on the second floor (on Sep 1) which ran full blast for 3 hours while the tenant slept. The tenant had to relocate while the property is being water mitigated and rebuilt at a cost of $19K. Insurance will cover this one, but they’ve been slow to send an adjuster, and slow to send checks (it’s been 30 days and I’ve only seen $4K from insurance so far). So not only will I lose 6 weeks of rent (plus pay the water and electric bills), but I’m paying for the re-build out of pocket until insurance comes through.
    – We contracted and purchased a property with seller financing. Seller is only holding for a year, so we have a $55K balloon due next September, agreed to very high monthly payments in the interim, and placed a 50% down payment to secure the financing.
    – One other property had the 20-something year old A/C finally give up the ghost. Tenants can’t live without A/C when it’s still 110 outside, so there’s another $4K for September.

    We would not have been in a good position to get our little rental business back on track with even a $5K per property reserve account. For us – – it makes sense to reserve 6 months of expenses plus expected income.

    I hate earning 1% on large cash reserves as much as anyone, but it lets me sleep better knowing we can respond quickly to disasters – – natural or otherwise.

    • Living down the road in Miami resulted in a lot of trees uprooted, tiles and shingles blown off. Just and FYI, now is the time to apply for those low interest SNA disaster loans. Remember, all they can say is yes, you are approved, or no. Take care. Survivor of Andrew.
      I left for Irma.

Leave A Reply

Pair a profile with your post!

Create a Free Account


Log In Here