Hello all, does anyone have a specific formula they rely upon for the amount of reserves they like to keep for their rental business?
For example, I typically keep a reserve of 8 months to a year of living expenses for my own personal emergency fund. Any info around your practices for your real estate business would be great.
I heard on a podcast that the banks like to see that you have 6 months reserve for each property set aside. I believe this to be a good starting goal for the banks and your business.
hope this helps
I have seen around 5% to 10% of the property value. I haven't seen how quickly to hit this mark. Make a list of all the repair items with est of cost and put this to a timeline. This will help gauge how soon and much you will need from your reserve funds. Example, new roof at $7000 that will need to be replaced in 5 years. Then back into the amount needed to be saved each month. Hopefully this will fund its self!
6 months PITI per investment property is the current general guideline for most scenarios.
This summer, it's going to change to basically the following, with several pages of nuance...
1-4 financed properties owned: 2% of total outstanding mortgage balances.
I ran a few scenarios, and it looks like 2% of total outstanding mortgage balances will often work out to be ballpark 3 months of PITI reserves. So overall this is a 'win' for most investors, but established ones with 6-10 properties need to have more in reserves OR start paying those balances out.
Great, thanks for all the input everyone!
Good information and input! So glad the question was asked!
What ever amount you feel comfortable with once you are a seasoned investor. To start out a minimum 6 months rent. You will never have enough reserves to cover every possible senerio but covering a 6 month vacancy is a must.
6 months Reserves. This is separate from a cap ex account.
Free eBook from BiggerPockets!
Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!
- Actionable advice for getting started,
- Discover the 10 Most Lucrative Real Estate Niches,
- Learn how to get started with or without money,
- Explore Real-Life Strategies for Building Wealth,
- And a LOT more.
Sign up below to download the eBook for FREE today!
We hate spam just as much as you
Create Lasting Wealth Through Real Estate
Join the millions of people achieving financial freedom through the power of real estate investing