How much cash do you keep on hand?

10 Replies

How much cash do you keep on hand per property? I am involved with a risky family business, and consider my side REI as less risky...so I tend to be more conservative with my rentals. have kept a small reserve for rainy days, but wanted to see others thoughts...

Thanks!

It depends on your access to cash, the condition of the properties, your income and cash flow, and what kind of vacancy threat your area has.

Depends on your risk tolerance, current condition of your props, etc.. I keep biz and personal cash seperate. I try to keep about 20k liquid in the business on a basis of 35 units. I think you need a minimum/per door up to around 10 units or so then you can scale off a little bit. As mentione above, banks want 6 months PITI so that should be your minimum regardless if you want to continue to grow.

The rule of thumb was to have 6 months of expenses on hand, but with the economy the way it is now - it is better to have 6-12 months on hand for emergencies.

I'm no expert, but I believe you will find that many, if not most, investors will hold less cash reserves as a ratio to their assets as the number of the assets increases.

For example, if you have two rental houses, you'd likely want to have 6 months of mortgage payments per unit set aside. But if you owned 100 rental houses with mortgages, I doubt you'd have 600 mortgage payments worth of cash set aside specifically for the purpose of cash reserves. However, if you had 100 rentals, you might have that much cash set aside just by nature of being a wealthy person.

I agree that 6 mos seems a bit high once you hit a certain number of houses. I think 50k til about 20 houses and then maybe 75k to 40 and so on.

Seems to me if I had 40 houses and 100k, I'd be pretty confident I could handle a couple of rainy days. :-)

And if I had 15 houses and 50k, I'd be equally confident.

Thanks for the feedback! Seems I am on the low end of what most suggest but my properties are brand new and I have very little vacancy...so I feel comfortable with my position. Just wanted to make sure I was not way out of line. Thanks again!

There are so many factors involved here that one number doesn't fit every situation.

I see your a developer, but it sounds as if you have some rental properties. With rentals, I consider my cash flow, consider my current vacancy factor (but look at overall vacancy in my market area), prepare a replacement schedule for major items that will need to be replaced over time.

In your situation you may have credit available that might supplement cash reserves. You also have a business that has its own cash management issues.

Everyone also has there own health issues, family issues and many cases also work another job.

I set aside 6 months of income as a general emergency fund. I basically do not live on the income created by my rentals. The income is set aside for future repairs and also as a war chest for future property purchases.

Another very important factor to consider is your life style. If you live just within your means, you better have higher reserves. Things can and do happen. If you live below your means then chances are you can more easily recoup from an emergency and might not need as much in reserves.

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