Amount to keep in reserves after first purchase

4 Replies

I'll keep this short and sweet.  I've done some research but the ones I found were a little dated.  My question is how much money did you(should you) have in savings after purchasing your first buy and hold rental?  Does it depend on the individual and comfort zone or is it set number such as enough to cover one major repair etc.  

Depends on your circumstances.

Can you pay the mortgage out of your job without any rental income?  If so, you probably don't have a ton to worry about.

If you couldn't, do you have access to credit lines to tie you over in a small window?

Do you have access to short term, semi-liquid funds for any CAPEX that might pop up?

The easy answer is to sock away 6 months of PITI as a reserves. You can either use it to hold the property without occupancy while repairs are done... or use it on CAPEX if something were to pop up.

As always in real estate it depends on your "comfort" my husband and I have a ton of disposal income and a large credit card reserve. We are also in a large accumulation spot. So we keep alot less money on hand than I would if I wasn't working/we were living off the income. Also know that the more house you have the less money per house you need  as they even out.

That being said I would want a minimum of $6,000 or the most expensive repair need in the bank (which ever is higher) if you wanted to play SUPER safe.

I would keep more for your first rental.  I was keeping $5000 when I had two and it was good because I had to have extensive HVAC work done on both in the first year.  You also need to be sure you can pay the taxes and any mortgage on the property even if you get in a situation where you have to evict because you will usually be looking at three months without rent by the time you get them out, clean up, and rent the property again.  If you have a fair amount of extra money from a salary that can be diverted to these issues or have other properties that can cover the costs them you can get by with a lot less than if you have one property and are living paycheck to paycheck.

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