What do you all do about saving for repairs/non payments etc?

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Hello all - first time poster here.

I'm just wondering how you all structure your financing in a way that gives you a cushion if something goes wrong and requires fixing, or a tenant does not pay.

I read somewhere that a general rule is to save 6 months worth of mortgage payments in case something were to go wrong, you wouldn't be left stranded. Does this mean that you save all the money your tenants pay until you have an account with 6 months worth mortgage payments? - Do you then set a separate account for repairs? and begin saving that up?

What are some general rules for a first time investor to consider.

I haven't yet invested in a property but I feel like this is a pretty important subject that many of you probably have a good system for.

Thank you all in advance!

@Mitch Howard that's a great question. The answers will vary widely, but I'll speak from my experience as a property owner and as an accountant to real estate investors.

First, my own situation. When I bought our commercial building I made a list of everything that would need to be done to it (roof, renovating, two units, painting one unit, inadequate AC, etc.). I then prioritized that list and took care of the items that we could afford. I am left with a list of expenses that I will need to incur in the next year - 3 years. This gives me a savings goal and as I build up cash I can start to chip away at the list. This summer, for example, I had saved up enough to put in a 3-zone heat pump system to address the AC for 1/2 of the building. In addition to those items, I keep a buffer of three months of expenses in my checking account. I don't use a separate account for saving, but that's not a bad idea.

Second, real estate investing clients. I have seen clients handle this many different ways. I have heard the 6 months of expenses rule and I think that is a bit much. If you buy a property in a good market, that has a good rental history, and is fully-occupied, you might only need a 2-3 month buffer. If you are buying a vacant property, you might start out with more than that and over time, deplete the savings down to 2-3 months. Regardless of the amount of a buffer you keep, I find it helpful to think about scheduled maintenance projects separately. The buffer is there to cover vacancy and emergenecies, while the savings is to take care of those projects that you know you need to.

Regarding a separate account, not everyone does it that way, but if it helps you to see the money in a separate account then it's probably a good idea for you.

Hope this helps!