I like to cover the largest cap-ex item at any given time. Example: One of my rentals the roof replacement would be about 10k, furnace $2500, Driveway $6000. I just replaced the roof, so I shouldn't have to worry about that for 50 years (50-year shingle). I know that the driveway is far out, so I am carrying $2500 on the property. This is a good reserve to cover anything that comes up, including the furnace dying in the dead of winter and needing to be replaced. If I need to dip into it for $300 for something miscellaneous, I use replace those funds next month when rent is collected.
Thanks I appreciate the advice. I think we are on the same page.
Might your reserves also depend on the age of the house, if you don’t know for certain which items have been recently replaced?
I'd also think in terms of an unexpected number and/or length of vacancies.
it also depends on your location, property type and age as well as cash flow.
With 12 properties (vegas tile roofs so almost never expensive fix) and a cash flow of about $7500 I use a credit card for any “major” repair ($1,000 water heater, $2500 ac unit, $5000 main water line leak) so I’ve gone almost 20 years with no “reserves”. Vegas houses are also by default relatively new, less than 20 years. It probably also helps we aren’t living on the cash flow but lives on my wife’s pay alone instead and send all cash flow towards paying off loans< which then increases cash flow.
@David Pearson - Everyone has a different level of risk tolerance. The answer is really whatever the least amount is that doesn't keep you awake at night.
For me, I have $ 20k for my first property and $10k for every property after that. So when I have 3 properties, I will have $40k of reserves.
There is no set number but I keep about $5000 per property.
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
Join the Largest Real Estate Investing Community
Basic membership is free, forever.