Stockpile cash/cashflow rentals

Virginia Beach · Member since 2018 · 16 posts · 5 votes

Hello BP,

Newbie here..So I noticed that quite a bit of folks hold a stockpile of cash for each rental property that they have to be safe. Say you buy a reasonable priced home that's in fairly good condition low maintenance and you have 20k stockpiled specifically for that home for emergencies vacancies and so forth. On top of this stockpile do you still take a good percentage from the income that property is producing and set aside money for vacancies, repairs, cap ex, etc or do you adjust since you have so much stockpiled and maybe fill it up once that money goes below a certain threshold.

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James Galla
Attorney · Akron, OH · Member since 2016 · 535 posts · 389 votes
7y
An emergency fund is different from capital expenditures and the other expenses you listed. Naturally, with those items, you may hold on to them, but you are eventually going to get rid of them after the rental term. There is not really a reason to build your emergency fund beyond the standard thresholds you've deemed appropriate. In other words, if your emergency fund is $20k, you will still collect the capital expenditures, repairs, etc, but by the end of the fiscal year, your emergency fund should return to normal. If you kept collecting, you would eventually have a $100k/disproportionate emergency fund where it would not make sense.
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Marcus Daniels
OP
Virginia Beach · Member since 2018 · 16 posts · 5 votes
7y
@James Galla hopefully I understand this right so are you saying if you set aside 20k for a rental property that you bought and say you need to replace the carpet and it cost 2k you would take this expense out of your income from the property in a gradual manner to replace those funds but not explicitly continue to take out money once those funds have been replaced because over time this would become disporportional. This 20k I'm referring to is outside a traditional emergency this is explicitly for the home.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
Once you build the emergency fund, leave it alone. You don't need to keep growing it forever.
The reserve is to help you in an emergency. If you are a brain surgeon making $1,000 an hour, then you probably have a higher tolerance and can pay for a roof repair without digging into your reserve. Therefore, the reserve doesn't need to be as large. If you are a 26-year-old with one investment, living paycheck-to-paycheck, then you better have a significant reserve to cover a major disaster or it could derail your entire investment plan.
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