I'm looking for interesting ways to pay yourself while building a significant cushion of cash reserves for each property. How do you generally execute this? Do you build up a pot of cash reserves and only then begin paying yourself net cash flow once your goal is reached (let's say 6 months of expenses)? Do you start paying yourself immediately after acquisition, while putting aside a designated amount each month for reserves? Something else?
I am in a different situation, but all money made from a RE acquisition goes directly into the new potential investment. Before I purchase a property, I ensure there is a $5,000 CAPEX hedge and that the property will produce the cash flow and ROI I laid out in my crystal clear criteria. All money, not ear market for expenses in the investment, is then immediately reinvested.
Again, I have a W2 job and plan to hold this job for at least another 10 years. I can afford to be riskier with my investments and place 100% of the proceeds into growing my business.
@Joshua McMillion very interesting, Josh. Thank you!
Thank you @Jon Kelly ! As a rule, how much do you have in your cash reserve account, averaged per property?
@David Baskin I'll keep ~$25k in reserves. I have 51 units, so it's $500/unit, which is probably under reserved.
6 months of expenses is safe. As your portfolio grows you can decrease this amount. For example, after 10 properties/units decrease to 4 months, 20 properties/units 3 months, etc.
Without supplemental income you want to be more conservative, but with supplemental income you can stretch these a bit
Beautiful. Thank you for this!
I would say that 6 months reserves would be the ideal amount to have set aside. I would say to include the mortgage, taxes, insurance, property management fee (if applicable), as well as maintenance costs.
After you have the reserves set aside the amount you pay yourself I think would largely depend on if this is your only source of income as well as how you are looking to grow. If you have other income than I would suggest leaving the money alone and setting it aside into a different account and build up that account so you can purchase more properties.
@David Baskin your answer lies in the book Profit First. Read that. You will thank me later.
@Brian Gerlach just downloaded, ready to read. Can you tell me in short how you use the concepts in the book in your RE business?
@David Baskin in short you set up multiple accounts and transfer a % of gross revenue to each account on a regular basis, on the 10th & 25th of each month: owner’s comp, taxes, operations, capex, savings for reinvestment