How Much Do You Have In Reserves?

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How Much Do You Have In Reserves?

BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes

We're learning the importance of reserve funds right now and in the coming months.

In terms of months (I don't need to know your exact dollar amount) how much do you have in reserves?

I'm talking every expense for your property for the entire, regular month. Mortgage, taxes, insurance, utilities (even if they're normally paid for by the tenant), lawn care, maintenance - anything coming out of your pocket for the property.

I think we can leave out capex and vacancy for this discussion, I'm interested in fixed or fairly fixed payments you'd need to make if your tenant could not.

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Anthony Wick

Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes

I will be curious if people that are strapped will respond. While this is a great reminder to have reserves, we must remember to support those that are just starting out, like we once did. I certainly didn’t always have months and months of reserves, and the idea of 50% vacancy or tenants not paying would have been quite nerve racking.

So, if you don’t have months of reserves, you can still get through the hard times! Things like self managing and YouTube fixit videos are your friends!

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Brian Bradley
Attorney · Wilsonville, OR · Member since 2017 · 504 posts · 411 votes
6y
I would say 3-6 months depending on if you are the sole provider of the household or if you are both working, and your financial situation. This is a good reminder also of cleaning up your debt as fast as possible. And keep about $2k in petty emergency cash in the house.
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Account Closed
Real Estate Agent · Austin · Member since 2019 · 100 posts · 28 votes
6y
That's an interesting question. It depends on whom you ask I guess. I was hoarding cash for quite a time and was not successful in investing it all. Right now it is about 200 months of expenses on my 3 rentals and primary. But my hope is those rentals are stable as they are student's rentals and students don't usually mess with landlords.
2 Reply
Account Closed
Investor · San Jose, CA · Member since 2012 · 2k+ posts · 3k+ votes
6y
Now, that our governor Gavin Newsom knows landlords in general have at least 6 months in reserves, he’ll grant a 6-month rent cancellation to all tenants of our CA state. Thanks for starting this thread @Mindy Jensen. You’re exposing us for the socialist-in-charge to take advantage of the landlords. Sigh.... 🤦‍♂️
8 Reply
JD MartinBusiness Member
Moderator
Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
6y

I hope you are joking. I seriously doubt Gavin Newsome is spending his time reading this thread and counting California license plates.
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Morgan Klein
Rental Property Investor · Jefferson, GA · Member since 2017 · 95 posts · 145 votes
6y
6 months per door is my benchmark. Some properties are paid off, so I'll occasionally run it down to 2-3 months knowing I can replenish my reserves pretty quickly if I need too.
1 Reply
Andrew SyriosPro Member
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Residential Real Estate Investor · Kansas City, MO · Member since 2014 · 10k+ posts · 5k+ votes
6y
About six to eight months. (Although that would mean leaving a few capital projects undone.)
It's an awful lot easier to sleep at night with that rainy day fund I can tell you that much!
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Matthew McNeil
Rental Property Investor · Boise/Portland · Member since 2017 · 709 posts · 742 votes
6y
If you look at it based on a portfolio of properties, calculating how long Reserve Funds would last is somewhat subjective based on various scenarios. I doubt all tenants would simultaneously notify me of their inability to pay.

Reserves I have directly tied to my properties;

If I calculate a 50% loss of portfolio rental income, I have funds to last me 10 months.

7 months at 75% loss.

5 months at 100% loss.

But I also have investments in the stock market I can draw from to get me through a worse case scenario
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Casey Rolland
Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
6y
I am one of the overstretched LLs who doesn't have enough reserves. I was in the mode of pay down the mortgage before something big hits so I was paying down mortgages as soon as any cash became available.
As soon as CV migrated from China to Korea to Europe to US in early March, I realized I was in deep doo-doo. I went ahead got one of those zero % Int rate cash advance from CC Co.(BoA offers 0% for 18 mo with 3% transaction fee, it calculates out to 2% int rate annually). Since my trips to Europe will not occur, I will be happy to spend 3% transaction fee for sound sleep at night.
I have done this type of transaction twice over last 3 years and paid off all the balances before high interest kicked in. I have pretty good credit score & household income but I am still astounded that you can get $100K pulled this way...@2% annual interest rate, they are really not making money off of me...
3 Reply
Sean McCluskey
Rental Property Investor · Newport Beach, CA · Member since 2017 · 218 posts · 138 votes
6y
@Casey Rolland Casey, you're talking about a balance transfer check, right? Did you just write it to yourself and deposit it at the teller?
0 Reply
Kassandra Perez
Rental Property Investor · Hartford, CT · Member since 2020 · 16 posts · 22 votes
6y
@Mindy Jensen I have about 2 months, I have learned the value of saving and investing these past few months and I am glad to be starting this investing journey.
Love the content❤️
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Account Closed
Investor · Singapore · Member since 2013 · 1k+ posts · 3k+ votes
6y
I think it depends on the size of the portfolio. If you only have one or two then 6 months for each is reasonable. If you have 50 I don't think you would need 6 months for each unit because the chances of all being vacant for 6 months at the same time is vanishingly small...at least before the Coronavirus hit! Another way to look at bigger portfolio is your breakeven occupancy rate. If say your breakeven occupancy is 50%, you are pretty safe. If its 95% you need a lot of reserves.
8 Reply
Eric X.
Real Estate Agent · Naperville, IL · Member since 2014 · 196 posts · 130 votes
6y
My reserve is anywhere from 3 months to 4 years. Canceled a few deals so building "reserves" to pick up either stock or more properties when the time is right. Reserve is just savings i think?. If things really hits the fan, I would just HELOC primary residence. As long as you have a piggy bank such as i401k, ira, 401k or some type of liquid or fairly accessible funds, you don't need that much in reserves
In this climate we are in, best to be on the higher side of reserves(especially in C/D areas) in case of non payment and to jump back into the market strong if we get back to early 2010s in terms of pricing. I was transitioning to real estate then and although I got a decent amount, the true pros here basically set themselves up for life with the deals they got 6-10 years ago.
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Heath Jones
Rental Property Investor · Enterprise, AL · Member since 2019 · 137 posts · 85 votes
6y
@Mindy Jensen
Not enough 2-3 months
1 Reply
Joshua Myers
Rental Property Investor · Columbus, OH · Member since 2014 · 148 posts · 177 votes
6y
@Mindy Jensen currently we have 18 months, give or take, if rent to to $0/month. Some of that is set aside for our next purchase. We also have outside income that can help cover things if it get's really out of control.
It's interesting how many posts there are now about reserves. We should have been focusing on this problem last year when the cash was rolling in. We're in it now, and our reserves are what they are.
1 Reply
Shiloh LundahlPro Member
Rental Property Investor · Gilbert, AZ · Member since 2016 · 3k+ posts · 4k+ votes
6y
I have about 110 renters right now; mostly in Arizona. Right now I’m feeling pretty insecure with only about 2 months in reserves in my business accounts and another 2 month in personal accounts if all rents suddenly stopped. We are in the middle of 3 refinances and 2 sales which should create another 3-4 months reserves. We are also looking to sell a second position note on one of our recession resistant mobile home parks that would pay out at 10% that would give us another 2 months in reserve. Additionally, we will be selling one of our primaries which I hope will sell for what what market value is now. If that happens we should have another 3 months. So if everything goes to plan for us we should have about 1 year’s with of reserves within the next 2-3 months. That would feel a lot more secure financially.
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Gail W.
Investor · IL · Member since 2019 · 151 posts · 135 votes
6y
7 months for me in true reserves (cash set aside for the specific purpose.) I have other securities but I would not use those except in a dire emergency. Also I have been very lucky, I only have three properties, one is vacant and the tenant in one of them got a large amount back on taxes and paid rent ahead for 6 months. The last one is a nurse so I am assuming she will probably be sick at some point, and since I consider her and all the rest of the health care workers heros I will do anything I can to help out there.
2 Reply
Benjamin Coons
Member since 2019 · 1 post · 3 votes
6y
Looks like we're on the wrong side of this question. We drained our reserve fund for a purchase we close on next week (triplex house-hack) and moved our mortgage payments out to mid-month so April rent can cover them. We currently own five properties (11 doors) and had been counting on cash out refinancing a couple to build up some cash. Unfortunately, rates are higher and appraisals are backed up, so we're probably a month or so out from getting anything there. We're returning from a 16-month trip around the world so our personal savings are pretty drained too. Thankfully I have a good W-2 job, but this is going to be an interesting few months for sure! Just know that if you're sitting there without 12 months of cash in reserves, you're not alone!
3 Reply
Jason Hawrylo
78758 · Member since 2020 · 18 posts · 9 votes
6y
Great question!! Really interesting reading everyone’s responses! Counting security deposits I’ve got about 2 months in reserves earmarked for the rental property. I am trying to get between 6-8 saved up.
With my cash savings earmarked for other goals and an emergency fund I have 10 months.
It seems like majority of posts have 8 months reserves. What does everyone recommend for how many months worth of reserves? Who’s actually had to significantly tap their reserves in the past?
1 Reply
Maya Torres
Rental Property Investor · Norfolk, VA · Member since 2017 · 142 posts · 76 votes
6y
@Anthony Wick Hi Anthony! I am one of those people who is strapped! Lol. And I have no problem in responding. I’m also not a heavy investor. Not yet anyway. My husband and I bought our fist property 3 years ago. It was a duplex that we house hacked for a little over a year and then moved out eventually into a single family home live in flip. We had a good amount of reserves in there initially but being new to the game ..things that we should’ve factored in we didn’t factor in and now we’re pretty low on reserves for our duplex. However, in the 3 years that we’ve had it we haven’t had any issues with vacancy. It is literally minutes away from a large Naval Base. One tenants rent covers 90% of the mortgage. I manage it well and we do have our own savings fund. Our highest cost thus far has been turnovers. The price we have to pay for military tenants. I’ve recently transitioned out of the military and will be pursuing investing full time while we still have my husbands stable military income. But in transitioning there have been some financial challenges and once we feel secure enough with our reserves and our personal savings, we’re gonna be looking for at least a 4-plex to purchase. So although we don’t have much in reserves, we also only have 1 investment property (plus our current home which we’ll be renting out here shortly due to other reasons). So yes..there are newer investors like us who probably don’t have much in reserves..but they may have a lot more properties. Who knows. Everyone’s story is different. I would hope that people are making good financial decisions and not purchasing more than they can handle just for the sake of expanding their portfolios. It’s a marathon not a sprint.
2 Reply
Maya Torres
Rental Property Investor · Norfolk, VA · Member since 2017 · 142 posts · 76 votes
6y
@Anthony Wick I forgot to mention something that is super nerve wracking is having to rent out our single family home here in the near future. We didn't intentionally buy it for that purpose but we have to move so it is what it is. I don't like the idea of SFH's. It's not my preference. I like the idea of having multiple rents coming in for one mortgage. If my SFH goes vacant nothing is covering that mortgage other than reserves or another tenant! That can be quite daunting but like you said, we will get through it!
1 Reply
Gregory SchwartzBusiness Member
Rental Property Investor · College Station, TX · Member since 2016 · 1k+ posts · 1k+ votes
6y
Personally: 6-8 months before I have to start taking money out of my IRA
For the rental 4-plex: 6k which is about 3 months worth of mortgage payments.
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Jack Zhuang
Member since 2019 · 67 posts · 34 votes
6y
It's great to see a lot of landlords on BP are well prepared for this bump on the road.
Personally, I was looking to buy at the beginning of the year but decided to sit on the side line for now. So I've been accumulating cash and it should last me for a few years for my rental related expenses.
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Dawn BrenengenBusiness Member
Moderator
Real Estate Broker · Raleigh, NC · Member since 2014 · 2k+ posts · 1k+ votes
6y
Great question! I just did the calculation, and I have about 6 months of cash on hand to cover all my mortgages and living expenses if I have no rent or income at all coming in. It's unlikely that I'll have zero income, so I expect I should be fine for at least the next year. As a backup, I have enough in retirement funds to last another 2 years if I had to liquidate it.
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Arin Fowler
Investor · Killeen, TX · Member since 2020 · 6 posts · 5 votes
6y
I recently jumped into a new property and am consequently one of those who lacks my desired amount of reserves. If all units went vacant, I’d only have four months’ reserves.
My safety blanket, however, is that most tenants are active military and have great job security. If all non-military tenants fail to pay rent (the more likely scenario), I’d have 10 months’ reserves.
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Account Closed
Rental Property Investor · Twin Cities, MN · Member since 2019 · 122 posts · 150 votes
6y
@Mindy Jensen - Great post, and a fun opportunity to see who here is willing to tell the truth... Which after reading 10 of these is probably NOBODY !! If there are members on this site who have 20 months reserve sitting in cash - they do not understand the power of leverage or how to expand their business/scale-up. While I do believe in having healthy reserve, and I do find some comfort in seeing many of these replies - (as I am investor who had the wonderful experience of fighting through the 2008 market implosion) I do think that anything above a 4-6 month reserve mark is a wasted opportunity to grow and build your business. I'm 40 years old now, and I can honestly say to all of you, that you have to press forward, hustle and grow. Time waits for no one.
5 months reserve in cash/stocks. 35 doors.
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