How Much Do You Have In Reserves?

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How Much Do You Have In Reserves?

Mindy JensenPro Member
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
6y

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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  • Steven Lowe
    Real Estate Agent · Scottsdale, AZ · Member since 2019 · 448 posts · 320 votes
    6y

    We have some properties that are fully paid off, thankfully.  There were a few cap X items that needed to be addressed before all this happened and that may still go forward.  Others are held with partners that have ample reserves.  So we are OK even if tenants miss a few months of rent payments.  

    1Reply
  • Eric Bilderback
    Real Estate Agent · Sisters, OR · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    I have 3 months.  Will stacking as much as possible going forward.  In the middle of a giant rehab (for me) on one of my complexes.  

    @Benjamin Coons

    I did take out a zero interest credit card in case I get into a pinch it lasts for 15 months.  If you have decent credit you should be able to get one, I think it was $95 annual payment but I get cash back so kind of a wash.  I also have a credit line if needed.  Hopefully it never comes to that!

    2Reply
  • Casey Rolland
    Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y
    Originally posted by @Sean McCluskey:

    @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?

    Sean, Yes and No. I got the offer on the mail with checks but I just called them up and asked them to send money to my checking account. It's important to pay all this back before 18 mo is up. I have a family member who pays 16% interest on their cc...they will never dig out of poverty.

    0Reply
  • Casey Rolland
    Investor · Port Townsend, WA · Member since 2014 · 103 posts · 50 votes
    6y

    @Sean McCluskey If you are planning on doing something, you may want to do it today (we called on Sunday and got it done). WSJ article stating that lending standards are tightening which I knew would occur pretty quickly.

    https://www.wsj.com/articles/people-need-loans-as-coronavirus-spreads-lenders-are-making-them-tougher-to-get-11585357440?mod=hp_lead_pos4
    Banks and financial-technology firms are starting to toughen their approval standards for new loans to consumers and small businesses. That means many people could find it hard to get credit just when they most need it, as the novel coronavirus pandemic puts thousands out of work.

    Large U.S. lenders including JPMorgan Chase & Co., Bank of America Corp., Capital One Financial Corp. and Santander Consumer USA Holdings Inc. are among the companies reviewing and revising certain lending criteria, according to people familiar with the matter. Planned moves include approving fewer consumers with lower credit scores, asking for more income documentation and placing lower spending limits on new credit cards.

    American Express Co. has scaled back financing offers to small businesses, according to people familiar with the matter. Fintech lenders Square Inc. and On Deck Capital Inc. said this week they would do the same.

    About half a dozen lenders that have found borrowers through Fundera Inc., an online marketplace for small-business loans, have paused new extensions of credit, said Fundera CEO Jared Hecht. “Lenders have zero idea how to assess risk in this environment,” Mr. Hecht said. “There is no model that can predict today if I lend $1, will I get paid back?”

    Lenders are concerned that rising unemployment and a potential recession will send loan defaults soaring. The moves suggest at best a pause and at worst an end to six-plus years of a bull run in credit, where financial firms have been eager to lend and underwriting standards for credit cards, auto loans and personal loans have been relatively loose.

    Lenders are scrutinizing applications for credit cards and personal loans in particular because consumers often turn to them when they are in a bind. They are usually unsecured, which means lenders have little recourse if a borrower defaults, and they can be the first loans people stop paying when money is tight.

    Many lenders have said they would work with existing borrowers who ask for help. Some lenders, for example, are increasing card spending limits or delaying due dates on loans.

    But lenders are reluctant to take on additional risk from new customers.

    1Reply
  • Jim K.
    Rental Property Investor · Charlotte, NC · Member since 2017 · 271 posts · 259 votes
    6y
    Originally posted by @Grayson Spittel:

    @Anthony Wick I agree completely! And great point about having other "reserves" not specifically tied to the property, but easily accessible if needed. This has been a moment in time where I'm very thankful to have a solid W-2 job to support.

    Yo Grayson I didn't even realize you were on BP or investing. Let's link up sometime.

    0Reply
  • Igor Musiyets
    Member since 2019 · 6 posts · 4 votes
    6y

    Speaking of reserves maybe someone can chime in. I'm in the middle of doing a straight refi, with an additional HELOC. I do realize if property values drop banks can close the HELOC account, should I instead do a cash-out refi and pull some money out now?
    The difference is that I’ll have to pay monthly payments on the whole refi amount vs only pay when/if I use HELOC funds. 
    I have about 600k in equity.  Was thinking to open a HELOC for 300k just in case something interesting pops up. But with the possibility of having the Heloc account closed when I might possibly need it, should I do a cash out refi instead? 

    0Reply
  • Douglas Graves
    Fitchburg, MA · Member since 2017 · 35 posts · 40 votes
    6y

    2 maybe 3 months. 

    Not at all where I thought/need be.

    We used our 200k ELOC recently to buy and rehab our sons 1st investment property with the plan of them getting a loan once remolded and rented out.

    Not sure they'll be able to get a loan now to clear out the ELOC. 

    so, we quickly put a condo we had ($170k equity) up for sale and got a buyer quick.

    now we're not sure if the tenant will be able to find a new place to go before closing.

    0Reply
  • Matt Fulton
    Member since 2020 · 1 post · 2 votes
    6y

    Will just say that I am VERY thankful for Dave Ramsey right now!! His baby steps have application for business too. Not a commercial for DR but if you know what I mean, say so! #reservefund #emergencyfund

    2Reply
  • Sean McDonnell
    Real Estate Agent · Surf City, NC · Member since 2017 · 648 posts · 597 votes
    6y

    With no rental income, we have enough reserves to cover ourselves for 3 months. Before this epidemic, I thought that would be good enough and was comfortable with that. This has definitely changed my mindset and made me re-evaluate my business structure.  After the dust settles, I will be saving hard and will try to not ever go below 6 months worth of payments in my reserves. 

    2Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mindy Jensen 6 months

    0Reply
  • Lance Robinson
    Investor · Scottsdale, AZ · Member since 2015 · 130 posts · 102 votes
    6y

    2 pronged answer for me.

    1 - 6 of my 9 SFR's are paid off.

    2 - If I make zero in rent, I can last 3 years between personal expenses & payouts on mortgages, taxes, & insurance and be fine.

    I have no money in the market, just cash and real estate. I made the decision to pay down instead of buy more, against the advice of Bigger Pockets, and I'm sure glad I did!

    CC @Jay Hinrichs

    6Reply
  • Caleb Heimsoth
    Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
    6y

    @Steve Vaughan I think your opportunity fund has finally found its buying opportunity

    1Reply
  • Steve Vaughan
    Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
    6y
    Originally posted by @Caleb Heimsoth:

    @Steve Vaughan I think your opportunity fund has finally found its buying opportunity

     Possibly coming,  I agree.  Optimistic but not motivated.  Still has to tip the nap/effort scale the right way 😎

    2Reply
  • Mark F.
    Rental Property Investor · Northern NJ · Member since 2019 · 672 posts · 677 votes
    6y

    @Casey Rolland they are definitely tightening loan standards! 16+ year member of a CU and they gave me pushback on raising my LOC limit. Still wasnt near what I asked for but better than nothing. Just wanted to get one in case I come across a screaming deal and need more cash. Interest was only 8.25% though which I thought was good.

    1Reply
  • Jason Swierczynski
    Property Manager · Charlotte, NC · Member since 2019 · 7 posts · 4 votes
    6y

    I think I would need to know a lot more about your property, market, vendors, historical numbers ,etc before I can really give you a good suggestion. I think 10 months is a really good amount. This should cover your vacancy, make ready costs, advertising costs, PM costs, etc. 

    0Reply
  • Aaron Smith
    Durham, NC · Member since 2014 · 104 posts · 68 votes
    6y

    I have 33 properties for 40 units total. My reserves (which is just my bank account) always vary from buying and refinancing, but right now I have around $150,000. I feel confident with my reserves no matter what as long as I have at least $100,000 sitting.

    2Reply
  • Rey Orinion
    Investor · Renton, WA · Member since 2014 · 68 posts · 25 votes
    6y

    @Mindy Jensen

    Quitting my job last October 2019 to focus on my growing portfolio was uncharted territory for me, and now we have this health crisis...Fortunately, I am one of those lucky newbie investors who discovered Biggerpockets early on and totally indulged myself listening/reading to seasoned investors talked about how crucial reserves are for rainy days. At first, I had no idea what “rainy days” means when as you know Seattle is always raining here haha! I told you I am newbie. Anyway, having 10 properties(one is primary) currently, I am happy to say that I have saved enough reserved for the next 6-12 months. So far, none of my tenants are defaulting ....yes, I called them one by one and asked them how are they coping with the crisis. I have mixed tenants from S8 to AFH providers. Thank you Biggerpockets for a wealth of information that you provide. :)

    5Reply
  • Nancy P.
    Naperville, IL · Member since 2018 · 330 posts · 357 votes
    6y

    6 months in cash,  another five years in investments (which ain't doing great just now,  it was like 8 before the crash).  We are not worried.

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    6y

    Ive got about 12 months personal, business expenses, and PITI on my properties liquid right now.

    Surveying my tenants, 93% plan on paying April's rent. 7% expressed concern with ability to pay April's rent.

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    1Reply
  • Justin Ross Ramirez
    Rental Property Investor · Lyford, TX · Member since 2017 · 35 posts · 18 votes
    6y

    @Mindy Jensen just purchased my 2nd 4plex. In February have about 6 months in reserve. And just purchased a new car in February. Just lost my job this week. I’ll be ok get back to work soon.

    0Reply
  • David BarnettPro Member
    Rental Property Investor · Cambridge, MA · Member since 2016 · 634 posts · 415 votes
    6y

    I wouldn't say that this is all reserves, and I have easily 12 months worth of cash to weather any storms.  

    1Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    6y

    Dumping money into the stock market right now. If emergency reserves are needed call mommy.

    3Reply
  • James Strawser
    Sarasota FL · Member since 2018 · 22 posts · 6 votes
    6y

    Being completely honest, my reserves got tapped out. My triplex (live in) has bled me almost completely dry. Fortunately I have one tenant that is on fixed income still paying. I had to ask a tenant to vacate on February 1st and rehab repairs got me done the hard road. I am renting all the units out starting April 1st and will begin to rebuild the emergency fund. Reserve funds and start to pay off credit cards etc. Luckily I am still working and live on a tight budget. 

    Right at this moment, month to month for my expenses. Shout out to everyone who posted as it inspiring even though I may not be in that position at this moment. 

    Wish me luck and or patience to get through this tight time. Prior to vacancy's and CV I had 6 months reserve. I will get there soon even having to put my own money back into the jar. 

    2Reply
  • Karen F.
    Investor · San Diego, CA · Member since 2015 · 435 posts · 421 votes
    6y

    All rental buildings are unmortgaged.  We do have about a 50% mortgage on our primary residence, and about a 2/3 mortgage on the summer house, which is rented.  Thank GOD I already have the entire payment for the summer rental, which is more than the carrying costs for the house.

    We probably have in cash reserves enough to pay the carrying costs of the rental buildings, our mortgage, and the mortgage on the summer house, and our living expenses, for a year or more, without going into retirement funds, but I'm sure we will see some rent coming in.  We are definitely those people who have NOT taken advantage of leveraging.  We have enough.  We could have had more.  Had we been highly leveraged going into 2008, we could have lost it all.  

    I have a feeling that people are only mortgaged to at most 80% of value, won't lose their rentals if we don't have rent for a few months.  It's not as if the buildings are upside down - although if property values on rentals drop precipitously, they might become that way.

    0Reply
  • Anthony M Scandariato
    Rental Property Investor · NJ · Member since 2019 · 11 posts · 3 votes
    6y

    Typically when we look at acquiring a property, we underwrite a reserve for any capital expenditures that may come up in addition to at least two months of mortgage payments, which typically included taxes and insurance. 

    0Reply
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