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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  • Michael Ablan
    Real Estate Broker · Watertown, NY · Member since 2016 · 1k+ posts · 1k+ votes
    6y

    @Mindy Jensen -  We could survive 2 months without ANY rent by using cash.  5 months if I had to exhaust all credit.  I'm sitting on enough equity in my portfolio to get through for awhile by trading equity for capital.   If I needed even more time after that,..then I fear I have much worse problems to worry about 

    1Reply
  • Scott Kaczmarek
    Investor · Dallas, GA · Member since 2016 · 59 posts · 57 votes
    6y

    This is an interesting thread! For REI reserves I keep a minimum of 6 months per door assuming we receive no rent. We have a separate personal reserve of 8 months, if my W2 job disappeared, that could be tapped if needed. One of the keys to long term success I took away from the regular experienced investors on this site was to maintain reserves. Those that made it through the ‘08 turmoil had cash reserves.

    0Reply
  • Calvin Thomas
    Developer · New York City, NY · Member since 2015 · 812 posts · 718 votes
    6y

    Everyone should know hw much it costs to run their business.  After all, this is a business. If it costs you 7500 a month for your business expenses, you should have 45000 in the bank somewhere safe. You should also have another six months to a year of savings for your personal expenses as well. Businesses will bounce back first, then people.

    1Reply
  • Sid K.
    Investor · NY · Member since 2017 · 23 posts · 24 votes
    6y

    I have 5 class-A properties and keep a 6-8 month reserve. I am a little more conservative than others as this is a part-time endeavor.

    0Reply
  • Joshua D.
    Investor · Columbus, MT · Member since 2013 · 1k+ posts · 1k+ votes
    6y

    @Mindy Jensen

    We have about 18 months of expenses in cash on our 13 houses.

    1Reply
  • John Daniels
    Rental Property Investor · Gilbert, AZ · Member since 2017 · 40 posts · 23 votes
    6y

    @Mindy Jensen

    Regretfully, just one month in reserves! But cutting costs, and watching the cash!

    Learning lots of good lessons! There are some great posts here on this thread-definitely need to start planning ahead!

    0Reply
  • Angelo Mart
    Professional · Parsippany, NJ · Member since 2013 · 384 posts · 262 votes
    6y

    Enough reserves to pay the mortgage for 5 months

    0Reply
  • Chris R.
    Apartment Syndicator · University Place, WA · Member since 2018 · 40 posts · 10 votes
    6y

    @Mindy Jensen

    I have 8 months reserves for each property

    I have 3 single fam

    2 duplexes

    And 104 unit Multifamily fam

    And also a passive investor in 560 units

    Love you guys!!!

    2Reply
  • Joseph Weisenbloom
    Investor · Austin, TX · Member since 2013 · 443 posts · 174 votes
    6y

    I prefer to have 6 months reserves normally. Luckily I sold off a bunch of dud properties a few months before Covid popped off so I’m sitting on a lot more than that right now. Currently dealing with the very nice dilemma of deciding if I’m going to buy stocks on the low or wait for the next golden real estate opportunity. Or some combination of the 2.

    0Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    In cash, about 7 months.  Property and income taxes are my biggest expenses and this assumes I get no rent and no salary from work.  As I've added extra payments to 2 of my 3 mortgages, I could stop paying those (but won't).  I'm still working from home, so I still have that income coming in which would almost cover all the expenses for my house and my rentals.  I also have other savings I could use and I know some of my tenants' income is unaffected.

    0Reply
  • Viki Mann
    Member since 2020 · 3 posts · 3 votes
    6y

    As a trained and licensed financial specialist, we always recommend 3-6 months of income replacement. I feel 6 months of income replacement is OK (12 months is better) if you get a biweekly or monthly paycheck and have an employer who offers group benefits including medical insurance. However, beyond your reserves you need diversification and that means don't put all your money in one bucket - like real estate investments or the stock market. If your full-time gig is in real estate investing, then just like owning any business, you need to be well capitalized. You need to do the math and have enough reserves to cover emergencies like floods, tornados, leaky pipes, and your insurance premiums. You need enough reserves to have a loss of rent for 3-6 months (as the case we are in today with Covid-19). If you can't weather the storm, then maybe real estate is not the right investment until you build those reserves. By diversification, any licensed financial advisor or specialist should be educating you around a multilevel investment strategy. Putting all your eggs in one basket is not diversification. If you want a long term strategy that creates a "happy retirement", adjust your reserves to be protective of your investing strategy. Most businesses fail due to lack of capital -- be smart and make sure you don't fall into this same category before you buy your first property. The best reserve is liquid cash in the bank or money market account. It's guaranteed by the FDIC.

    0Reply
  • Jason Collins
    Rental Property Investor · Sarasota, FL · Member since 2018 · 46 posts · 76 votes
    6y

    Had 6 months in reserves but unfortunately closed on our largest deal on March 16th.

    We thought about backing out but in the long run I think it will still be a good investment.

    We now have 3 months of reserves, 5 empty short term vacation rentals in Florida, and our newest acquisition on hold in terms of the repairs/upgrades before renting.

    Temporary plan is to wait this out for 4-6 weeks and see when the short term rentals may resume. If not we will shift the properties to long term rentals with attractive tenant rates so that we can at least pay the bills.

    Thankfully, my partner and I have personal savings that we can tap into if needed and my day job is in the medical field. Would also consider tapping into my home HELOC. So we have some back stops but still have some healthy anxiety I suppose.

    Thought we were being conservative, but never could have imagined a situation where our rentals went from 20-30% annual returns to 0 occupancy in two weeks while also potentially jeopardizing my day job W2 income.

    It didn’t help that Airbnb pulled the rug out from hosts, lol.

    0Reply
  • Jeremy Smola
    Rental Property Investor · Nashua, NH · Member since 2020 · 17 posts · 15 votes
    6y

    We keep about 6 months worth of rent per property in reserves.  Personal reserves would cover the buildings for a few years.

    0Reply
  • Larry Turowski
    Flipper/Rehabber · Rochester, NY · Member since 2014 · 1k+ posts · 1k+ votes
    6y

    I think this thread might be a little self selecting.  Most seem to have plenty of reserves.  I could last well over a year if nobody paid.  That is partly because of my conservativeness and business model--I flip as well as buy-and-hold exactly because flip money is more liquid and I like being liquid, and because of timing.  I'm not in the middle of a flip right now.

    But according to this JP Morgan Chase article, real estate businesses on average have 47 days worth of reserves.

    Of course, the government is making no-income look more likely with rumblings of rent "forgiveness."  Don't get me wrong, I'm all for the government helping out, just not singly at the expense as landlords.  How about paying people's rent, thus spreading the cost onto society as a whole, rather than confiscating landlord gross income (85% of which goes to expenses)?

    2Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    6y

    @Larry Turowski  I think you are right.  Those who don't have reserves or who have limited reserves are going to be hesitant to post here.

    0Reply
  • Karen Casey
    Pollock Pines, CA · Member since 2015 · 27 posts · 6 votes
    6y

    I wish I had as much as everyone else I only have one property and have about 4 months of reserves, which was slow saving.

    1Reply
  • Account Closed
    Rental Property Investor · Canton, OH · Member since 2017 · 1k+ posts · 1k+ votes
    6y

    @Mindy Jensen

    What would be a good addition to your question Mindy is "how many doors/properties" each person has? It's not too difficult to have 12+ months of reserves if a person only has a handful of doors (or does not use leverage).

    Personally, I keep about 6 months in reserves

    1Reply
  • Martin NealPro Member
    Rental Property Investor · Chicago, IL · Member since 2017 · 293 posts · 383 votes
    6y

    I’ve got a little over 6 months in reserves and that’s if I don’t collect another penny in rent. Fortunately, I have a couple of tenants who jobs are classified as “essential” and has already paid rent for the month of April. Also, I am a big fan of government housing vouchers. So as long as the government keeps paying, I should be in good shape.

    1Reply
  • Ian WalshBusiness Member
    Lender · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    6y

    It is just as important to have a low monthly overhead and live below capacity.  

    0Reply
  • Kanwar Sodhi
    Real Estate Agent · Chantilly, VA · Member since 2016 · 245 posts · 61 votes
    6y

    6 months in a separate Rental Savings account. 

    Goal is to have enough income from one tenant to cover mortgage and rest is savings (I own a duplex)

    0Reply
  • Mike HurneyPro Member
    Real Estate Investor · Boston, MA · Member since 2009 · 2k+ posts · 542 votes
    6y

    About 12 months reserves, only because I was about to pull the trigger on a couple of things in Puerto Rico...

    1Reply
  • Christopher Freeman
    Rental Property Investor · Keene, NH · Member since 2018 · 114 posts · 73 votes
    6y

    Depends on what you consider reserves. Our operating reserve is actually a little depleted due to emergency repairs that had to be made to one of our properties (a fun story about seller fraud, actually, but that is a story for another time).

    However, both my business partner and I have fairly substantial assets for our ages and relatively easy access to private credit. We have also done a good job of building a tenant base of mostly salaried employees working in critical industries. We will be fine, but we are taking this event as a grave reinforcement of our belief in the importance of reserves.

    3Reply
  • Jenny Roman
    Lender · Member since 2020 · 89 posts · 69 votes
    6y

    @Christopher Freeman @Mike Hurney @Kanwar Sodhi @Martin Neal @Account Closed @Karen Casey  @Jason Collins Congratulations on "done a great job of building a tenant base of mostly salaried employees working in critical industries". This is a "tentative" recession proof approach that I have been recommending my clients to invest time in. I would have to agree with many 12 months reserves. Unfortunately, at this time renting is becoming like an interview. Looking at potential tenants; weaknesses and strengths. Current credit. Any blemishes? Ask what went wrong and make a sound judgment call. Current job; stability, length of time, industry. etc.

    1Reply
  • Eddie T.
    Rental Property Investor · NY · Member since 2013 · 844 posts · 350 votes
    6y

    Please watch Under One Roof video on yt

    For some reason i cannot post link here?

    0Reply
  • Mindy JensenPro Member
    OP
    BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
    6y

    Hi @Eddie T.

    We do not allow links to YouTube videos in the forums.

    [email protected]Podcast Guest on Show #261
    BiggerPockets
    0Reply
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