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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Reggie ReardenPro Member
Rental Property Investor · Aiken, SC · Member since 2019 · 129 posts · 44 votes
6y
I'm one of the people that does not have 6 months of cash on hand like I read a lot of people have. I'm still new to REI and learning how much I should put aside every month. I've dipped into some of my cash reserves and bought my last 2 properties cash. What I do is take out 15% of gross from all 8 of my properties to pay vacancy, cap ex, etc. However, I'm diversified with owning a couple of small businesses, SFHs, and commercial units as well as work a W2 government job. The number seems like it will work for how my families lifestyle is.
2 Reply
Kevin Paglia
New to Real Estate · Las Vegas NV · Member since 2020 · 90 posts · 46 votes
6y
Once I start getting some investment properties we have (wife and I) decided that a 6 month savings for each door is prudent. It is a lot, and will take time to build up to that. But that is also the money that will go towards emergency repairs and such.
The plan right now is to build to 20-25 doors as fast as possible, then switch gears and focus on paying off the doors with adding new doors slowed to a BRRRR pace. Once all the properties are paid off (recession proofed) THEN we start investing in more doors again and looking at larger complexes. (I want at least one 20-unit apartment complex before I stop, preferably two).
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Mike Jordan
Los Angeles, CA · Member since 2013 · 60 posts · 5 votes
6y
it is mandatory in most stocks in the world, to have at least 10% of the profit as a legal reserve.
if the international companies do this, why don't we comply with this regulation? as individuals?
0 Reply
Mike Jordan
Los Angeles, CA · Member since 2013 · 60 posts · 5 votes
6y
P.s Warren Buffett has 20 billion cash as reserve, he did not use all the cash for stocks only, he know that someday will be a rainy day, recession is part of life, and investors should be ready for these circumstances.
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Whitney HuttenPro Member
Investor · Boulder, CO · Member since 2016 · 1k+ posts · 1k+ votes
6y
@Mindy Jensen I keep 6 months all hard costs (PITI) + all of my insurance deductibles in an account (then additional reserves as well). The odds of all my properties going vacant and having an insurance claim against them is astronomically high... I know. I always replenish that account first (with any income, sales proceed, or refi proceeds) before taking a distribution. I do the same for my personal expenses too (I think most people don't account for the setting aside insurance deductibles).
I know what it is like to live paycheck to paycheck and have a disaster hit. It's scary times! When it happened to us in 2008, we actually were too "naive" to be scared crapless (when we should have been). Now, my reserves might be a little on the heavy side, however, I sleep very well at night.
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Charmaine Holden
Member since 2019 · 24 posts · 4 votes
6y
@ Anthony Wick . I was hesitant to START investing when this coronavirus disaster started and especially hearing of job closings/layoffs for non essential workers. So as of now I have NO reserves available if I had any rentals or buy and hold properties to pay mortgages and expenses. I could seriously see myself in deep doo-doo. I have a W-2 full time job but barely getting by paycheck to paycheck to pay my personal bills. Still a newbie , so thanks for including us ! Great discussion Mindy!
1 Reply
Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
6y
We could literally go a couple years on reserves but would rather not. The way you get to that state is 80-90% lifestyle and 10-20% income. Sure we travel, eat out, drive nice, used cars, and I officially have grad school bills again (huh?) but we do it all smart. I'm building up a war chest for the third to fourth year of Trump's second term. It doesn't take a genius to track trends and see a natural cycle coming up.
3 Reply
Mike D.
Investor · Marion, IA · Member since 2010 · 177 posts · 117 votes
6y
You've got to have reserves. But if you have too much reserves then you are diluting the return on your real estate investments by having a huge chunk of cash earning 1%.
2 Reply
Kelvin He
Member since 2018 · 38 posts · 13 votes
6y
I like your style of investing. Smart-aggressive..
Just wondering, what is the split between cash/stocks for you at the moment? 50/50? 80/20?

0 Reply
Timothy W.
Attorney · Raleigh, NC · Member since 2008 · 4k+ posts · 1k+ votes
6y
Originally posted by @Mike D.:
You've got to have reserves. But if you have too much reserves then you are diluting the return on your real estate investments by having a huge chunk of cash earning 1%.

There are options better than 1% that also have much better liquidity than real estate.
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
6y
Originally posted by @Reggie Rearden:
I'm one of the people that does not have 6 months of cash on hand like I read a lot of people have. I'm still new to REI and learning how much I should put aside every month. I've dipped into some of my cash reserves and bought my last 2 properties cash. What I do is take out 15% of gross from all 8 of my properties to pay vacancy, cap ex, etc. However, I'm diversified with owning a couple of small businesses, SFHs, and commercial units as well as work a W2 government job. The number seems like it will work for how my families lifestyle is.
its important to look at your situation globally.. those that rely basically solely on their rentals for their livilyhood need to have much stronger reserves than those that have income from other places..

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4 Reply
Chad Wilson
Member since 2020 · 5 posts · 1 vote
6y
I was never big on leverage, which is why my real estate portfolio is small compared to so many of my peers. With that said, we have about 24 to 36 months in cash, and an additional 24 to 36 months if we elect to remove up to $100,000 from our vanguard funds. Feels kind of nice right about now.
1 Reply
Patrick McGrath
Rental Property Investor · Westminster, MD · Member since 2014 · 165 posts · 221 votes
6y
@Mindy Jensen
We have 3 months reserves if no one pays, from rents. As well as 3 months reserves of savings that was for new opportunties. So 6 months covered if need be.
We are long term investors, i understand not everyone is in the same boat.
Save everything you can, just in case! #2020
1 Reply
Eylan Dilworth
Rental Property Investor · Midvale, UT · Member since 2020 · 8 posts · 3 votes
6y
@Mindy Jensen as of right now I have 0 investment properties but plan to be there start of 2021. I have enough reserves for about 5-6 months not counting what I have invested into the stock market that I plan to pull the end of this year for a down payment.
0 Reply
Grace A.
Investor · FL · Member since 2020 · 41 posts · 21 votes
6y
I live across 2 continents (work in Australia, but call NYC home). I have reserves in both currencies. 6 months in AUD, a little bit more in USD.
1 Reply
Susan Tan
Rental Property Investor · Houston, TX · Member since 2019 · 212 posts · 149 votes
6y
My cash reserves come from my full-time job paycheck that comes once every 2 weeks. My W2 paycheck then deposits into a high yield business checking account connected to my LLC. I only have 1 condo apartment paid in full in October 2019 as a beginner REI and I'm happy to not have a mortgage so far. I have enough cash reserves to a full year of living expenses in the HCOL state of San Francisco Bay Area.
1 Reply
Brent M.
Investor · Hayward, CA · Member since 2015 · 83 posts · 72 votes
6y
Over 18 months worth in cash/cash equivalents. I remember the last recession well. I think this one will be worse.
1 Reply
BOB CRANEY
HIGHLAND, MD · Member since 2011 · 160 posts · 141 votes
6y
@Mindy Jensen
About 16 months of cash to carry all 12 units if not paying. I would stop paying my mortgage loans long before I ran out of my cash.
I thinks we would all go into a different mode and figure out ways to incentivize non paying tenants to move out so at least you could try for a paying tenant even if it ended up at a Lower monthly rate. If a non paying tenant is staying because they think they don’t have to pay back the missed rent and can’t be evicted, it will be hard to get them to leave without a sweetener.
1 Reply
Anthony W.
Member since 2019 · 118 posts · 87 votes
6y
@Ana R. I would personally say depending on the property but as @Scott Trench says start with atleast 10-15K. I have been personally learning as much as possible so i can use my VA benefits and other advantages I have correctly. One of the most important things i learned so far was get the deal for no money down but better be sure to have money to cover the property. This current situation NOBODY could have saw coming but is the perfect example of why you should have reserves. Good luck in your path to wealth.
3 Reply
Lane Kawaoka
Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes
6y
I don't look at it from a emergency reserve. Accredited investors look at it from an opportunity fund to go into good deals.
I use infinite banking plus there a private note fund that allows you to take money out which allows me to float enough for 2-3 syndicated deals incase they stack upon each other in the same few months.
1 Reply
Ana R.
Real Estate Consultant · New York, NY · Member since 2019 · 40 posts · 40 votes
6y
@Anthony Ward thank you so much for the reply! This is definitely scary, but I'm taking this opportunity to learn what other investors are doing and keeping a look at the market I'm interested. Stay safe and well!
1 Reply
Zac Boelkow
Port Richey, FL · Member since 2016 · 129 posts · 48 votes
6y
12 months of expenses per property in reserves. I think I am overkill and 6 months cash reserves would suffice. Then again I like buying property for all cash as well. As a general rule of thumb I keep 50-100 thousand cash in a money market or online savings account because when a deal presents itself, RE or otherwise, I want to be able to jump on it. Everything past my cash reserves in the stock market. : )
I should also mention that REI for me is my part time job as I have a good 9-5 job that I can live off of. 100% of my rental returns gets recycled into new investments or saved and then put in to the stock market. I have never spent one dime of my rental returns on myself or my lifestyle. Obviously I use the returns on maintaining the properties...
0 Reply
Joseph M'Mwirichia
Rental Property Investor · Sarasota, FL · Member since 2020 · 154 posts · 72 votes
6y
The reserve $$$ in hand being shared here are super impressive, and a little daunting for a newbie investor getting off the block.
How long did it take to generate such healthy reserves? At the $250-350/door guidelines, it appears one would still need to employ outside strategies.
1 Reply
Zac Boelkow
Port Richey, FL · Member since 2016 · 129 posts · 48 votes
6y
Saving healthy reserves is a continuous juggle and balance with repairs, maintenance, taxes, etc... My first property, as probably with most of us, I went all in. I had 15k in cash and I bought a 44k property and went in with 13k. Leaving me with 2k in reserves. At the beginning I was desperate to "get it" at all cost. I would not do that today. That deal worked out great for me but should have crushed me financially...
The more mistakes we make as we go the more we adjust and decide to have healthier reserves or what ever system in place because we do not want to be bitten again. I have been actively buying/selling/renting deliberately for the last 7 years and the more traction I make the more reserves I net. It gets a lot easier the further down the road from when you first are just starting out. Remember investing is "long term" its slow and at times it can be boring. Which "boring" is a great position to be in because that means everything is working :)
4 Reply
Alex Corbishley
Minneapolis, MN · Member since 2018 · 31 posts · 20 votes
6y
We have 9 doors and maintain about 3 months total expenses in the business account. It’s low now because we just used the balance for part of the down payment on our first duplex. We also own a couple outright. My partner and I both have W2 jobs and have more reserves outside of the business. I’m glad we have scaled up, this would be tough with one or two rentals. We are actively looking for 4 or 5 more this year.
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