How Much Do You Have In Reserves?
Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votesHow Much Do You Have In Reserves?
Most Popular Reply
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
6yI 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!
147 Replies
- Brooklyn, NY · Member since 2016 · 46 posts · 11 votes6y
6 months, it alleviates so much stress and allows you to take your time to get the right tenant in the event of a vacancy.
- Austin, TX · Member since 2017 · 7 posts · 2 votes6y
I just have to say.. I am glad I purchased my first duplex/house hack in 2013. Back then I was pretty much all in, had no reserves, and would have been in trouble if I had a tenant that couldn't pay for 2 months as I was not making enough money to cover it all, hence the house hack on a duplex. Now if I had purchased that same property in Austin, say a month ago, under the same circumstances, I'd be in trouble. Luckily I now have 17 months in reserves for the the duplex and my current property and any living expenses. I feel bad for anyone that purchased their first duplex a few months ago that just barely qualified. I got lucky with the timing, I am sure there are a lot of people that are not going to end up so lucky.
- 6yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Mindy Jensen 12 months at a minimum is what I do for pure rentals. I have a few months for my personal househack
The Moorhead Team5140 Reviews - Member since 2020 · 10 posts · 5 votes6y
I've got 8 months+ of reserves set aside for all of my properties. We've also got a HELOC that we can tap into if needed for anything crazy that may happen. So far we've never run into a situation we can't handle with those two safety nets.
--David
- Rental Property Investor · NY · Member since 2017 · 21 posts · 17 votes6y
Our cash reserves come from our full time W2 jobs currently. We had been putting a lot of money into a fixer upper. Repairs are now only on an emergency basis, so we will see how much we can start building up the non-W2 reserve.
Provided we don't lose our W2 jobs, we currently have at least a six month reserve.
- Rental Property Investor · Helena, MT · Member since 2017 · 282 posts · 117 votes6yI've been investing for 2 years now so pretty new. I house hack a duplex and have a 6 unit. Last year I drained my reserves low to purchase the 6 plex, which could've forced me to use my W2 income to pay for things. Thankfully I'm in a better defensive financial state now. I'm no longer willing to drain my reserves to purchase another property even if it's a good deal. This will be a hard rule for me to keep if something great comes available. My cash reserves are 8 months assuming 0 pay rent and I don't want to pay to live in my duplex. Another 5 months in VTSAX I could sell if needed. And 18 months in a unused HELOC from my sweat equity. My W2 job with my savings rate could cover all mortgages & the HELOC if needed. +1 for house hacking.
- NJ · Member since 2018 · 24 posts · 17 votes6y
I always start with having 3 month worth of rent in reserve when I acquire a property, and leave first 3 month rents untouched so overall 6 month rents in cash reserve for each property at minimum. I also "rebalance" annually / top up some cash aiming for 12 month worth of rent if possible.
- Member since 2020 · 21 posts · 27 votes6y
I have a modest 25 units in Buffalo NY, three of which are under contract to be sold. So effectively I have 22 units. I have enough cash for two years of expenses with no rents coming in, but that's because I'm a stupid, fearful saver who's happier having the liquidity than I would be getting an unpredictable return in today's market. I wish I had the balls to gamble with it!
- Specialist · Corry, PA · Member since 2015 · 75 posts · 67 votes6y
I have two LLC's, one for my portable storage business and one for my rental portfolio. I keep a 4-6 month runway in cash in my portable storage business checking accounts. Maybe only 2-3 in my rental portfolio business. Simply because I have a good full time job and I aggressively save and invest in Vanguard. Obviously those investments are susceptible to market volatility, but being young I have no problem taking on that risk now, and I could always dip into that money if I really needed to.
One unique thing I do is that I set up my Vanguard brokerage accounts for margin. I never actually use that margin account (until recently I used a small portion of it to make a few buys at the recent bottoms of the corona virus pandemic), but the reason I did is because you take a loan out from it anytime, very similar to a line of credit. I've used it a couple times heading to auctions so I had a good chunk of change ready in case a good deal came about. If the deal didn't come then I would just put the money back a day or two later and pay like $1 in interest. The money you take out on margin charges interest, but there is no payback period specified so it's just a handy tool. I can do this though because I have built a nice stock portfolio over a lot of years though and I heavily dollar cost average into those accounts, so I wouldn't recommend someone do this unless they have a nice portfolio built up already. It's just another useful tool so you don't have to dip into investments or cash if you need to act quickly.
I had a good relationship with a guy looking to sell one of his rentals. He wanted to sell me an owner financed duplex in a nice neighborhood. Only wanted $3,000 down. Could have easily paid for that in cash, but I like to keep my cash invested and i wanted to test out this concept. Borrowed $3,000 from my Vanguard margin account to get into the deal, then used the cash flow from the deal to pay back the $3,000. So it allowed me to get into a nice cash flowing deal without any money out of my own pocket. - New to Real Estate · Puerto Rico · Member since 2020 · 18 posts · 6 votes6y
I only have about a grand itll be 2 with trumps stimulus check. Its a bad situation but im determined to get myself out of it. That's why I joined this forum to see if real estate investing is my cup of tea since I hear lots of wonderful things about it and becuase of Robert Kiyosaki always talking about it.
- NJ · Member since 2018 · 24 posts · 17 votes6y
Originally posted by @Nick Heil:
I have two LLC's, one for my portable storage business and one for my rental portfolio. I keep a 4-6 month runway in cash in my portable storage business checking accounts. Maybe only 2-3 in my rental portfolio business. Simply because I have a good full time job and I aggressively save and invest in Vanguard. Obviously those investments are susceptible to market volatility, but being young I have no problem taking on that risk now, and I could always dip into that money if I really needed to.
One unique thing I do is that I set up my Vanguard brokerage accounts for margin. I never actually use that margin account (until recently I used a small portion of it to make a few buys at the recent bottoms of the corona virus pandemic), but the reason I did is because you take a loan out from it anytime, very similar to a line of credit. I've used it a couple times heading to auctions so I had a good chunk of change ready in case a good deal came about. If the deal didn't come then I would just put the money back a day or two later and pay like $1 in interest. The money you take out on margin charges interest, but there is no payback period specified so it's just a handy tool. I can do this though because I have built a nice stock portfolio over a lot of years though and I heavily dollar cost average into those accounts, so I wouldn't recommend someone do this unless they have a nice portfolio built up already. It's just another useful tool so you don't have to dip into investments or cash if you need to act quickly.
I had a good relationship with a guy looking to sell one of his rentals. He wanted to sell me an owner financed duplex in a nice neighborhood. Only wanted $3,000 down. Could have easily paid for that in cash, but I like to keep my cash invested and i wanted to test out this concept. Borrowed $3,000 from my Vanguard margin account to get into the deal, then used the cash flow from the deal to pay back the $3,000. So it allowed me to get into a nice cash flowing deal without any money out of my own pocket.Great tip about the Vanguard margin account Nick, the interest is a bit on the high end ( 8.5% on <19k loan ) but definitely worth to have in one's tool box !
- New to Real Estate · Cincinnati, OH · Member since 2019 · 51 posts · 15 votes6y
@Anthony Ward
Ok y'all, it seems like "8 months" has been the most common answer in this thread so far. I'm curious though because I just listened to the same podcast that Anthony did - if I were to buy a new property and immediately set aside say $15k for my first property (as per the podcast) then I don't need to set aside any additional money for CapEx out of rent, right? If I'm looking for a $100-150k SFH to get started, and a $15k set-aside seems like an awful lot. Just based on the 1% rule of a $150k property that would cover 10 months of gross rent. Yes, I understand I could be in trouble if the house has bad roof AND bad HVAC AND cracked sewer all at the same time but that seems somewhat unlikely.
TLDR: For all of you with 6+ months of cash reserves do you keep setting more capital aside for future CapEx and repairs? Or do you just set aside your target reserve amount from the time of purchase, we effectively increasing your cash flow until a repair causes you to have to "refill" the CapEx/maintenance bucket with a 10% monthly repayment to yourself?
- Clarksville, TN · Member since 2017 · 6 posts · 0 votes6y
I just bought a duplex and have pretty much depleted my cash reserves, good thing all 8 properties are paid for, taxes and insurance are paid for the year, as long as no major repairs happen, my wife can hold us down if no rent money is collected, but I do have my safety stash which I do not touch.
- Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes6y
Originally posted by @Phil Denton:
@Anthony Ward
Ok y'all, it seems like "8 months" has been the most common answer in this thread so far. I'm curious though because I just listened to the same podcast that Anthony did - if I were to buy a new property and immediately set aside say $15k for my first property (as per the podcast) then I don't need to set aside any additional money for CapEx out of rent, right? If I'm looking for a $100-150k SFH to get started, and a $15k set-aside seems like an awful lot. Just based on the 1% rule of a $150k property that would cover 10 months of gross rent. Yes, I understand I could be in trouble if the house has bad roof AND bad HVAC AND cracked sewer all at the same time but that seems somewhat unlikely.
TLDR: For all of you with 6+ months of cash reserves do you keep setting more capital aside for future CapEx and repairs? Or do you just set aside your target reserve amount from the time of purchase, we effectively increasing your cash flow until a repair causes you to have to "refill" the CapEx/maintenance bucket with a 10% monthly repayment to yourself?
We accumulate capex until we have about $20k because that's enough for about 3 major events such as HVAC/Roof/sewer pipe, etc. Then refill as required.
- Longueuil QC, Canada · Member since 2020 · 2 posts · 1 vote6y
Completely agree!! Mortgage, taxes, insurance, utilities, lawn care, maintenance | anything coming out of your pocket for the property.
It makes those tough decisions turn into logical business decisions.
- Specialist · Corry, PA · Member since 2015 · 75 posts · 67 votes6y
Originally posted by @Chris Lin:
Originally posted by @Nick Heil:
I have two LLC's, one for my portable storage business and one for my rental portfolio. I keep a 4-6 month runway in cash in my portable storage business checking accounts. Maybe only 2-3 in my rental portfolio business. Simply because I have a good full time job and I aggressively save and invest in Vanguard. Obviously those investments are susceptible to market volatility, but being young I have no problem taking on that risk now, and I could always dip into that money if I really needed to.
One unique thing I do is that I set up my Vanguard brokerage accounts for margin. I never actually use that margin account (until recently I used a small portion of it to make a few buys at the recent bottoms of the corona virus pandemic), but the reason I did is because you take a loan out from it anytime, very similar to a line of credit. I've used it a couple times heading to auctions so I had a good chunk of change ready in case a good deal came about. If the deal didn't come then I would just put the money back a day or two later and pay like $1 in interest. The money you take out on margin charges interest, but there is no payback period specified so it's just a handy tool. I can do this though because I have built a nice stock portfolio over a lot of years though and I heavily dollar cost average into those accounts, so I wouldn't recommend someone do this unless they have a nice portfolio built up already. It's just another useful tool so you don't have to dip into investments or cash if you need to act quickly.
I had a good relationship with a guy looking to sell one of his rentals. He wanted to sell me an owner financed duplex in a nice neighborhood. Only wanted $3,000 down. Could have easily paid for that in cash, but I like to keep my cash invested and i wanted to test out this concept. Borrowed $3,000 from my Vanguard margin account to get into the deal, then used the cash flow from the deal to pay back the $3,000. So it allowed me to get into a nice cash flowing deal without any money out of my own pocket.Great tip about the Vanguard margin account Nick, the interest is a bit on the high end ( 8.5% on <19k loan ) but definitely worth to have in one's tool box !
Thank's @Chris Lin, yes the 8.5% interest rate is definitely a high one to pay. For that reason, I feel it should only be used in the most opportune times and when you have a good plan to repay it quickly. Definitely should not be used as a source of long-term funds, but rather something that could quickly get you into a deal and give you an edge.
- Investor · Phoenix, AZ · Member since 2016 · 349 posts · 418 votes6y
I have reserves to cover about 6 months of expenses. I also have enough W-2 income to cover these expenses beyond that in my current employment situation.
I learned the hard way at an early age of the importance of reserves. 30 years ago as a 22 year old with 3 rentals, I had zero reserves and lasted only 18 months before giving away all three properties due to the unsustainability of the situation. Not gonna make that mistake again.
- Member since 2022 · 241 posts · 62 votes3yQuick question Bella, I noticed you have a few properties paid off and a few with mortgages. I currently have 3 properties and was seeing how if I paid some properties off early I could save interest. Of course if I put the money into more properties that would be nice too. Did you and your husband have a way to figure this out? Seems like most people are leveraged heavily with nothing paid off.
Quote from @Bella Butler:
We have reserved enough for each property for up to eight months even if no one pays. We have 2 paid off and 3 with a low-rate mortgage. We just cash out some money at a low-interest rate from one of the paid-off properties and have enough cash to buffer for another 12 months if things are going really bad. So far we only heard from one couple that have difficulty coming up with a full-month for April, but we have their 2-month rent in hand, security deposit and the last-month. We are working on a plan with them to keep them sheltered. Plus my husband still has his W2 job, working from home, and I have made some deals from the past 3 months, waiting for my checks to come in in the next 1-2 months.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.