Turnkey & recommended cash reserves

[Powell Chee]

Hello BP,

I have a question.  I am interested in purchasing a turnkey rental out of my market and I'm looking at providers in cashflowing markets.  I wanted to know how much in a cash reserve is recommended on these types of properties?  Basically, how much cash should I have on hand for emergencies.  Is it a certain % of the purchase price?

Thank you,

Powell

[Marco Santarelli]

@Powell Chee

There are three schools of thought to your question:

1)   Budget a factor of 4% to 8% for potential vacancy depending on the location of your property and the tenant class.   And budget another 2% to 10% for repairs and maintenance, again depending on the condition and age of the property.

2)   Or you can budget 3% to 4% of the market value of the property as a reserve.

3)  Or you can budget 2 to 3 months worth of gross rent per property as a reserve.  This is meant to cover vacancy and repairs.  Lower this as you build up your portfolio.

I personally prefer #3 and we often suggest the same to our investor clients.

Continued success!