How much cash needed beyond acquisition of MF building?

Question

BPers,

Is there a rule of thumb about how much cash you should keep on hand, beyond the aquisition cost? As I am drafting my budget for my first MF Apartment acquisition, I want to make sure I am not over-leveraged.

Strategy will be to acquire a MF apartment building (20+ doors), Class C, with modest investment needed to stabilize the building, make repairs, value adds. I will be utilizing a PM company for some of the operational needs.

If I have $600k to leverage, what would the right mix of down payment and cash for stabilization, etc.

• $500k down on a $2MM property, keeping $100k in the bank?
• $400k down on a $1.6MM property, keeping $200k in the bank?

Any guidance is greatly appreciated,

Josh

Enrique Huerta · Answer

Everyone uses different rules of thumb, but I've typically seen the following:

$500-$1,000 per unit in Replacement Reserves (usually lender required anyway), and

1or 2 months of operating cash flow (to cover expenses and debt service for a month or two if any excessive vacancy occurs)

Beyond that, it is a personal preference. You would want to have cash for:

-Purchase Price

-Closing Costs

-Capital Expenditures

-1 Year of Insurance Premium

-1 Year of Property Taxes

I can give a more specific answer if you have a breakdown of your acquisition costs, planned CapX, and short-term business plan.

How much cash needed beyond acquisition of MF building?

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