Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
15y
I don't hold many rentals, but my general strategy is to keep a separate account for each, deposit all rent into that account, use that account to pay for expenses and mortgage, and then once that account reaches 6 full months of rent, start diverting payments for other business uses.
So, basically, I build to 6 full months worth of reserves, and then maintain that level.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
14y
I would definitely keep less in reserves if you own your property free and clear. To me the reserve limits are largely driven by what creditors want to see if you have stable income and lines to draw from for large items.
Investor · Jacksonville, FL · Member since 2014 · 186 posts · 34 votes
9y
This is an old thread, but I got alot out of reading the responses and figured I would add my own.
When I was working with the bank on my first property I had budgeted 4% gross rents for reserves. The banker liked this, and it was actually more conservative than the bank normally wanted to see, I think they were looking for at least 2%.
But the building also didn't have any major pending issues like needing a new roof, and the windows had also all recently been replaced.
Now that it has been running for a while, I want to keep about 3 months PITI set aside to deal with anything that may come up. Once we go along a little further, I would want the property to be in a place where if I did need to make a major repair, I could go back to the bank and get a small secondary loan (maybe LOC) or refinance to get access to the needed cash.
I would imagine for a bigger property these number get big quickly. Three to six months of funds can be 50k plus. If I were running that I'd probably find a way to keep the money separate, but invest it. Assuming that money ALWAYS needs to be available, there are numerous ways to squeeze a little yield out of it. Maybe like a rolling 1-2yr CD ladder, or heaven forbid even a small amount in the stock market accompanying another sum in cash.
