operating reserves for my first deal in indy

[Jason Malabute]

Hi All,

For my first apartment deal how much should I put aside for  "operating reserves"?

Operating reserves for apartments are insurance, mortgage (principal and interest), and property taxes right?

So Biggerpockets says you should have 6 month of operating reserves, but my mentor says he does 1 month of operating reserves (but he has over 400 units so I think that's why he can do that).What is the right approach for my first apartment?

Thank you

[Charles Seaman]

@Jason Malabute It's a tough time to answer this question because of where the overall market is due to all of the uncertainty we've experienced in recent months.  If you're financing your deal with agency debt, there's a very good chance that the lender will require you to provide at least 12 months worth of debt service at closing (Fannie Mae will likely also require at least 12 months worth of real estate taxes, insurance, and replacement reserves at closing).  This gives you a nice little cushion.

However, I'm a proponent of being conservative.  On top of the lender required reserves, I'm currently using an owner reserve that's equivalent to four (4) months worth of the property's total net income.  Between both reserves, they should hopefully allow a sufficient safety net.