Cash Reserve Thoughts

General Real Estate Investing
1yFollow

Cash Reserve Thoughts

Alex Kreeger
Member since 2019 · 63 posts · 60 votes

How do you best find "that number" for cash reserves. Do you have a number tied to a major capex item? Do you go by a certain amount per door? Or do you just have a specific chunk of money that has worked for you, and you stick with that. Thanks!

0Reply
189 views

Most Popular Reply

Joseph Hammel
Rental Property Investor · Lake Hallie, WI · Member since 2015 · 292 posts · 144 votes
1y

I have 141 units and don't keep any separate reserves. 

Everything comes out of the operating account. 

Budget 5% Vacancy (currently really 3.7%) 3 turns 2 ready and open.8% Maint 8% cap x Plus all the fixed expenses tax, ins, utilities are all figured in. 

After paying myself I still show 11.48% surplus.

Lines of credit are there if needed as well.

3Reply
See this reply in the discussion

19 Replies

Jump to latestLatest
  • Jules Aton
    MD/DC · Member since 2024 · 1k+ posts · 1k+ votes
    1y

    Some of this will be dependent on the person's comfort level and stage of their life. I don't like to have a lot of cash sitting around in "safe" investment vehicles and currently don't keep an emergency fund. My TSM Index fund in taxable is what I would use in a pinch if my W2 income, checking account balances or credit cards wouldn't cover an unexpected expense.

     

    0Reply
  • Ky Perry
    Member since 2025 · 47 posts · 31 votes
    1y

    I’m still early in my journey, but from what I’ve picked up, a lot of investors use a per-door system — something like $250–$300 per unit, per year, just to cover basic maintenance. For bigger capex items (roof, HVAC, etc.), some people set aside a separate reserve or at least know the lifespan of those items so they can plan ahead. I’ve also heard others just keep 3–6 months of expenses as a safety net. Seems like everyone tweaks it based on their risk tolerance, but those are the common approaches I’ve come across.

    1Reply
  • Cliff BennerBusiness Member
    Accountant · Denver, CO · Member since 2020 · 392 posts · 183 votes
    1y

    I think it is a risk factor, but also includes logic. 

    If you have a portfolio of houses, the odds that all water heaters go out at once or all are vacant at once is low.

    Also, once you hit a certain balance, it almost makes more sense to buy another so that the monthly income can add up faster too.

    I would like to have $10k in reserves for Repairs/Capex/Vacancy per house, but once I get to 10, having $100k in a savings account wouldn't make sense to me. Id be comfortable with $50k and using the other $50k as a down payment for another rental.

    I think once you first start, aim to get that reserve account filled ASAP and then just leave everything in it and keep letting it grow monthly to be defensive, don't use it for your life style, so you can buy more and repeat the process. 

    Benner Stride52 Reviews
    WebsiteView Page
    2Reply
    • Alex Kreeger
      OP
      Member since 2019 · 63 posts · 60 votes
      1y

      @Cliff Benner I actually have taken this method so far. We have 3 sfh looking to add another next few months. I believe we will get to a point where a "50k or so" will work and use the rest just as you mentioned. 

      0Reply
    • Cliff BennerBusiness Member
      Accountant · Denver, CO · Member since 2020 · 392 posts · 183 votes
      1y
      Quote from @Alex Kreeger:

      @Cliff Benner I actually have taken this method so far. We have 3 sfh looking to add another next few months. I believe we will get to a point where a "50k or so" will work and use the rest just as you mentioned. 


       I think it's an easy method that can make sense to a lot of people so they can focus on the other items to increase income so there is less of a need for reserves or the effect of repairs are felt less. 

      Benner Stride52 Reviews
      WebsiteView Page
      0Reply
  • Joseph Hammel
    Rental Property Investor · Lake Hallie, WI · Member since 2015 · 292 posts · 144 votes
    1y

    I have 141 units and don't keep any separate reserves. 

    Everything comes out of the operating account. 

    Budget 5% Vacancy (currently really 3.7%) 3 turns 2 ready and open.8% Maint 8% cap x Plus all the fixed expenses tax, ins, utilities are all figured in. 

    After paying myself I still show 11.48% surplus.

    Lines of credit are there if needed as well.

    3Reply
  • Alecia LovelessPro Member
    Member since 2019 · 3k+ posts · 2k+ votes
    1y

    @Alex Kreeger I set aside 15% of rents. 5% for CapEx, 5% for vacancy, and 5% for repairs.

    We usually do a lot of nit picky maintenance stuff when we buy a property which has helped minimize a lot of the day to day maintenance issues that tend to crop up.

    2Reply
  • Jared Martz
    Rental Property Investor · Myrtle Beach · Member since 2019 · 38 posts · 25 votes
    1y

    @Alex Kreeger my portfolio is small with 5 units, I set aside 15% of total rent costs each month. The money just stays in my rental account for maintenance/emergency purposes. Once the account accrues to a certain amount that works for your situation, keep it and extras can get moved towards your next investment. 

    1Reply
  • John MorganPro Member
    Rental Property Investor · Grand Prairie, TX · Member since 2018 · 2k+ posts · 2k+ votes
    1y

    I have 29 SFR and only keep about 50k in savings. I'd rather put my cash to work with investing in more rentals vs having a lot sitting in savings losing value by the day. I can tap into a 50k 401k loan or get lines of credit if needed.

    1Reply
  • Arn CenedellaPro Member
    Rental Property Investor · Greenville, SC · Member since 2008 · 786 posts · 1k+ votes
    1y

    @Alex Kreeger

    The answer is:

    It depends in large part on the age, quality and condition of the property. 

    Spark Multifamily Investment Group is a syndicator and sponsor of over 1000 units primarily in Greenville South Carolina. 

    We are OLD SCHOOL and strongly believe in the benefits of having ample cash reserves. 

    We like to have $5,000 a door minimum for reserves. We park this cash in a MMA account to earn interest in this cash for our investors. 

    After 48 years in the industry, one of the major factors in investing safely thru all kinds of markets and economic cycles is having cash in the bank to weather the inevitable downturn or when Murphy’s Law strikes. 

    Many may find our approach “excessive” and while it may reduce returns 1% or 2% we believe the significant decrease is investment risk is worth it. 

    Hope this helps. 

    Arn

    [email protected]650-575-6114
    1Reply
  • V.G JasonPro Member
    Investor · Member since 2022 · 3k+ posts · 3k+ votes
    1y

    Ample reserves. Mostly cash, some index. 70-80% cash/20-30% s&p and gold.

    75% of capex with 5% appreciation if capex is all 3 years or younger. 5% more every year older.

    1 year of rent payments plus 3% annually, minimally.

    When markets turn, don't sell... be a buyer. If you're patient, the cash burns a hole but the buy offsets it. Too many people are too light weight to really focus on the minute percentage of yield left off the table. And expose themselves to tail risk.

    1Reply
  • Seth McGatheyBusiness Member
    Real Estate Agent · Milwaukee WI · Member since 2024 · 318 posts · 252 votes
    1y

    I like the idea of 3-6 months expenses. But I fudge that a little right now because I used a HELOC for my last purchase, and so all my capex and "cashflow" just pay into that. It is being paid down pretty quickly and I don't really worry about having "reserves" because I can pull that money right back out for expenses. In fact I do. Every expenses I have for any of my properties currently comes out of that HELOC. So it sort of acts as my portfolio shared bank account. All properties pay it down and all properties pull from it as needed. I am honestly considering using this system going forward as well, where I never really have a bank account of reserves, but instead have a HELOC of reserves. Allowing me to continue to expand without waiting for my accounts build up.

    [email protected]708-297-0996
    Seth McGathey - Shorewest Realtor4.913 Reviews
    WebsiteView Page
    0Reply
    • Seth McGatheyBusiness Member
      Real Estate Agent · Milwaukee WI · Member since 2024 · 318 posts · 252 votes
      1y

      @Account Closed Interest rates should not affect whether they call my HELOC or not. Generally that would only be if the house sudden drastically drops. But unless something seriously damages my house or there is some complete crash of the market like 2008, they won't be calling my HELOC. And since there really is no sign of such a massive crash, I am not all that worried about such things. But I appreciate your concern.

      [email protected]708-297-0996
      Seth McGathey - Shorewest Realtor4.913 Reviews
      WebsiteView Page
      0Reply
    • Seth McGatheyBusiness Member
      Real Estate Agent · Milwaukee WI · Member since 2024 · 318 posts · 252 votes
      1y

      @Account Closed Also, what makes you think rates are supposed to go up significantly? And why would that create a tailspin? It would likely continue the small pullback we have been having but I doubt it would crash the economy. 

      [email protected]708-297-0996
      Seth McGathey - Shorewest Realtor4.913 Reviews
      WebsiteView Page
      0Reply
Join the conversationCreate a free account to reply, vote on answers and follow this thread.
Log InJoin for Free