Amount in reserves needed to start investing
Eli FacklerPro Member
Member since 2025 · 11 posts · 16 votesAmount in reserves needed to start investing
5 Replies
- 5moJason WrayPro MemberBanker · Nationwide · Member since 2020 · 2k+ posts · 1k+ votes
Distressed properties under $125K are usually best served using an HML (Hard Money Loan) then in 6-12 months refinance out of the higher rate.
- 5moKenneth GarrettPro MemberInvestor · Florida Panhandle/Illinois · Member since 2016 · 4k+ posts · 3k+ votes
I agree with @Jason Wray most who are doing flips or BRRRR's are using Hard Money or Private Money and either pay back the funds through selling or refinancing.
To your question about reserves I would have at least 20% of the rehab budget for the unexpected. Rehabs always have some surprises that you had not planned to do. In reality, most rehabs are going to cost more and take longer to complete when you are first starting out.
On the BRRRR side, you will need reserves to refinance the property. Probably 3-6 months depending on the lender. Talk to lenders now so you are not surprised regarding the reserves. Most do DSCR loans. There are many DSCR lenders on BP here or check your small local banks/credit unions in your area.
- 5moArman AhmedPro MemberReal Estate Agent · Columbus Cleveland Dayton, OH · Member since 2024 · 2k+ posts · 935 votes
Quote from @Kenneth Garrett:
I agree with @Jason Wray most who are doing flips or BRRRR's are using Hard Money or Private Money and either pay back the funds through selling or refinancing.
To your question about reserves I would have at least 20% of the rehab budget for the unexpected. Rehabs always have some surprises that you had not planned to do. In reality, most rehabs are going to cost more and take longer to complete when you are first starting out.
On the BRRRR side, you will need reserves to refinance the property. Probably 3-6 months depending on the lender. Talk to lenders now so you are not surprised regarding the reserves. Most do DSCR loans. There are many DSCR lenders on BP here or check your small local banks/credit unions in your area.
You’re in a great spot starting this early, especially already having rehab experience, that’s a big edge. On reserves, don’t just think purchase + rehab, you want a buffer for holding costs, overruns, and surprises because they will happen, especially on distressed properties. A good rule is to have at least 10–20% extra on top of your total project budget, plus a few months of expenses, so one delay doesn’t kill the deal. A lot of newer investors underestimate this and get squeezed mid-project. In lower price Midwest markets, including places like Ohio, that cushion is a bit easier to maintain since entry costs are lower, which gives you more room to learn without getting burned. Keep your first few deals simple, protect your downside, and you’ll be in a strong position to scale.
- 5moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votes
Quote from @Eli Fackler:
Hello!
I just turned 20 years old, and I am in the process of finishing the half gut remodel my first home recently moved into. I really fell in love with the whole process, and I am very confident that this is what I want to do for my career. I still work landscaping full time and don't necessarily dislike it but not something I want to do for the rest of my life lol. Anyway, looking to flip or BRRRR my next investment property and just wondering how much cash reserves I should have other than the amount to purchase the property? Going to be buying a distressed property around 60-80k range and most likely going with the BRRRR. Any suggestions or advice is greatly appreciated for someone just starting out.
Thanks!
Congrats on getting that first remodel under your belt at 20, that's actually a big deal and it's usually where people either catch the bug or realize it's not for them, so the fact you're still excited about it is a good sign. On cash reserves, the biggest mistake new investors make is only thinking about the purchase price and rehab and not the "everything else" bucket, because that's where deals get tight fast. For a distressed property in that 60–80k range, you generally want enough buffer to comfortably cover the rehab plus a meaningful contingency on top of it, because even well-planned projects almost always run into surprises once walls open up, and then you also need holding costs while it's being fixed and later stabilized if you're doing a BRRRR. On top of that, lenders for the refinance don't always go perfectly smooth or fast, so having extra reserves for payments, insurance, utilities, and unexpected delays is what keeps you from getting forced into a bad exit. A simple way to think about it is making sure you're not fully stretched just to close and rehab, and instead having enough set aside so that if things take longer or cost more than expected, you're not scrambling or forced to rush a sale. At your stage, the goal is really to stay in the game and learn, so having a healthy cushion is less about maximizing leverage and more about making sure one project doesn't wipe you out.
Jimmy Lieu, Red 1 Realty4.9120 Reviews - 3moGarrett CrosbyPro MemberReal Estate Agent · Los Angeles, United States · Member since 2021 · 392 posts · 162 votes
Great that you have the hands-on experience from your first home — that's a real edge when it comes to scoping rehabs accurately, which is where most new investors get hurt.
On reserves: I'd think in three buckets. First, the rehab contingency — I'd add 15-20% on top of your best estimate. Not because you're a bad estimator, but because walls always hide surprises. Second, holding costs during the project — mortgage/taxes/insurance/utilities while you're doing the work. That can be 3-4 months on a distressed property if anything goes sideways. Third, post-close lender reserves — when you go to DSCR refi most lenders want 3-6 months PITI in the account at close. Plan for that now.
The goal is to never be in a position where a $3,000 surprise repair puts you in a cash crisis. At 20 with this much drive, you're going to do well — just protect the downside on the first one and you'll build from there. DM anytime.
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