Two years ago, hurricanes rolled through in Florida and we had damage at a couple of our properties.

We had insurance, so obviously we filed a claim and figured that was what insurance was there for.

Insurance paid out on one of the properties and unfortunately, two years later and insurance still hasn’t paid out on the one that had the most damage. 

No, the properties are not in a flood zone. Yes, we hired a public adjuster. And yes, it’s now in the legal process. Hopefully it eventually gets resolved.

But in the meantime, the property doesn’t just wait around while you fight with insurance. Repairs still need to happen, bills still need to get paid, tenants still need a functioning property.

And that’s probably been one of my biggest lessons as an investor of why reserves are SO important.

It’s really easy when analyzing a deal to want every dollar working. Especially when you’re growing. I remember thinking cash sitting in an account wasn’t really doing anything for me.

After this experience, I feel very differently now and always need to have heavy reserves. 

Sometimes the emergency isn’t even the expensive part. It’s how LONG you may have to carry the expense before getting reimbursed… assuming you get reimbursed at all.

So when a lender requires reserves, or when you’re deciding how much cash to keep after closing, don’t automatically look at that money as wasted capital, it's not. 

Curious for the other investors here, is having enough reserves something you thought about before buying your first property or did you learn the importance of them after something went wrong?