What’s your magic emergency/oh crap/oops it’s broken fund per house?

11 Replies

$3K? $5K...$10K? How much per house do you set aside for an emergancy, evections, something broke?

Banks want you to have funds available to be able to service PITI (mortgage principal and intererst, taxes, and insurance) for six months. I'd add in utilities and minor maintenance. So for me that would come to about $5K per property.

As long as I have that available in my personal HELOC, I'm good. I'll even draw that down further if I'm flipping a property and know that I'll recover the funds shortly.

We sit at about $2000 per house. Plus our personal emergency fund. 

 I think that a reserve fund shoudl be more than the number of houses. I would suggest that if you only have 1 or 2 houses, you still need 10k to 15k in the bank or available credit in a credit card to cover a disaster.  That is 5k to 10k per house.....

But if you have 20 houses, you don't really need 100k to 150k in the bank or credit card access.

To me, once you get over a certain number of homes, 50k should be more than enough of a reserve to cover yourself.   Banks don't ask for 6mos of reserves any longer once you start going with portfolio loans. They just want to see adequate reserves to cover a sky is falling scenario. 

And keep in mind, if you have over 20 houses, you should be seeing net income of at least 4 or 5k a month. Ideally, it would be 6 or 7k a month. So even if you have to replace a roof every month for a year, your profits from your rentals will take care of that and you shouldn't have to dip into your reserves at all.

Now, in a given month you may have a roof, furnace, 3 water heaters and a partridge in a pear tree hit. Then you may have to dip. But the profits from the following month should allow you to replenish those funds again.

So I do think that your reserves is more of a sliding scale instead of a per house number. Unless, of course, you're still getting conventional loans as they absolutely would require the 6 month rule and then you know thats your minimum number.

But here is how I would bracket reserves:

1 to 3 properties - 15k
4 to 7 - 20k
8 to 12 - 30k
13 to 20 - 40k
20 or more - 50k

At some point, if you are in the 40 or over category, then you probably would want to have more than 50k in the bank. Or some banks might ask why you haven't been able to grow your reserves at all given that you're making 5 to 7k a month in profit....

But in terms of safety, I would feel pretty comfortable with a 50k reserve after 20 houses - provided you are making a reasonable profit on those homes as well.   Over any 6 month period, you should never have to go below that 50k number at all. At least not for anything operational.   You might take some money out for additional investments but your investing is now a self-feeding operation.

Originally posted by @Mike H. :

 I think that a reserve fund shoudl be more than the number of houses. I would suggest that if you only have 1 or 2 houses, you still need 10k to 15k in the bank or available credit in a credit card to cover a disaster.  That is 5k to 10k per house.....

But if you have 20 houses, you don't really need 100k to 150k in the bank or credit card access.

To me, once you get over a certain number of homes, 50k should be more than enough of a reserve to cover yourself.   Banks don't ask for 6mos of reserves any longer once you start going with portfolio loans. They just want to see adequate reserves to cover a sky is falling scenario. 

And keep in mind, if you have over 20 houses, you should be seeing net income of at least 4 or 5k a month. Ideally, it would be 6 or 7k a month. So even if you have to replace a roof every month for a year, your profits from your rentals will take care of that and you shouldn't have to dip into your reserves at all.

Now, in a given month you may have a roof, furnace, 3 water heaters and a partridge in a pear tree hit. Then you may have to dip. But the profits from the following month should allow you to replenish those funds again.

So I do think that your reserves is more of a sliding scale instead of a per house number. Unless, of course, you're still getting conventional loans as they absolutely would require the 6 month rule and then you know thats your minimum number.

But here is how I would bracket reserves:

1 to 3 properties - 15k
4 to 7 - 20k
8 to 12 - 30k
13 to 20 - 40k
20 or more - 50k

At some point, if you are in the 40 or over category, then you probably would want to have more than 50k in the bank. Or some banks might ask why you haven't been able to grow your reserves at all given that you're making 5 to 7k a month in profit....

But in terms of safety, I would feel pretty comfortable with a 50k reserve after 20 houses - provided you are making a reasonable profit on those homes as well.   Over any 6 month period, you should never have to go below that 50k number at all. At least not for anything operational.   You might take some money out for additional investments but your investing is now a self-feeding operation.

Thanks Mike, I've not thought of it in this way before, but this makes complete sense.....better than having an X amount per house no matter how many.

I go for $2500 per but I never stop adding (5% of rent), hopefully it will be a "remodel/update/..." fund.

I think six month's rent is a reasonable guideline.  But I really like what @Mike H. is outlining.

This is really a matter of "what's the worst that could happen?"  You want enough money to cover that.   If you have a bunch of SFRs spread out in various locations, the chances of some big problem (e.g., @Brandon Turner flooding) causing problems with a bunch of them at once.  But if you have them concentrated, an incident like that could take out a bunch of your units at once.

Originally posted by @Joshua D. :

We sit at about $2000 per house. Plus our personal emergency fund. 

That seems pretty tight to me, unless you have a sizable personal fund

Originally posted by @Amanda Young :
Originally posted by @Joshua Daniels:

We sit at about $2000 per house. Plus our personal emergency fund. 

That seems pretty tight to me, unless you have a sizable personal fund

 Or easy access to other funds. We have about $30k set aside for repairs & emergencies on 9 units, but we also have available a $150k line of credit and about $85k on credit cards. We avoid debt whenever possible, but like to keep our options open.

@Amanda Young  We do keep a $10,000 personal emergency fund.  For my income and the fact that we only have 3 houses, I would not want to tie up any more in the insurance of available funds.    Is $14,000 to slim?  What our your thoughts? 

Originally posted by @Joshua D. :

@Amanda Young We do keep a $10,000 personal emergency fund.  For my income and the fact that we only have 3 houses, I would not want to tie up any more in the insurance of available funds.    Is $14,000 to slim?  What our your thoughts? 

 I would be very comfortable with 14K for 3 houses, its also what @Mike H said for his scale

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