I was wondering if any of my fellow BPers would care to share their strategy for accumulating cash reserves. Like many on this board I get a ton of deal flow and it is hard to manage purchasing new projects, business growth initiatives, and liquidity for shoring up creditworthiness at the banks.
What do you do to make sure you stay liquid enough to give yourself staying power in hard times? Do you have target percentages for compensating balances? Do you do something else? Based on your strategy how do you ensure your cash position is proper given the debt you have and your goals for growth?
I do it by buying with enough initial equity to cash out refi where the cash out becomes the cash reserve. I don't take any cash out of the rent since that method seems wrong for two reasons:
1 - If I rented a property for 900/month, and took out 10% for my CR, that would mean at the end of a year I would have a whopping $1080 in the account (barring any unforeseen problems during that time period). What am I going to do with that?
2 - If I analyze my deal with the criteria I cash flow at least $300/month, and before I calculate the CR 10%out my deal CF's at $350/month I have a good deal...but once I take out the CR 10%, it's under my criteria and I pass...even though I shouldn't. The 10% CR fee provides a "false negative" on an otherwise pretty good deal.
Nope. I just refi, still CF over $300/month, and lump sum my CR in one shot...that my tenant pays for me.
I wanted to bump this to see if we have any new takers.
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