"Sleep Well At Night" Emergency Savings

3 Replies

Hi all, what's the term commonly used for that emergency fund one should keep to cover mortgages on rental properties if they're vacant?  Some of the folks I've talked to in my local area call it a "sleep well at night" (SWAN) fund.

And what are some rules you follow?  I haven't been diligent about it and we just picked up our second rental so I figured it's a good time to put more thought into it.

Most people use the 50% principal. Half the rent goes toward expenses and reserves, vacancies etc.

It's a personal choice what the magic number is for each person. Some are less risk adverse and want to save more. Others in a down cycle going up want to invest as much cash flow as possible to acquire more property.

It's a leverage issue as well. Some want LTV of 50%, some 75%, some 80%.

I just call it Reserves. We keep 6 months work of PITI + 2k at the ready for emergency repairs for each investment property.

We also have a separate emergency fund for ourselves which includes 6 months PITI + 6 months maintenance (we have a coop for primary residence) + 6 months spending money (with no lifestyle reduction).

Both funds help us sleep better at night. We don't touch the funds at all. Also helps when it comes time to go to lender...they see we have the reserves.

For investments, we just save up additional money outside of these two funds.

Thanks Joel and Betty!  Great advice!


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