How much do you keep as an emergency fund for rentals?

Question

I have read that 6months worth of emergency funds should be set aside, usually refers to personal emergency issues. Do you keep a separate emergency fund for your rentals? I have 8 Class A/B rentals and recently, I had 4 empty rentals. Some because of eviction, recent purchase, and lease termination. It took a minimum of 2 months to fill 1 place, but 6months to fill after all the damages/wear/tear from the eviction, the other places took about 2months for the right renters. I used a lot of money to keep up the payments and for repairs. My total gross is approximately 20k/month.

Thanks

Henry Lazerow · Answer

I just keep a taxable brokerage account at 85% VTI and 15% short term bonds. If I need capital and the stock market happens to be down I just pull off the liquid 15% short term bonds and refill it slowly over time. Works much better then having money sitting dead in cash. You can also use a HELOC if you have one for emergencies.

Marcus R. · Answer

@Henry Lazerow Love it, same here.  Get that cash to work in assets that have minimal draw down

Michael K Gallagher · Answer

It is usually recomended by most people and investors I've seen doing it well that yes you should have an emergency fund or percent of revenue from each property set aside for things like vacancy and repairs and turn.  IN generally I've seen the idea be that you se aside a certain amount each month so that when the time comes it is there.  I've also seen people say I want $10K as an example in an emergency fund for a property, so they will let the account for that property build up until that point is hit prior to taking any draws from the property profits.  there's generally not a wrong way to do it but yes you should have funds earmarked for a rental incase of exactly what you just experienced.

do I understand correctly that for your 8 rentals you have 20K a month in payments? just trying to understand where the 20K comes in but in general I'd think a couple months of expenses maybe 90 days at min should be ready in an account for each property, perhaps more.

Parris Taylor · Answer

@Mel Rosario For sure. Treat your rentals like a business, so yes, separate emergency fund. The killer isn’t one vacancy, it’s when two or three hit at once. That’s why I keep ~6 months of reserves per property (mortgage, taxes, insurance, repairs). Clustered vacancies tests survival.Another thing is to set a hard rule that you’ll never drop standards just to stop the bleeding. That turns reserves from dead cash into your cheapest risk-management tool

Aaron Zimmerman · Answer

I personally keep 2-3 months of reserves on mine for all expenses. I really like Henry's idea for putting your money to work. I also have a business credit card for my rental properties so this should also buy time in the event of a true emergency.

David Spurlock · Answer

Does your card just give you an extra 30 days? Or can you spread it further?

Jason Malabute · Answer

Three to six months of reserves is generally a good rule of thumb. Once you start getting into larger multifamily or commercial loans, lenders often require you to keep a certain amount of reserves on hand

Ashish Acharya · Answer

@Mel Rosario

I’ll try to explain it more from a tax perspective. Most landlords keep three to six months of property expenses in reserve for rentals. The money you set aside isn’t deductible until you actually spend it, so it’s just after-tax cash waiting for repairs, vacancies, or other carrying costs. With eight properties and $20K a month gross, having that cushion makes sure you can cover gaps without hurting your overall cash flow.

If you are still buying under qualified loans, you’ll also be required to maintain a certain amount of reserves anyway, lenders typically want to see that you have sufficient cash or liquid assets to cover several months of mortgage payments across your rental portfolio.

This post does not create a CPA-client relationship. The information contained in this post is not to be relied upon. Readers are advised to seek professional advice.

Josh Lewer · Answer

Yep I echo a per property reserve. 3-6 months or whatever makes you sleep well at night is my oft repeated phrase.

Mel Rosario · Answer

I grossly get 20k a month, 2k per property in rents.  Last year was a strange year I spent more than 60k in repairs and lost rents.  Normally maintenance costs and loss of rentals are less than 10k per year.

How much do you keep as an emergency fund for rentals?

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