reserves: # months rent or # months expenses or ??

6 Replies

curious how folks set up their reserve accounts?  do you use something like certain number of months of gross rent (i.e. 3 months gross rent) or # months of total expenses or based on expected capital expenses or something else.  i get the logic of each: gross rents because the reserve would cover the lost rent, total expenses because you have to pay those bills regardless of rent coming in or not (i think of it as the break even rent level) but what other approaches do folks use?

thank you for your thoughts

@Mike R.

I personally do 6 months of expenses, but whatever makes you sleep fine at night should work :).

I am playing things way to tight and need to stash some more reserves away instead of spending money on improvements as soon as I have enough saved up.

The good thing is that I am addressing maintenance issues preventative, which will cut down on my capex outlays in the future. The other side of the coin is that I need to be financially prepared for the issues that I don't catch ahead of time.

Thanks for the inspiration!

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I do believe in 6 months reserve. I heard someone say once that you should have 6 months of "cash flow", I define that as cash in or cash out which ever is greater, hopefully that's your gross rent.

Good line of thinking. Yes, reserve until you can sleep at night or get comfortable with a line of credit.

Smart move to think ahead.

I prefer $10K per property for reserves.  This allows for most anything.  If one account gets drained I can "borrow" from the other to get things right and then rebuild them.  I sleep good at night with this method.

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