Reserve funds for your properties?

7 Replies

Hey everyone I'm curious how many of you maintain a separate reserve fund for your properties so as to handle longer vacancies, or other things that come up like with COVID where tenants/payments might get a little scarce. I'd love to hear your numbers on how many months' expenses you keep in reserve, if any.

Also did you start out with the reserves on hand when you purchased, or did you accumulate it over time?

If you maintain several properties, do you maintain one fund to cover them all, or do you maintain one fund for each property?

Also do you have any wisdom for folks as to why they should keep a reserve? Or if you don't keep one, what are your reasons?

I tend to be more aggressive with my reserve fund than many others are, in part because I have a guaranteed government job so I have no fear of ever being laid off so I know that I will always have at minimum my regular paycheck to help offset any rental downturn, and in part because I keep more than enough in reserves where even during a significant stock market downturn I still have more than enough to cover any expenses.

I keep a small portion of money in a high interest savings account, prior to covid I could easily get 2% with something like Personal Capital Cash, which was nice since I already used their app to keep track of general net worth type stuff. I usually only keep enough in this account to handle day to day operations and general maintenance issues.

For large unforeseen expenses that is what my stock portfolio is for.  Since I will be paying for these larger items with a credit card anyway, I usually have between 30-45 days before I actually need to pay the bill which gives me more than enough time to sell something.  If the market is significantly down, or I don't feel like selling anything I can always suck it up and pay the 5.9% interest on my credit card (One of the perks of being military).  

Whatever you do, it's best to keep things simple. Don't over complicate things, if you are going to keep your reserves in the bank, just have one account and keep all of your money there. Always have reserves on hand prior to purchasing a property. If you don't keep reserves then you are just asking for trouble. The first 3 homes that I ever purchased the AC unit went out on each of them within the first 6 months. If you can't fix a problem like this as soon as it arises, your tenant will quickly move out or worse yet might take legal action against you. So now not only do you have an expensive HVAC problem that you can't afford, but you also have an empty rental property that isn't producing any income but the mortgage is still due on the 1st.

Some of my better purchases were from 'investors' who didn't keep reserves and lost the home at the first sign of trouble.

Thanks @Ben Zimmerman , good to hear from you. Just to clarify I was thinking of an emergency reserve fund as a separate thing from capex savings. But maybe just having all that wrapped into one is the way to think of it.

Excited to hear from others on this too!

@Geoff Husa

When I started I kept 6 months in reserves for each property.  Each property had its own bank account so it was easy to track.  I can’t say I had 6 months in reserves as soon as I acquired the property, but I accumulated it over time.  

I now keep a 20K reserve fund which combines maintenance and capex.  This account is my property management account where all rents come in and expenses are paid out of it.  I no longer keep separate bank accounts for each property.  It became to cumbersome.  I use quickbooks to track everything where when I started it was excel spreadsheet sheets.

I have an automatic bank transfer setup that moves $100 per month per door into a separate maintenance account.  This typically covers us on a monthly basis for maintenance (excluding rehabs we opt into, or startup fixes a property needs when we first buy it).


@Geoff Husa I like to have at least $10k in a reserve account at all times and never go below that. A vacancy/turn over can easily cost $5k or any major expense can easily run $5k plus throw in an eviction and you can blow through that $10k real fast. My current goal is to have at least $10k per property in reserves. Maybe at some high number of properties the ratio of reserves/property can be lowered but if Covid taught us anything, it’s have plenty of reserves!

I have 6 months of PITI per property in a combo of either cash, stock market or 50% of 401k. Also have 8% of annual rents in another account for capex/maintenance throughout the year.

The people who have "reserves" on a LOC or CC drive me nuts and shouldn't be owning rentals.

I have plenty of cash in my wife and I's savings account and just funded a healthy stock account as well that is growing and we plan on using for more purchases once the market builds itself back up and we could fall on either of these if we need it. While this might not be the most popular I like to use a HELOC for my reserves and that is what I count on to pay expenses from and where I put the earnings of the month. The goal in the past is to take all revenue from the houses and pay down the HELOC and use that as a secondary savings. As expenses come up we pay them out of the HELOC and when we buy a new property the money comes from the HELOC. We are trying to not use anymore of our own money for buying properties and having the business grow organically from refinancing and not drawing any money from the business for ourselves. If things go wrong though we do have cash to fall back on but we are very serious on having money we can draw from in case things go wrong because they will. So far this has been a rough year and we are out about 6k in repairs but that's just how some years go, you can't win them all.