I am in the process of acquiring my second SFH for rental. How much would you keep in reserve per property for repairs, etc?
I do not want to get pinched and have to dip hard into my own pocket, but I also do not want to have too much cash lying around as I want to continually pick up properties.
I just got into the rental thing and was planning on keeping 2- 3K in reserves on my first house. Now that I got my second one that money is gone but I am going to try to keep 5k handy. That should cover most things except a roof.
Reserves should be a percentage of expenses. If the house was vacant for 3 months could you afford to carry it? Add to that a reserve for repairs and come up with a number that you are comfortable with.
Not that I'm a guru, But what I do is I pay cash for the property. Fix it up then I refinance and pull all my money back out, I usually profit around $100 a month from each property. I can usually pull more money out as well when I refinance. One property I was able to pull out $5k extra. I buy rentals for retirement so no matter what I make per month I save it. I would say 18 days need to be set aside for vacancies, and $50 a month for repairs. Like niceshoe says Try to keep about $3k per property in reserves. I would say once you have $3k in reserves for each property I would try to pay down the principal. I'm sure once you get more properties you won't need 3k for each property. Just my thoughts.
Personally, I think $50/month for a SFH is wayyy too low. $600 a year? Is the house made of cardboard?
House WILL need a new roof, new windows, refrigerator, washer/dryer, lawn mower, water heater... We can't pretend these things don't exist and don't cost money to repair or replace. A lot of people use 10% of revenues as a budget number. I think that may be good for a condo but that's too low for a SFH. $50/mo = $3,000 every 5 years. That doesn't even cover repainting, small repairs, advertising, etc. With SFH you should plan to maintain the home, not run it down to shambles through lack of maintenance.
My goal is to shoot for 3-6 months of cash reserve. What normally happens is this: I've got 4..then 5 months..then something happens and I'm back to 1 month...then 2...then 3...then something else happens...
Nationwide vacancy rates right now for SFH are around 9-12%. That equals more than one month each year on average. While I'm sure you're much better than average, 10% vacancy could be a good planning number. 18 days or less, IMHO, is what you shoot for but not what you budget for.
It is a terrible shame for a landlord to fail to plan and be forced to sell/foreclose because they ran out of money. [/b]
Finally, especially if your goal is to continue buying and renting properties, you must have healthy cash reserves or liquidity you can tap (home equity line of credit, investments, something). Otherwise, you'll be lucky for 5 years and have nothing major happen...you'll buy a dozen properties and feel like you're a genius. Then you'll have a hurricane hit Virginia and a huge tree will crash through the roof of your nicest home, destroying the roof and most of the 2nd floor, and the insurance company will claim it was a mudslide, not a hurricane and you're not covered. Awesome! Can you say "I'm screwed?"
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