How much cash do you recommend saving in reserve for each of your rentals? How do you divide that reserve? (Ie 6 months of vacancy, X amount for repairs, etc). I'm new to this and currently have 2 rentals. My thought is that the more cash flow a rental produces, the less money you need in reserves but I'd love to hear other peoples' opinions/advice.
Thanks in advance,
It's different for everyone. If you make $50,000 a year, live paycheck-to-paycheck, and only have one rental, you should probably try to build a strong reserve. If you make $300,000 a year, don't have any debt, and have 20 rentals, you could probably get by with little/no reserve because you could pay for a new roof, float a 6-month vacancy, or do whatever needs to be done by paying from your monthly cash flow or out of your ordinary income.
Consider some worst-case scenarios using unpaid rent, a trashed property, long vacancy, and replacement of the roof. Say that's estimated to cost you $20,000. Can you pay for that out of pocket without impacting your lifestyle? Do you have a line of credit to borrow against? Do you have cash flow from other properties that could be used?
As you add properties, you don't need to build a separate reserve for each one. I own 30+ rentals and I try to keep a reserve of $15,000. However, I also have a monthly cash flow of almost $12,000 that can be applied towards repairs. I have a line of credit. I have strong monthly income. And I have no debt except for my investments. As I add properties, I keep my reserve around $15,000 and frankly I've never had to dip into it. When a major repair comes along, I spend my cash flow. If I don't have any major issues, my cash flow is put in an account and saved up for the next investment.
It's hard work at first but you need to evaluate your personal situation and come up with your own numbers.
@Sam Lofton $200/month