how much cash to keep on hand, plus getting started in Louisiana

2 Replies

Hi everyone,

I haven't posted here in a while, since my husband died in 2016, but his estate is finally finished; the reno to my big condo is now finished; the condo is rented out and producing income; I've bought and renovated a smaller house to live in! LOTS of changes. Also, my retirement is approaching, summer of 2023. I'm a teacher, and will move from Los Angeles back to Louisiana.

The sale of my condo here should net me, conservatively, about $500k. I intend to use that money to buy and hold houses in Louisiana. I know about A-D property zones; I know about how to reno, having done it twice now, both large and small. My questions are the following, in no particular order:

1) What do you look for in a good property management team? I will be retired, and may or may not get another job. I want a property management team to start off with, simply because I don't know the ins and outs, and need people who make this their business. Suggestions welcome.

2) How much cash should I keep on hand for when things eventually need repairs or if there's a lull in times between finding renters? Is there some kind of formula? For example, number of houses x percentage of rent = $$?

3) I want to take the cash I get from the sale of my condo here in Los Angeles, and invest in Louisiana properties. How many are "enough" for a newbie with a little experience starting out? 

4) Any other ideas that come to mind?

Thanks to everyone in advance. I'm happy to be back on here, after an extended absence getting things ironed out.

Hi Katie and welcome back to the forums. 

1) Sorry I can't help there - I have my family help managing mine.

2) Depends on the condition of the property.  I purchase and rehab - new A/C for the most part, new fixtures, appliances (if they need replacing), floors, paint, etc.  I don't keep much on hand for repairs for that reason.  I do try to keep 2-3 mortgage payments on hand though just in case.  Also I have one house paid off so that always helps keep the cash flow if one or two are vacant. 

3) Depending on the area you don't really want to go lower than 100-150k for a house (turn-key).  You can still get good tenants for houses in that range - once you start going lower than 100k though you have to deal with less than the ideal tenants. 

I haven't dealt with higher priced properties - after about 180-200k the rental income does not scale with the mortgage payment or insurance well.

4) Good luck!

- Ross Kalmbach

Welcome back @Katie Andrews .  You have some good questions.

1) I manage my own properties.  IMO, if you are buying a handful of high quality properties, it will be pretty easy to learn the basics of PM that you need to know to make managing a small portfolio a breeze.  There is a level of peace of mind that comes with knowing who you give possession of your properties to, that I personally put a high value on. I'm not trying to twist your arm or anything, but high quality properties are not the PM headache that a lot of people cry about.

2) Generally, I would say somewhere in a range of 10-20% of your investment capital should be held as a cash reserve. That is a matter of your risk tolerance and is a good question to ask your lender if you use leverage. If you have other retirement income, I would be real conservative and use a minimal amount of debt if any.

3) The number of properties you buy will depend on what city you are in and whether or not you use leverage? For example, you may want to create $4,000/month of income with your nest egg?  How many properties would it take to create that much income? I lean toward "less is more."

4) I recommend you look into note investing. There is a different level of liability risk involved in note investing vs ownership of properties. There's no PM involved in note investing either. We have an over-employment problem here in this state. When you see that about 70-80% of the billboards are plastered with people pushing people to sue somebody, you'll know what I mean by that. Asset protection becomes a major concern if you own a bunch of free and clear properties here.

You sound like you've recently dealt with some estate matters, but the question of your heirs and their ownership interest in any of your assets come to mind as a concern. This works differently most places from here, because we have forced heirship.

Another concern is what will be the tax consequences of the sale of your condo?  What portion of the $500k is capital gain (or exempt from gains if this was your personal residence)? How much is subject to recapture rates of tax because you depreciated over the years? Should you do a 1031 Tax Deferred Exchange to be able to reinvest all of your gain?  There are rules about reinvesting your gains that will be factors in how much cash you can keep without reinvesting it, if you do the exchange?

Last, I'll say, be careful. A person with cash to invest doesn't have anybody to save them from themselves!  I've seen and heard of a lot of mistakes cash buyers made that bank underwriters would have prevented.