How much in reserves for a flipper to get through a recession?

4 Replies

Experienced flippers who have weathered a recession well: how much is “enough” when it comes to cash reserves?  I see 6 months as a rule of thumb.  Is that accurate?  I’m assuming that this includes salary to self + carrying costs for all investment real estate.  I’m also assuming that those who have 6 months cash are not using hard money for their flips, but are instead using their own cash for the whole transaction and improvements.  Is that accurate?  Does that mean one can continue to flip and make money during the recession, even if supplementing with reserves as needed?  I understand that cash is king when the market drops (so more is better so that you can snatch up properties).  My question has more to do with getting through my first few years of accumulating cash and earning a living without putting my family in a bad spot if and when the market bottom falls out.  I recognize that no one knows, of course-just looking for recommended cash reserves from those with experience needing them!

@Robert M. not an experienced flipper but I have friends who are.  I asked him this question before.  He told me he has 6 months of reserves plus an exit strategy.  He makes sure that the majority of his flips could also double as good rentals.  If a particular property sits for a while or a recession hits, he turns it into a Brrrr.  

@Robert M. I like to see at least a year for most people minimum. 6 months goes by fast especially in a downturn.

I never use hard money for a flip. Only cash, bank loan or private lender that is willing to weather a downtown and convert to rent income until a sale of necessary.

There will be opportunities in the downturn you just need to be ready with cash and lead the market down and not chase it down. 

@Robert M. he uses private money.  When he presents his deals to his investor, he presents it as a flip and a rental.  That way the investor has an idea of what to expect with each outcome.