War chest savings for business

4 Replies

Hello BP

So I have been doing a lot of thinking and wonder if some of you have done this before starting your investing career. I want to start off in a sense with a pile of money in the bank which is only used towards investing. I was thinking of saving somewhere in the neighborhood of 75k-100k. Use this money for things such as down payments for new properties, insurance and maintenance fees and property management fees on current properties. Is this something feasible that some of you have done before? The whole purchasing a property with no money or little money down just seems not so smart to me or maybe I am just not of as high of a risk taker as someone else. I would prefer a more calculated risk then one where I am with low ammo to save myself or my investment company. I like to call the money saved a war chest savings! Input would be great thanks everyone happy Sunday! 

I think you are on the right track. Many years ago my wife and I moved in with my parents in order to be able to save up enough to do just that. Less than two years later had more than enough saved to cover down payment and rehab costs. Having that war chest will also make you look a lot more attractive to lenders. It is not as glamorous sounding as no money down financing ideas, but it feels a little safer. While you are saving up, you can always still be on the lookout for the attractive deals. It also gives you a little more sense of security to know that you have quick access cash if and when needed.

That's a great idea. You can do a lot of education while you're saving the war chest also. I wouldn't save one big stock pile of money then start making many purchases though. To me the picture looks like this: Once I had enough for the first one to be made safely (down payment, rehab, reserves etc.), then I'd make a purchase. The cash flow from that 1st deal will add to the amount that you can put into the war chest each month. When you can safely invest in deal #2, do so. With each property purchased you'll accumulating acquisition funds faster and faster.

In this long-term safe strategy, keeping your expenses low while you're income is increasing is important! Who knows, maybe later down the line you'll be more comfortable doing low/no money down deals when you have a few deals in your portfolio :) 

Reserves are imperative. I've made too many acquisitions recently and my liquid reserves are quite low and I'm feeling a bit of anxiety because of it, to be honest :). Though I have untapped credit card limits and a 401k to borrow from for emergencies, I prefer to have more cash on hand. I'm going to scale back and let the war chest build up. Just some food for thought and a little self therapy on this post!

 @Phillip Gonzales

Save enough to get in your first deal plus ~6 months of PITI in reserves. Then repeat the process for the next one. In time you'll recognize which places need more or less reserves. My bank wants 6 months reserves so that has been my go to.

There is another side to this too. Tenants, lenders, contractors, lawyers, taxes and more all need to be learned. The sooner your start figuring all those other parts the easier the investing gets. For me contractors have been the toughest part. 

sweet sounds like a good plan then! I am in no rush to get my investing started just want to make sure I have a solid financial foundation 

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