At what point does 'I'll just deal with it when it breaks' stop working?

Question

Had a conversation with another landlord last week who doesn't reserve for anything, just keeps cash on hand and handles repairs as they come up. Works fine for him, three properties, healthy cash position.

Made me think about when that approach actually breaks down. for me it stopped working around property number 2, when I had a water heater and an HVAC unit hit end of life the same month on different properties. Reactive worked fine when I only had one thing that could go wrong at a time. Once you've got multiple properties with systems aging in parallel, the "deal with it when it breaks"approach starts colliding with itself.

where's everyone's line? is it a property count thing, a cash cushion thing, or do you just never bother reserving and eat surprises as they come?

Matthew Irish-Jones · Answer

If you have enough cash you "deal with it when it breaks" if you don't have enough cash... well you have to "deal with it when it breaks" and use credit.

Predicting the exact end of a hot water tank or furnace is impossible.  Knowing you have a 20 year old furnace that is on its last leg, an old hot water tank and a roof with cedar shake underneath is not that hard.  Walk through all of your properties and create a CapEx budget based on the age of major mechanical components.

Bruce Woodruff · Answer

What @Matthew Irish-Jones said^^^. We've all used the 'deal with it when it breaks' method when we started out with little money...but anyone can see the hazards of doing that because eventually the S will HTF! And then you're forced to use credit and go into debt.

Josh C. · Answer

I think opposite is actually true. When you have 5 or less properties a furnace or roof could really hurt. But when you have hundreds of doors a unit can burn down and the machine continues to run.

Patrick O'Sullivan · Answer

For me, it's less about the number of properties and more about the age and condition of the major systems. If you've got several properties with roofs, HVAC units, or water heaters that are all getting close to the end of their life, it's only a matter of time before two or three things need attention at once.

I still keep a healthy cash cushion, but I also like to plan ahead for larger capital expenses. It makes those repairs feel a lot less like surprises and helps avoid putting them on a credit card when they finally happen.

Jim Johnson · Answer

I don't think there's a magic number of properties where this changes.

What matters more is concentration of risk. If several properties were built around the same time or have original systems, they're likely aging on the same timeline too.

That's why we've found it more useful to plan around major components than rely on one general reserve. It gives owners a much clearer picture of what's likely coming over the next few years instead of simply reacting when something fails.

Bill B. · Answer

Around 5-6 properties was when more cash was coming in than basically any single repair could cost. With good credit I also maintain a couple credit cards with limits in excess of $50k. Much cheaper than having $20-30k sitting around in an account earning 3%.

I guess I always assume that “people” know they shouldn’t invest in real estate without “personal reserves” making “real estate reserves” redundant.  Do these same landlords not have any reserves for when their personal home’s AC and roof go out the same week?  Or just in case the government tells their tenants they no longer have to pay rent for a couple years? Having a coupe, years of rent in reserves is a big ask. YMMV.

At what point does 'I'll just deal with it when it breaks' stop working?

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