Keeping cash on hand for vacancy, CapEx, and repairs
Rental Property Investor · Austin, TX · Member since 2019 · 23 posts · 34 votes
Keeping cash on hand for vacancy, CapEx, and repairs
2 Replies
- Investor · Hillsboro, TX · Member since 2017 · 358 posts · 245 votes6yGabe, this is always a struggle. I have several times used my maintenance and capex to purchase another property, then the proverbial "****" hit the fan. I recommend, in my area around $750 per door in reserve for the oops, that happens. I thought once I had more than 10 that 7500 was enough. Well guess what it wasn't with several vacancies popping up, with some major repairs needed, a roof that was hit by a storm and some other plumbing issues, it pulled me tighter than I needed. If I wasn't still working, this could have caused me to have to have a "fire sale".
Always figure that Murphy's Law is around. When I am disciplined enough to keep cash on hand for maintenance and capex, it seems very little goes wrong. Sure you will have items come up, and you reach in and cover it. If you let your cash get low all heck seems to break loose.
Note: it is easier to cover with more doors, but with more doors you are also have more risk, it is just spread out more. Most of us started out small and had to build.
I keep two banks, I keep my deposits, insurance premiums, taxes, mortgages, and CAPEX in one bank. Sometimes it seems like that is way too much cash in there but it keeps it safe from my daily eyes and is just a check away. I keep day to day operations and maintenance in the other account, it is always hurting because there is always something I want to do with my properties. By keeping 2 banks, I have two different bankers I can go talk to if I need something and the cash is not co-mingled, between what I consider the working capital and my monthly obligation fund (the deposits, taxes etc.).
I hope this helps, it works for me. - Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes6y
It depends on a lot of different factors and is a pretty personal answer:
- Income. Are you living paycheck to paycheck or do you have a lot of discretionary income? A 55-year-old heart surgeon can probably absorb a $20,000 roof without much trouble while a school teacher may have to borrow the funds at high interest.
- Number of units. Someone with 50 cash-flowing rentals can absorb a $20,000 roof repair more readily than someone with one rental cash-flowing $100.
- Condition of the investment. If the property was renovated top-to-bottom four years ago, you would be safe with a small reserve whereas an old home may need a new roof and boiler and water heater and windows in the next 5 years.
Personally, I have 22 units and keep around $15,000 in cash. But I also have no debt other than my investments, strong income, a couple credit cards with around $30,000 available, a big line of credit, friends and family I could borrow from, etc. It's tough work but put pencil to paper and make an honest assessment of how much damage you could handle. If a $20,000 expense hit you tomorrow, would you be able to sleep at night? How about $12,000?
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