When to pay yourself from property income?

Question

Hi everyone! Some friends and I are soon investing in a rental property and we're hammering out all the details before our first purchase. As of right now, our plan is to buy a multi-family unit, re-invest all income from that property and invest into our next property. With that said, I have a couple questions. When, in general should we feel comfortable starting to pay ourselves from property income? And also, how much reserve money would everyone recommend having set aside per property owned (for repairs and whatnot)? Thanks for the input!

Cassi Justiz · Answer

Hey @Aaron M. VanVoorhies,

Everyone has a different idea of reserves. It will strongly depend on the age/condition of the house that you end up purchasing. For me personally, I want to have AT LEAST my insurance deductible in reserves at all times. Ideally, I'd like to have enough to cover an insurance claim and a few thousand extra for turn-over, cap-ex or extended vacancy. As you scale, you'll need less per door but I think that's a good rule of thumb. For me personally, I have no intention of paying myself until I reach the monthly cashflow goals for me to fully live off of rental income. Until that point, I plan to reinvest 100% of profits back into the business.

Hopefully that's helpful!

Account Closed · Answer

@Aaron M. VanVoorhies

I have 25 doors as of today, and in today's economy and new administration, I'm making sure I have access to 6-12 months worth of reserves at all times.

As far as paying yourself, that's a personal decision you and your partner need to make. My feeling is, if you don't need the money to survive, reinvest it as you'll grow quicker.