How much cash do you keep on reserve after closing on a flip?

Question

One thing I think newer investors sometimes underestimate is how important reserves are after the property is purchased.

The deal might look great on paper, but then you run into:

• Rehab costs coming in higher than expected• Materials or contractors taking longer• Extra holding costs• Unexpected repairs• A property sitting longer than planned before it sells

Having access to capital is important, but so is doing your own due diligence on the numbers and only leveraging what you can realistically afford.

I’d rather see an investor have multiple funding options available and not need all of them than get halfway through a project and realize they’re short on capital.

For the experienced flippers here — how much of a reserve do you normally like to have available after closing?

Alex Crivelli · Answer

Full disclosure, I'm a lender. On my end, I like to see borrowers keep at least 10% of the rehab budget in reserve, plus 3 months of payments. Draws usually reimburse you after the work is done, so you need cash to front each phase. Ask your lender how fast they turn around draw inspections, because slow draws kill more budgets than overruns do.

Matt Dingus · Answer

Yeah this is a big point people don't realize when they first start flipping - I think because of how much using OPM & flipping with $0 down is pushed on media. Another thing I'd add to that is you're going to tick off contractors when you can't pay them or it's a big delay in payment because you're waiting on draw money from a lender. It's great to have reserves on hand so you can pay them asap, keep the project moving, and then reimburse yourself with the draws. To answer your question though, it probably depends on the size of the project but at least 20-30k i feel like is a healthy amount to cover paying contractors timely and also any unexpected surprises. Another side note with that is if you are using a HML, then it can be a pain to request additional funds if it wasn't in your original scope of work, so you may need to cover that out of pocket.

How much cash do you keep on reserve after closing on a flip?

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