Goals, Business Plans & Entities
Market News & Data
General Info
Real Estate Strategies
Landlording & Rental Properties
Real Estate Professionals
Financial, Tax, & Legal
Real Estate Classifieds
Reviews & Feedback
Updated over 5 years ago, 07/21/2019
Reserve Funds
Hello all, does anyone have a specific formula they rely upon for the amount of reserves they like to keep for their rental business?
For example, I typically keep a reserve of 8 months to a year of living expenses for my own personal emergency fund. Any info around your practices for your real estate business would be great.
I heard on a podcast that the banks like to see that you have 6 months reserve for each property set aside. I believe this to be a good starting goal for the banks and your business.
hope this helps
I have seen around 5% to 10% of the property value. I haven't seen how quickly to hit this mark. Make a list of all the repair items with est of cost and put this to a timeline. This will help gauge how soon and much you will need from your reserve funds. Example, new roof at $7000 that will need to be replaced in 5 years. Then back into the amount needed to be saved each month. Hopefully this will fund its self!
6 months PITI per investment property is the current general guideline for most scenarios.
This summer, it's going to change to basically the following, with several pages of nuance...
1-4 financed properties owned: 2% of total outstanding mortgage balances.
4-5: 4%
6-10: 6%.
I ran a few scenarios, and it looks like 2% of total outstanding mortgage balances will often work out to be ballpark 3 months of PITI reserves. So overall this is a 'win' for most investors, but established ones with 6-10 properties need to have more in reserves OR start paying those balances out.
Great, thanks for all the input everyone!
Good information and input! So glad the question was asked!
#2 General Landlording & Rental Properties Contributor
What ever amount you feel comfortable with once you are a seasoned investor. To start out a minimum 6 months rent. You will never have enough reserves to cover every possible senerio but covering a 6 month vacancy is a must.
