How much cash reserve is too much?

[CJ M.]

Hello BP,

Curious about something. Most of us have heard about the 50% rule, or saving a % of gross rents for things like repairs, capex, PM, vacancies, etc. At what point do you determine you have enough cash saved up? Having a big wad of cash in a bank account certainly provides a level of security, but it doesn't have a great return.

Assuming one does not touch what has been saved, is there a threshold where you start funding other areas with a stronger ROI (buying new properties, paying down mortgages, investing in the stock market, etc.).

I realize this would be different for someone who owns 5 properties vs. someone who owns 100, or someone who owns rehabbed properties vs. someone who owns properties that will need a lot of work, but I'm interested in everyones thoughts on the subject.

I've been very blessed to grow from 0 to 13 properties (mostly all rehabbed) this past year and plan to continue to grow very quickly, but, I want to make sure I'm doing it strategically, and intelligently!

[Frank Wong]

Hi CJ,

It all depends on what you have in outstanding loans on your 13 properties. I go with 8 months PITI (principal interest taxes insurance) for your total outstanding debt. This should be your reserves for your portfolio.

I have 2 separate real estate accounts.  1 is my purchase fund.  When that account gets large enough for my next purchase I know I am ready to buy another.  I also have a just in case of an emergency fund.  

The more savings the better.  You never know what opportunity might present itself or a market turn.