Amount of Money/Reserves

[Jacob Benninger]

Hey Gang,

I am looking through some numbers this afternoon and seeing what properties I could possibly afford. The average price of apartments, based on a quick scan of zillow, in Albany, ranged between 150,000-200,000. I can get a mortgage with 5% down at 3.25%. 

This translates to a down payment between $8,750-10,000. I currently have savings of $12,000. My question is reserves. Should I wait until I have more money before I go ahead and buy a property?

How much money do many of you consider a safe place to jump into a new rental? 

[Tony R. Yagiela]

Jacob - Tim is right. If you are looking at a duplex, you would have to live in half in order to pay less than 20% down (maybe 15% some people say, but Ive never seen a bank loan 85% LTV on a non-owner occupied).

To answer your question - I would have 4 months of straight mortgage payments PLUS your insurance deductible.  If its a duplex, odds are in your favor that both units wont go vacant unexpectedly, however if its a single family and it goes vacant, I would tack on an extra month since you wont be getting any rental income. 

The number of months of (total) operating expenses you should have in reserve will go down as your portfolio grows (If you have 10 units and 1 goes vacant, you're still getting 90% of your rental income).

Its a numbers game really...  The more properties you have, the less impact a vacancy/eviction will have on your overall cash flow. 

Good Luck!