The importance of reserves

[Drew Purvis]

I just wanted to write a quick post to remind all investors of the importance of keeping some 'reserve' cash on hand. My quick story:

I am a buy and hold investor and I currently own 4 SFR's. I am in the acquisition/growth stage of my REI career, so I have a tendency to want to deploy all/most of my capital as quickly as it comes in to try to buy the next property. I wanted to share my experience to hopefully save another investor some major problems down the line.

In Q1, Q2, & Q3 of 2017, my average NET cash flow from 3 properties was between $2,800-$3,000 per quarter. Mind you, this is not accounting for cap ex, yada yada. This is ACTUAL net cash flow after all expenses and debt has been paid out. However, towards the middle of Q3, I added my 4th unit to the mix depleting most of my cash reserves. (Thankfully not all of them). Then the proverbial sh!t hit the fan. I will spare you the details, but a combination of necessary repairs, a unit going vacant for 4 months, and a tenant falling behind on rent wreaked havoc on my cash flow. I just tallied up the numbers and I finished off Q4 of 2017 with just $56 in net cash flow. Hardly exciting. Had it not been for the reserves I was holding onto, it could have been a very frustrating holiday season.

So if you are a new investor, don't forget to keep some cash on hand for when Murphy's Law comes into play! Hoping the best for you and yours in 2018!