newbie; how much for reserves? is this objective?

Question

Hey all! I am here from the Homestead, FL market. My niche will be buying and hold properties; in my market more than half of the population in this city prefers to rent to buy. This is based on research I've done and in my own experience! People literally come up to my parent's rental home and ask us if we are renting that property out. It's crazy and it opened my eyes to the opportunity. So my question is, how much reserve do you generally put aside for vacancies? 2 months' worth? 3 months' worth? I have read different things on here. Is there a way to see tenant turnover for an area? How would you do it? What has worked for you?

Mike McCarthy · Answer

It’s definitely a personal decision, but I would suggest 6-12 months of reserves somewhere  it doesn’t have to be in a checking account earning 0%, but you don’t want to end up in foreclosure if the AC breaks the same month as the tenant moves out. You want to be able to weather those unexpected events and not end up in a bad situation.

Most banks require 6-months worth of reserves for their monthly payment. Which is a good place to start.

Dan M. · Answer

You can put a blanket 10% for vacancy which would equate to about 1 month, but if you are confident that people will be dying to rent your place you wouldn't really need that much and hopefully people stay. When I think of reserves I think more along the lines of that boiler or ac unit is pretty old and is going to cost $x,xxx to fix soon I should have that much money ready to go incase it does break or get ahead of it and replace it before it does. If you look at some of the calculators its also referred to as capex ( capital expense ). Its an arbitrary number as to what you want to hold, I think the main focus is being able to sleep at night instead of worrying so whatever that number is for you.