Paying expenses during vacancies

[John Deer]

Hi all,

I'm new to posting at BP but definitely interested in learning as much as possible. With that in mind I purchased a SFR last year for 150k and was able to get a 2 year lease at 2k/ mo. I have a property management company involved and after all expenses the house cash flows about $200/month. Most of that will get reinvested back into the house as there are still improvements that need to be made (garage door, roof, etc).

I am looking at purchasing a two-family home. As of now I am not sure if we are going to live in one unit rent the other or rent out both units. Mortgage would be $200k and rents would total $2,400/month (they are both already rented at that amount). After expenses if I am renting both units the house would cash flow about $400/month.

Finally to my question. I am concerned when one or both of these properties become vacant. I can probably afford the expenses on these being vacant for a month or two but probably not much longer. So the question is how do you protect against this? Do you recommend putting the cash flow aside into an reserve type of account? If so how much should be in the account 3 months worth of expenses? 6 months?

I made a formal appeal to lower my property taxes and there is always the option of getting rid of my PM company (but I would rather not do this for various reasons). All other expenses are paid by the tenant so I can’t lower the expense side at all besides what I outlined here.

I didn’t have a ton of cash upfront so I wasn’t able to setup a reserve account at the purchase. Also I don’t want this to be a barrier for buying the 2nd home (or any others after that). My goal on these properties is to generate cash flow eventually supplementing my other W9 income. 

I appreciate your feedback!