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Updated over 5 years ago on . Most recent reply
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Recommendation on Cash Reserves & Vacancy Rate
8,080 Sq. Ft. Office/flex (22 Units)
$900,000.00
Yearly income $103,000
What’s a good guild to use for a commercial office building,
1. Cash reserves
2. Vacancy rate
Most Popular Reply
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Nathan Gesner
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Greg provides a good start but there's much more to consider. The reserve is your safety net. If you have a strong financial foundation, you need less of a safety net than someone with a shaky foundation. Things to consider:
- Income. Are you living paycheck to paycheck or do you have a lot of discretionary income? A 55-year-old heart surgeon can probably absorb a $20,000 roof without much trouble while a school teacher may have to borrow the funds at high interest.
- Number of units. Someone with 50 cash-flowing rentals can absorb a $20,000 roof repair more readily than someone with one rental cash-flowing $100.
- Condition of the investment. If the property was renovated top-to-bottom four years ago, you would be safe with a small reserve whereas an old home may need a new roof and boiler and water heater and windows in the next 5 years.
That's just a few considerations.
- Nathan Gesner
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