At What Point Do You Have Enough Reserves Saved?

[Jason Bohling]

Got to speak to an old acquaintance recently who I just found out is a real estate investor. He has a small portfolio of 5 SFH properties in the Boise, ID area where I live with mortgages on all of them. What surprised me is the amount he puts away for vacancies/capex/maintenance. He said his rule is he puts either 2 years of rent or $25,000, whichever is larger, PER PROPERTY in an account to start with, (meaning he’s sitting on $125,000-plus just for reserves, I didn’t ask him the actual number he currently has saved), with 15% of his gross monthly rents going into this as well (if I understood him right, he just has 1 pooled savings account it all goes into). He said he doesn’t purchase a property until he has the amount saved up and put away first.

I totally get that this is what helps him sleep comfortably at night, and glad it works for him. This was just surprising to me, as it was such a significant divergence from the typical '10% vacancy, 5% Capex, 5% maintenance' type answer you usually see on the forums. I hadn't really thought about that there may be some people that only feel comfortable investing if they have substantial reserves set aside, first.

My questions to everybody are, at what point do you feel like you have enough set aside? Do you set aside so much until you hit a certain amount, and then count the full cash flow as spendable money/monthly income, or do you just keep putting away those percentages in perpetuity? At what point do you feel comfortable with the amount you have put away?