No reserves necessary

[Arlan Potter]

I have seen a bunch of questions about reserves for things like vacancies, major repairs, and capital improvements. In my opinion, these are not relevant to my rental empire.

I try to find properties that at a minimum have rent, or should have rent of at least 1% but preferably closer to 2% of purchase price. If that is the case, the rental should have a decent cash flow.  I don't use cap improvements, or possible future vacancies, or roofs to make a buy decision. I want properties that have good rental rates, that are a good value. If you get enough properties, repairs, minor and major, will be taken care of with cash flow. 

The reserves are also not necessary for beginners. Here's why.

The new investor buys a rental and then what. 100% of the income should be used for debt service! repairs! and to get reedy to buy more properties! or for retirement. 100%.  In fact for me, until I owned close to 50 rentals, I did not spend much income at all. All kept paying down debt, making repairs, and buying more properties. Once my wife started working for the rental business, we started taking out money for her work. I still don't take out for what I do. I just keep buying properties.

Therefore if you are saving 100% then it is not called a reserve! but a reinvestment. 

Now in a retired persons case: if retired and a few rentals are owned to supplement retirement then some rent should be saved for major repairs, if no other saving exist. 

Now on the subject of vacancies. Vacancies are not expenses, they are just times when you are not collecting rent. These should be rare. And if you are continually buying, and paying down debt, an occasional vacancy is not a concern, but they may be a sign that your rents are too high. Now if you own property in an area where vacancies are a regular occurrence, then you may have rentals in a  poor rental area and may own a bad investment. Sell. 

Since most on this sight want an empire, quit worrying about reserves and get to buying properties.

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