Capitalizing Your Business

[Matthew Horstmyer]

I was listening to the Money Podcast, Finance-Friday edition earlier this week. @ScottTrench mentioned having adequate amounts in reserve for a rental property. I close on my first property on Wednesday the 17th. The SFR was built in 2018. Everything is in exceptional condition.

So my question to the BP Community is this, how much money would you have in reserves for a given property? I don’t want to have too much sitting there taking away from the next investment opportunity. As always any insight is much appreciated.

[Michael Swan]

Hi all,

This is Swanny from podcast 238.  I have coached and tutored people from BP for free since that podcast first aired in 2017.  They also featured me on the front cover and a feature article in BP’s new Wealth Magazine, which is really good by the way. At the moment I am a principal in over 230 front doors and counting.

You will most likely not like my answer here.  If you only have one single family or one door I will call it, that is pretty risky, like one stock.  Especially with this eviction moratorium etc... I would highly recommend keeping about $15,000 in reserves if you have one single family or condo, townhouse type rental property.  If you have two front doors and are not house hacking maybe $20,000-$25,000.  If you have 3-5 front doors maybe $30,000 if you have 6-10 front doors maybe $35,000-$40,000 due to having economy of scale starting to kick in.  

If one ore two or even three go vacant or a tenant dies or a roof blows off or furnace need to be replaced or pipes burst etc... you will have piece of mind and be able to pay the bills for a while.  

This is coming from experience.  You can never have too much reserves when Murphy’s law rears its ugly head!!

I love this stuff!! Onward and upward!!