Do you have an emergency fund?

[Jon Albar]

The question is simple: do you have an emergency savings fund to cover mortgage and expenses should your tenant not pay? If so, for how many months?

I would imagine as your portfolio grows, having that much cash sitting idle would feel like a waste. I am asking because I am risk averse and would like to build a 6 month emergency fund for my first property (house-hack), but it would take about another year of saving.

[Joe Splitrock]

The gold standard for reserves is 6 months expenses per property and 6 months salary if you have a W2. The reason 6 months is used is because that covers most natural disasters or market down turns. As you add properties, the amount of reserves needed per property may actually reduce, because you have a larger risk pool. The odds don't change of problems happening, but the odds of them happening to every property at the same time reduce as you scale. 

I am not sure 6 month expenses is necessary, but anyone who owns a rental property should have at least $10,000 cash in the bank that you never touch. This would cover something serious like an HVAC system, main sewer line or several months vacancy. Cash is different than having access to credit. 

Also keep in mind that tenant security deposits should always be held as cash in an FDIC account. That is not your money and should not be considered an emergency fund.