Reserves: how much is good to save up?(General fund or per door?)

[Kuriakos Mellos]

Hi all!

I will be nearing the one year mark since I began this crazy journey on 9/4 - when my first tenant moved into my parents house that I converted into a rental.

Since then I’ve grown to five doors - three of them SFHs and two condos.

My journey of on boarding has been as follows :

SFH - September 2020

Condo - December 2020

My old condo in the city - made that a rental - Feb 2021

SFH (first out of state investment) - April 2021

SFH (second out of state investment ) June 2021

It’s been an aggressive build, and have been building reserves during the process - as well as began a very small general portfolio fund. (Most of these properties cash flow so I’ve been diving into them when need be a little bit for ‘pleasure’ and to treat myself - but still have been throwing most back into reserves of future purchases.

Reserves currently look like this:

SFH - September 2020. - $1700 (will be completely depleted September because I have a turnover with a new tenant and my prop Mgmt fees take the first months rent - luckily that covers all my costs so nothing out of pocket )

Condo - December 2020 - 1550 (costs are about 660 a month)

My old condo in the city - made that a rental - Feb 2021 -

1800 - costs are 1400 (have had some minor repairs in the last year so have gone into reserves a few times but keep replenishing)

SFH (first out of state investment) - April 2021 - $600

SFH (second out of state investment ) June 2021 - $125

My general fund is only a few hundred -

I have a tenant that is late in their rent (first time this has happened) and it made me pause to think - do I slow down on scaling and build up reserves first to build a cushion? Do you take some of your day job money to build the cushion for the general fund? What is a ‘safe’ amount to have per property?

Again things happened sort of fast so taking a little pause to think what is logical to do next -

Really appreciate you all!

K-Man

[Jody Sperling]

If you have 30% or so equity in your primary property, go out and find a bank—usually a local bank or credit union—that will offer a first position HELOC. This will cost you no more than $1,200; it functions like a refinance but closing costs are super cheap. Once you have the HELOC, move all of your "emergency funds" into it. The money is still available, but now it's parked in the HELOC, pushing the payment on your primary property lower, instantly improving your cash flow situation. People who use this strategy can "pay off" a house in 5 to 7 years in most cases (but of course you'll use the stored equity to acquire more doors, so the HELOC won't ever functionally get paid off).

Move all of your rent checks into the HELOC as well. The bank/credit union will give you access to 90% of the equity in the HELOC, so you'll already have a huge cash cushion compared to your previous situation.

Then, as you continue to build, you aim for 5k per property for a portfolio of fewer than ten properties, and 3k per property for a portfolio of greater than ten properties. Best of luck!