Rental income...

[Kara Johnson]

My apologies if this has been asked a million times. I searched the forum but couldn't find a relevant thread.

My question is for the the buy-and-holds. What do you do with your rental income? IE; how much of a reserve do you keep in your rental account?

We have had a few people approach us to partner so considering the option changes our entire thought process since we were going to keep all our income to reinvest. But one of the individuals is retiring next year and would like to supplement lost income.

Thanks!

[Kyle Hipp]

I personally as of right now flow all my rental income through my personal accounts as they are in my personal name anyway. I am in the process of refinancing a property into an LLC in which I will have a separate bank account.

I do have one property in which I have a partner. With that property we have a joint account for holding our cashflow. For the most part we leave everything in the account. The main reason for this is that we have undertaken many improvements and upgrades on the property, so as we come to a large property we will clean out the account. This summer should be the end of major improvements and at that point we will most likely draw down the account maybe quarterly.

In your case, you guys need to address your goals. If I were you I would analyse the property you guys purchase and ses what repairs or projects you see coming in the future. For example, if the furnace is 20 years old, you might wanna keep $2,500 in the account as a minimum to cover that when it goes out. If the property is in good shape and will just be general maintenace, maybe just keep 2 months of expenses in the account in the case of a vacancy or an unexpected expense. Then payout the cashflow each month to each other.

I think in my case, it will depend on our needs. If I don't have a direct need or plan for the cash I might elect to keep it where it is. If I have a need I will just call my partner and let him know I wanna do a disbursement and both draw out an equal amount. The only reason I wanna pull out an equal amount is so that the money in the account is split 50/50 at all times, but you might wanna do it differently.

The other possibility is that you could split the money up each month. If your other cash and income can cover a vacancy or unexpected repair, then their is no real reason to have money sit in an account idle. This will require a good deal of trust in your partner that they can come up with a couple grand with little notice to deal with a repair or cover expenses in the case of a vacancy.

As you see and I'm sure know there are a lot of variables. The best thing to do would be to sit down with your partner and talk it out. What is both of your comfort levels. Go through the variety of scenarios. You mentioned that your partner is planing on using the cashflow to suppliment his income. I would be very concerned that they do not have the means to cover anything unexpected if they need the money to be able to retire. A discussion will solve all of this. If either of you are not comfortable I would respectfully walk away from a partnership, it would not end well if it doesn't even start on the same page.. Good luck.