Financial Reserves When Starting Out in Real Estate

[Philipp Grajewski]

Hi there,

My wife and I are new to the site. We are in awe of all the information and resources that are available through this community. A big thank you to all the members and contributors to this awesome site.

We have been devouring as much information on real estate investing as our schedules allow. We currently own a house that we will be holding and renting out, as soon as we move in a few months. We are debating whether we should invest in a second property at this point. We are considering BRRRRing a small multi-family or single family house.

At this point, we are unsure of how much cash one should have in reserve before getting into it. You hear of people starting out with basically nothing, financing 100%, but that seems very risky. We do have some cash reserves, as well as money in an IRA.

What rules of thumb/calculations have you used to determine at what point you are financially ready to invest in the next property?

We look forward to hearing about your experiences.

[Christopher Tyler Hughes]

@Philipp Grajewski This is a question I hear a lot and the answer depends on who you ask and your risk tolerance. My first investment I had to put 20% down on the purchase, and that was all the money I had. Halfway through the rehab, a $5,000 unexpected expense occurred, which forced me to do a lot more work on the property than I had anticipated. It was a tough 3 months, because I had zero liquidity, however I turned a $45,000 profit on the deal. 

Now.... I was 24 years, not married, no kids, and working a job that didn't make much money. So in my mind, I didn't have much to lose. It was an easy decision for me, but your situation may be different. 

I don't think there is a "rule of thumb" when you start... at some point you just gotta jump in. I wouldn't necessarily recommend doing what I did, but if you have some reserves and a good deal approaches, don't let it slip away. 

Think about how much money you could be walking away from because you were concerned about being at that right number for reserves! Good luck man!