Why you need reserves

[Josh Young]

I see a lot of people analyzing deals and they do a nice job of assigning a certain percentage of monthly rent for different expenses, maybe 5% repairs/maintenance, 5% Cap Ex, 4% Vacancy, and 8-10% Property Management. I think this is a great way to underwrite a deal, but in reality these expenses don't happen all nice and spread out like the budget; they can and do happen thousands of dollars at a time, sometimes tens of thousands. In the past 3 months I replaced the HVAC in two of my rental SFH, one was $9k and the other was a little bigger, so it was $10k, this wasn't a big deal because I had the reserves. My point is, for anyone starting out wanting to live on the cash flow from rental properties, do yourself a favor and add a little extra to your reserves, it will help you make better decisions. Lenders usually require 6 months of PITI payments as reserves, but I like to have a little more, I like to have 6 months plus $10k per property for SFH. How much do you like to keep in reserves?

[Jay Hinrichs]

Quote from @Jaron Walling:

@Jay Hinrichs That's exactly what we want to achieve. The problem we have is capital and retaining it after refinancing the property. We have trapped good amount of money in our rentals. The last one we left $18k... we got the investment ball rolling but it's slow. I've added about one property per year with $100-200 per month cash-flow. It feels safe given this market but I'd rather do REI full time. I could retire in 4 years with a pension at my current 9-5 if I stay around that long. 

Did you partner or syndicate with people early on to scale to 300 units? Or buy most with your own capital? 

I would NEVER ever leave a job with only 4 years left to a pension.. your just changing one job for another.  running a bunch of rentals is a JOB no matter what people say on BP.. thats why I sold out when i could.. took my profit and did other things that did not include dealing with residential tenants in C class rentals which really were probably D class if we are being honest and some B's

I put together a real estate paper offering to do our portfolio much like a syndication. I had no cash into it and I actually refinanced at the purchase so was pulling 5 to 10k per property when i closed on them so we generated about 3,000,000  in cash .. and while it should have cash flowed on paper I came to the realization of pulling max ltv out of the deals we simply broke even at best.. So I took my cash and left the other partners in control of the assets  IE they bought me out.. its was a glorious day for me  :)