cash reserves

[Stephen Leblanc]

Ok here is my situation. I just bought a duplex which closed 2 weeks ago. This leaves me with a positive cash flow of $750 per month from the 5 units I own. The problem is I made a deal with myself that I would not buy another property unless I had at least $1000 in reserves for each unit I own. $1000 seemed reasonable to me, that’s the only reason I set this figure. So 5 units, would require me to have $5000 in the bank. I currently only have $2500 in the bank. So here are my two options, a patient one and non patient one. The first patient option is to save the $750 per month until I reached the $5000 safety net plus $2000 for the safety net on the new duplex and $3000 for the closing costs. That’s $7500 I have to save before I would feel comfortable buying another duplex. So at 750 per month that would take 10 months. Option two, the impatient one. I approached my aunt and asked her if she would like to invest some of her money into my rental properties and I would pay her back in monthly payments with her earning 8% on her money. She said she would love to get 8% on her money. I could borrow about 13,000 from her and pay her back 400 per month for the next 36 months. I could use this money to increase my safety net and buy more properties. The only downfall would be the decrease in cash flow from 750 per month to 350 per month until I purchased another building.

I am very comfortable with debt as I work in the financial industry, so I am very careful not to become overly leveraged. I would like to go with the second option as it would allow me to continue purchasing rental properties, but I don’t want to make any mistakes financially which will run my business into the ground.

Steve

[Jon Holdman]

Given those numbers, I think I'd be inclined to pick up more properties. Is there something negative that's driving those prices? Job loss? Outward migration? If not, it seems like every property you acquire adds to your income.

Jon