The importance of cash reserves

[Steve Vaughan]

Just want to share the importance of having a cash cushion for taxes, insurance, vacancy and repair expenses and improvements.  Even an extreme DIYer that takes care of 90+% of all their own maintenance and repair issues like me faces tradesman invoices and improvement requirements at just the wrong time!

Until this month I was tempted to move $20k or so of my reserves over to an acquisition account to grow my portfolio.  This month - facing four vacancies, semi-annual property tax bills (most of my mortgages are commercial and not paid through impounds), insurance renewals, a new garage door and repair bills (when it rains it pours) for plumbers, I am glad I passed on that last duplex for now.

Although it's always painful having to stroke large checks multiple times in the same month, I'm glad my reserve is there.  Sure the taxes and insurance premiums were expected, but not in collaboration with so much vacancy or the repairs and improvement.    Buy and holding is a marathon. As runners know, the wall hits at about mile 13.  Have and maintain those reserves your analysis shows you will need someday.  They are real. A few years can go by all roses and trick you into thinking it's not needed.  Save it for the wall that will inevitably come!  Cheers!

[Drew Castleberry]

Great job and self discipline to leave your reserves in tact! What I've read a lot of people analyzing properties on here and others that I talk with, they don't project enough for their reserve account. Yes 10% is fine up front, but that isn't going to handle any capex issues that pop up. 

On my properties I hold 10% for my maintenance/cash reserves, but hold all monthly profits in the reserve account until I have $5k built up per property (SFH). It's a bit different than how others do it, since I can't touch my profits until year 2, but it eliminates from having to tap into my account that I purchase properties with, or my personal savings.

It always seems that it comes in bunches, good job for planning for it and weathering the storm!