Note Fund Management Reserves & Liquidity

[Andy Mirza]

For our note funds, we set aside about 10% of capital raised as reserves. We set these aside for operating costs (foreclosure costs, note servicing, insurance, property tax advances, etc.) and minor rehabs for REOs.

More than that amount makes us feel that we're holding too much idle capital. Too little and we feel that we run a greater risk of getting into a liquidity crunch where we run out of money. (We've never done a capital call with our investors and never want to.)

When we have substantial rehabs for REOs, we might get a hard money loan to provide the extra capital.

Future plans include getting warehouse and lines of credit with banks to help with liquidity as well. Really, I think that's the final step to maximize efficiency and stability with reserves.

What are others doing out there for their reserves and capital management concerns?