Why Every Real Estate Investor Needs Strong Cash Reserves

Question

Hey BP Community,

We all love the thrill of acquiring new properties, expanding our portfolios, and watching our net worth grow. But how many of us are actually prepared for the unexpected?

I wanted to start this conversation because I’ve seen too many investors (including myself) get into serious trouble due to a lack of cash reserves. The reality is real estate isn’t just about appreciation and cash flow—it’s also about survival when things go south.

Many new investors operate on razor-thin margins, believing that rental income will always cover their expenses. But what happens when:

• A tenant stops paying, and the eviction process drags on for months?
• A major system (HVAC, roof, plumbing) unexpectedly fails?
• The market shifts, and properties take longer to rent or sell?
• Interest rates or property taxes spike, squeezing your cash flow?

Without sufficient reserves, you’re not just stressed—you’re at serious risk of losing properties or being forced to sell.

-I learned this lesson the hard way. I was pushing to close on a property and had to borrow money just to make it happen. It felt like a big win when I finally closed and was able to pay that money back immediately after.

But right after closing, disaster struck. A chimney on the property completely collapsed—taking part of the roof with it and crashing through the neighbor’s house. Just as I was scrambling to figure that out, one of my tenants also moved out, leaving me with thousands in repairs and a vacant unit at the worst possible time.

I had zero reserves left because I had just paid back the money I borrowed to close. So now, instead of feeling excited about a new investment, I was scrambling for cash, stressed beyond belief, and facing major repair costs with less rental income to offset them.

That experience completely changed how I approach real estate. Now, I never buy a property without at least 4-6 months reserves on hand. Because when things go wrong, they don’t just go wrong one at a time. They pile up fast.

If you’re serious about long-term wealth building in real estate, protecting your portfolio is just as important as growing it. A few months of reserves might seem like an unnecessary drag on your ROI—but trust me, it’s far cheaper than the alternative. If you have multiple properties i would recomend having at least 5-10k per door in cash, or in easily accessible funds at least.

What are your thoughts? How much do you keep in reserves, and have you ever faced a situation where cash reserves saved you?

Nathan Gesner · Answer

Excellent share! It's a lesson I've learned more than once. I saved money for a major renovation project that is eating up most of my reserve. Then I had a furnace go out, several appliances break, a collapsed sewer line, heavier-than-usual turnover, etc. I'm squeaking through, but it's putting pressure on me to watch my nickels and dimes.

How much should an investor keep in reserves? This is not an exact science. It depends on your financial strength, the quality of the property, how many properties you own, etc.

I like to start with one significant expense and three months of vacancy. Imagine if you had one single-family home. The tenant fails to pay their last month's rent and leaves the place needing new flooring and paint. It will take two months to turn it around and get it rented. That's three months of mortgage and utilities, the cost of flooring, and the cost of painting. That's a typical scenario and could cost you $10,000 - $15,000 so that would be a good starting point for your reserve.

But there's more!

What if you're a cardiologist with no debt and making $250,000 annually? You could probably afford $20,000 without much impact on your budget. If you're a single mom with student loans, a car payment, and living paycheck-to-paycheck, then $20,000 would be devastating and a reserve is critical.

What if you have an apartment complex with 20 units? Do you save three months of vacancy for each unit and $50,000 for the roof replacement? That would be around $90,000 sitting in a savings account! At this point, I would recommend having a line of credit to cover these things so you don't have money sitting in the bank doing nothing when it could be put to work.

I have 33 units, no debt except for mortgages, and excellent income. I can pay for all my problems using the cash flow from my current rentals. I also have a $175,000 line of credit ready if something catastrophic happens. A reserve is unnecessary, but I still keep around $15,000 - $20,000 in my account.

The point is, that you should sit down and assess your finances to determine what the worst-case scenario may look like, how much you would need to cover it without impacting your life, and whether you will need to build a reserve.

Jules Aton · Answer

Excellent topic. With the run up on RE prices and boom of STRs over last 5ish years people have been led to believe it is easy and leveraging has minimal risk. Not everyone will be successful in this business especially during times when people are essentially jumping on the bandwagon. When I first started out I purchased everything with 20% down and had enough available much through credit cards which can be problematic also to withstand a few months of vacancy or a $10k repair. It wasn’t an especially quick or glamorous way to build wealth but kept me from losing my shirt or my mind and contributed to a comfortable lifestyle over the years.