All Forum Posts by: Stephen Rager

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It seems each property I analyze they always come in at approximately $150 or less of cash flow and cash on cash ROI of 6 to 12%. Brandon recommends approximately a 12% return and a range of $150 to $200 a month of cash flow.  Looking for some insight from more experienced people.  

My goal is to find properties at approximately $150 to $200 a month in cash flow and that 8 to 12% cash on cash return starting off. 

https://www.biggerpockets.com/blog/2012-09-18-cash-reserves-long-term-real-estate-investor I came up with this and other articles out there.  Thank you for the input, the reserves need for unpredictable expenses.  

https://www.loftyrealestate.com/property-management/why-reserve-funds-are-important-when-managing-a-property/

This article was helpful as well.

Any suggestions on factoring what a fully funded reserve fund looks like? Maybe I'm asking the wrong question? What are the recommendations out there for how much. Maybe a percentage of property value, should you hold per property as a reserve fund.  Once, you achieve it, you stop contributing to it. I realize this is subjective to many people. 

In theory, if 6 months of expenses are recommended.  If that's where you are comfortable, if rent is $600 that's only $2,400 in an account, plus utilities. That's not enough to facture foreclosures, roofs, other repairs.  If I go with $5,000, it's an arbitrary number, I made up but it's double the scenario cost for 6 months of vacancy. 

Should someone be comfortable with 6 months of the figured expenses, then stop contributing to that property and re-run the cash flow analysis?

I'm finding myself running a minimum of two calculations per property when figuring the monthly cash flow. The reason is if you calculate using CapEx, Vacancy Rate, Repairs which are subjective(not actual) they affect the monthly cash flow. I'm holding money aside already in a fund to cover these potential expenses, maybe I'm holding too much, that could be used to purchase additional properties.

So for example, if I have $10,000 in an account to cover these, they will need to be replenished at some point.  But, initially, they won't so this affects the actual cash flow per month.

Also, is there a percentage of the properties value you recommend to have an account to fund these expenses.  For example, if I left $50,000 in an account to cover Cap-Ex, Vacancy Rate, Repairs, and I have 5 $50,000 properties.  Do I stop adding to it? Or at what point would you stop adding to the expense funding account.

It's going to be needed one day, you just can't predict the specific day.  So it makes sense to hold a percentage of liquid cash to cover the expense. 

Any articles, podcasts, books videos or links would be a great help as well. TIA ~ Stephen Rager

I'm just starting out and have been researching this particular question. So for the first, 1 to 10 rental properties, if I stick them all in 1 LLC, that files an 1120S. I'm thinking I'm should be good, as we won't be a good target for lawsuits, with only 20% down on each property. I was also, considering the cost to maintain the bookkeeping and other costs, such as filing annually for 10 properties instead of 1 annual filing, 10 sets of books verses 1 set of books. 10 related tax costs verse 1 bundled set of books. There won't be much equity in the properties as there will be 20 % down payments so, 80 percent loans.

Why all this 1 LLC per property talk? I get the legal security from lawsuits, but the associated cost to do this with 20 or more properties seems like a lot of superfluous work vs the benefit of protection.

It sounds like a question for an accountant, in general, if you travel for business you can deduct the related expenses(meals, miles, etc.).  Verify with your accountant that you recorded the information correctly.