Why You Need to Have Cash Reserves

Almost every deal I do is no-money down. If I end up putting any money down on a deal that means it must have a ton of equity and I needed to give the sellers some cash to close the deal.

However, even though I rarely put cash down, I still always keep very hefty cash reserves for emergencies. You see, when most people start out in this business they’re broke. And they think they can do a lot of no-money down deals without needing any cash at all.

Yes, this is true, but you still need cash reserves. For what? For the rental property you picked up that just went vacant. Or for the rehab that went slightly over budget or any number of other things.

The good new is…

The money doesn’t have to be yours. It can be a HELOC that you have, which you never touch. When I first started out I had a $100,000 HELOC on one of my properties, in case I ever got in trouble with my properties. (I own a lot of rentals and if by some terrible fate they had all gone vacant at once, I would have needed to tap into that money.)

Thankfully, I never had to touch my emergency cash reserves but I know I slept a lot better at night knowing they were there. Besides a HELOC, you could borrow money from friends and relatives. Relatives are one of the best places to get emergency money or private money.

Also, you could go to the bank and get a signature loan.

I think you have to have pretty good credit, but I’m sure I could go to the bank tomorrow and get a $25,000 signature loan without a problem. Last resort would of course be credit cards. I’ve never done this and wouldn’t recommend it, but if push ever came to shove, you might have to resort to drastic measures.

The point I’m trying to make, is that you don’t want to do a lot of no-money down deals early on, just to see all of your hard work implode because you don’t have cash reserves. In fact, all throughout your real estate career (and life) you should have plenty of cash reserves that way when an emergency does strike you don’t have to worry about losing your properties, or your business.

Because, believe me, emergencies will strike if you stay in this business long enough such as a tenant tearing up a house, or a rehab gone bad or a broken pipe that floods your house.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.