A property that cash flows on paper may in fact cause you large cash losses for years due to unexpected/unforeseen capital expenditures or skillful professional tenants who evade eviction for months or years, etc.

The front door was broken down; the NEW carpet was burned by the concussion grenade; all the light fixtures were torn down; the outlets were ripped from the walls; and all of this was in addition to the damage done by the tenant.

I have some cash reserves on the side just to cover any unexpected expenses if it cannot cover itself (hopefully these kind of events don't occur often).

I have seen condo owners assessed10s of thousands in special assessment by boards to do unexpected repairs and upgrades.

Nonetheless, the contingency budget is essential, as real estate projects often encounter unexpected costs.

Usually I feel I have enough margin to handle anything unexpected.  

It's better to take the chance on that than to take on a big renovation with a $60,000 profit margin and next thing you know you are significantly over budget and you have unexpected costs that eliminate the profit anyway.

And I don't mean they just stop paying and move out. Let's

Real estate is not a passive investment and you might be required to make unexpected repairs or other work to the property.

If the property doesn't perform as well as you hoped or if something unexpected happens, you could find yourself in a difficult financial situation.