How much cash do you need socked away in cash reserves when investing in real estate?
Many real estate education programs are focused on the “no money down, no credit” niche. While this is completely achievable all real estate investing pros at some point or another are going to need to have a reserve fund regardless of their chosen real estate investing strategy. The question is how much is enough?
What many want to know when asking this question is actually how much lenders and banks will require them to have in order to qualify for a mortgage. While this can vary between lenders and loan programs with some types of niche funding not requiring any assets conventional mortgage lenders will generally require at least 6 months reserves for each property being held.
This may not be a bad number for all real estate investing pros to adopt too. While it is highly unlikely that any rental property will go vacant for 6 months in this market there could be situations that arise with property condition, rent to own tenants and delays in flipping houses that do require cash injections to cover holding costs.
Buy and hold investors also need to lean on their real estate education for advice on keeping a reserve fund for replacing appliances, regular maintenance and rapid makeovers between tenants. These are regular costs and should be budgeted for.
Then of course there is always the unexpected. So stash away a sizable business cash reserve fund that can help you overcome any possible combination of hazards. However, this need for a large cash hoard can be minimized or offset by having other plans in place to deal with emergencies too. This might include property, key person and business insurance as well as having tools and backups in place to ensure business continuity even during the worst disasters.
However, while it may not be covered in many real estate education programs this is certainly to be in addition to paying yourself first and taking a percentage off the top of every payday to set aside for personal emergencies and savings too.