How much cash reserves do I need for my rental property?
As I have mentioned many times before in previous blog posts, having a reserve set aside for future repairs is a must. It is not a matter of if things will break and need fixing it is a matter of when. Also, maintenance and repair items tend to be one of the bigger expense line items for a rental property. It is very much part of the cost of doing business. Unfortunately, many landlords are caught off guard or by surprise when things begin to go wrong and the tenants begin calling in with their repair requests. As we have talked about in the past, there are some maintenance items that you legally MUST deal with.
One of the problems we see as a professional property management company is that too many owners see the cash flow at the end of the month as money that is completely free and clear. Take the illustration of investing in stocks – particularly
dividend paying
stocks – those dividends are generally reinvested to make the portfolio grow. Or, if you think of the best way to budget, you set aside money for vehicle repairs, home improvement projects that are needed, back to school shopping, etc. In a very similar fashion, reinvesting some of your cash flow profits back into the property are essential to make sure it grows in profitability. If a property is not maintained it will over time go into disrepair and the cost to rehabilitate it will be far greater that the cost over time to maintain it. Also, setting some money aside on a regular basis will
insure
that you are ready for the inevitable maintenance and repair costs that are a part of
rental
property.
