How Much Should You Keep in Reserve?

"Cash is King", so they say, and investor would be wise to keep an adequate cash keep for things that can go wrong in real estate, particularly rentals. It is easy to buy real estate with no money down, but it's difficult to survive when you have no cash set aside for a rainy day.

Reserve

There's no magic method you can use to decree how much you should keep in keep in the real estate business. When I have rental properties, the four key factors I think are force of the local rental market, eviction time line and cost, the age of the property, and the type of neighborhood.

How Much Should You Keep in Reserve?

Strength of the Local Rental shop The lower the vacancy rates in your area, the fewer reserves you'll need for vacancies. Your local newspaper or your city's housing branch may have articles or statistics on vacancy rates. You should, at a minimum, have adequate cash reserves to pay for one month of vacancy per unit, which is only an 8-percent vacancy rate.

How Much Should You Keep in Reserve?

Reserve

Even in a good market, you'll deal with qoute tenants who may stop paying rent and require an eviction. Good tenant screening will help solve this problem. If you plan to rent properties, you should always,

without exception, do a right background check on tenants. This includes reviewing reputation reports, employment verification, references, and calling current and former landlords.

Eviction Time Line and Cost The length of time it takes to evict a tenant is relative to your cash reserves. In pro-tenant states like New York and Massachusetts, it could take months and thousands of dollars in legal fees to evict a tenant--all while you're paying the mortgage. In addition, in our experience, collecting back rents or damages from tenants who've been evicted can be futile.

Age of the asset With newer and recently renovated properties, you won't need to anticipate many repairs in the first few years. As noted earlier, we propose that you always hire a professional asset inspector before you

buy. Inspectors will go through the asset with a fine-tooth comb, which helps ensure you'll have no surprises later on. Another thing to keep in mind is that many utility companies offer a fixed monthly payment selection so you don't taste payment swings each season if you're paying for heating, water, or other utilities as the landlord.

Type of Neighborhood If you're renting properties in low-income neighborhoods, you can expect the turnover to be much higher than in high-income areas. In addition, multiunit structure with small units and one-bedroom condos will attract more particular population who tend to move more often than families.

Cash flow supervision is the bedrock of survival in any business, with real estate being no exception. Investors must be right not to run out of cash or they will be soon out of business.

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