Cash Reserves

[RRypkema]

I'm looking for a suggestion for where to look for a way to calculate how much of a reserve (per property or per mortgage) to keep on reserve for a possible downturn.

 

[kfort]

Minimum 3 months of rent which should generally be roughly 4 months of bills. Personally, I keep access to much more via LOC.



Different folks will say different numbers, I'm fairly conservative.

 

[Thomas Beyer]

It depends on leverage, property quality, location and size of town.



A well maintained A asset in an awesome high demand location in a big city with a 50% mortgage needs almost no reserve as even in a downturn you will find tenants and you will be OK even if rents have to be lowered 20%.



A poorly maintained C asset with a leaky roof in a small town with one employer in a poor location with an 80% mortgage will need far far higher reserves.



3-6 months of mortgage payments is a good rule of thumb, via an LOC, but it could be lower or may be higher.

 

[Matt Crowley]

You can try using this reserve fund analysis sheet I created to estimate the amount of reserve fund required:



http://www.sweetzoneproperties.com/wp-content/uploads/2014/07/Pro-forma.xlsx



Go ahead and edit all blue cells. Change the rental growth rate assumption, mortgage rate, term, ect.



Watch the graph to discern the adequacy of the reserve fund.



Let me know if you have any questions / suggestions.