Author Topic: How much do you keep in a rainy day fund?  (Read 6104 times)

nen

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How much do you keep in a rainy day fund?
« on: May 31, 2014, 03:29:27 PM »
Hi everyone.  I'm curious how much experienced investors keep in a rainy day fund. 

Thanks!

ender

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Re: How much do you keep in a rainy day fund?
« Reply #1 on: May 31, 2014, 03:57:37 PM »
Hi everyone.  I'm curious how much experienced investors keep in a rainy day fund. 

Thanks!

This question needs more information to answer.

Someone spending $100,000 on mortgages a month because they own 100 rentals probably has a different rainy-day fund than someone with no rentals, a $250/month rent, etc.

Generally people prefer to have 3-6 months living expenses, which is variable.

I suspect people here tend to one of two situations:

  • Considerable liquid investments, so minimal cash reserves
  • 6+ month expenses cash reserves

nen

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Re: How much do you keep in a rainy day fund?
« Reply #2 on: June 01, 2014, 03:00:56 PM »
That answered my question.  Thanks!

GrayGhost

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Re: How much do you keep in a rainy day fund?
« Reply #3 on: June 02, 2014, 02:19:31 AM »
For real estate? Well, generally a few months' worth of combined rent is more than enough, or so I've heard.

dragoncar

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Re: How much do you keep in a rainy day fund?
« Reply #4 on: June 02, 2014, 11:48:11 AM »
http://www.mrmoneymustache.com/2011/04/22/springy-debt-instead-of-a-cash-cushion/

I don't keep a separate fund, but I do keep 1-2 months of regular expenses in checking/savings.

Another Reader

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Re: How much do you keep in a rainy day fund?
« Reply #5 on: June 02, 2014, 12:18:30 PM »
Since you ask this in the real estate category, I assume you mean how much do you reserve for repairs and maintenance.  I have multiple properties, so I know there will be major capital replacements, expected and unexpected, every year.  I estimate based on history and maintain that amount in cash.  I pay the bills with cash back credit cards wherever possible, but then pay the card immediately from cash.  Cash flow covers most vacancy and collection losses, so I don't specifically reserve for that.  Most of my properties are managed, and repair and maintenance items are paid by the managers and come out of cash flow.  They do some but not all of the turnovers.  I usually cash flow some of the less expensive capital items and the more costly turnovers. 

trailrated

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Re: How much do you keep in a rainy day fund?
« Reply #6 on: June 02, 2014, 12:22:03 PM »
I'm working on $18k in mine, I am just over 14k right now. Slowly building it up while maxing out retirement. Next stop taxable in a few months.

SDREMNGR

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Re: How much do you keep in a rainy day fund?
« Reply #7 on: June 02, 2014, 07:55:49 PM »
If cash flow were really tight, I'd say you should have at the very minimum 3 months of mortgage payments and next tax payment in reserves.  Most rehab fix issues should be covered by that and the worst scenario is really eviction of non paying tenant.  The reserve should pay for 2 months of mortgage payments and the lawyer fees for eviction. 

As in most things, prevention is much cheaper than the cure.  Screen tenants well and stay on top of needed repairs.

Another Reader

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Re: How much do you keep in a rainy day fund?
« Reply #8 on: June 02, 2014, 08:13:39 PM »
Oh, yeah, I reserve for property taxes in a separate account.  That's a monthly transfer of 1/12 of the anticipated total.  But that's not for "rainy days," that's an anticipated expense.

Mr Mark

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Re: How much do you keep in a rainy day fund?
« Reply #9 on: June 05, 2014, 06:13:10 PM »
I know my cash float is certainly way too large.

If anything I need to seriously reduce my float/ cash on hand.

clarkfan1979

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Re: How much do you keep in a rainy day fund?
« Reply #10 on: June 05, 2014, 07:48:35 PM »
I have one rental. The rent is 1450 and my mortgage is 970. I have 5,000 of my own money and 1450 deposit in the account. I average about 1200/year in repairs/maintenance. As a result, 6450 is probably too much to have in the account. However, it buys me peace of mind. In addition my wife and I typically have 10,000 in cash between the both of us. Again, probably too much but the stress level is way down when you have too much in the bank.

fxsts12

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Re: How much do you keep in a rainy day fund?
« Reply #11 on: June 05, 2014, 08:50:04 PM »
Establish a small line of credit so you don't feel like you need a lot of cash sitting idle.  Use the security deposit to pay the rent ahead 1 to 2 month also showing a deceased cash reserve. After than use 10% of rents for rainy days unless the cash will come from savings for short term. 2 rentals 2700 gross rents, each cash flows $500 no rainy day fund, except planned taxes just line of credit.

arebelspy

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Re: How much do you keep in a rainy day fund?
« Reply #12 on: June 05, 2014, 10:23:00 PM »
Previous discussion on the topic:
http://forum.mrmoneymustache.com/real-estate-and-landlording/how-much-do-you-keep-in-cash-reserves-per-property/

My answer:
Quote
Right now I cash flow so much per month from my normal job (plus rentals as a bonus) that I don't worry too much about reserves (though anyone with a low savings rate - i.e. most people, including real estate investors - should have healthy reserves.)

In FIRE my plan is to have 6 mo. PITI for each property + 20% of annual gross rent per property (for maintenance items that arise).   It'll likely come to over 6-figures in cash, but it'll let me not worry about vacancies, repairs, etc.

It's totally dependent on your personality, situation, etc. etc.  That's what my plan is, yours may be totally different.

EDIT: Obviously PITI implies I'll have mortgages.  Free and clear is a fine way to go to lower risk that comes with leverage, but I really want the inflation hedge of 30-year mortgages, so I'm planning on keeping the mortgages, rather than paying them off.  Thus my potentially more conservative numbers in terms of reserves. /END EDIT
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rmendpara

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Re: How much do you keep in a rainy day fund?
« Reply #13 on: June 06, 2014, 08:45:49 PM »
Right now I have ~$13k in cash/savings based on a total monthly expenditures of ~$3,500 (personal expenses + automatic investments + rental property outflows), so it seems to be just under 4 months right now of gross expenses.

I'd feel more comfortable with 6 months, so probably $21k as a loose target. This is probably way more than I need, but it's just less stressful to have more than I need.

I looked into setting up a HELOC, but since I own my rental outright, it got complicated with certain banks denying me since they only offer HELOCs on owner-occupied, or only if I had a checking/savings account with them, etc, and then I quit looking, lol.

I think in theory, it would work best to have 3 months on hand in cash, and then a HELOC at a floating rate for up to 1 yr of expenses since HELOC rates are much lower than credit cards, personal line of credit, etc.
« Last Edit: June 06, 2014, 08:48:36 PM by rmendpara »

Gin1984

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Re: How much do you keep in a rainy day fund?
« Reply #14 on: June 06, 2014, 09:18:58 PM »
Establish a small line of credit so you don't feel like you need a lot of cash sitting idle.  Use the security deposit to pay the rent ahead 1 to 2 month also showing a deceased cash reserve. After than use 10% of rents for rainy days unless the cash will come from savings for short term. 2 rentals 2700 gross rents, each cash flows $500 no rainy day fund, except planned taxes just line of credit.
That is not legal in my state.

jmoney

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Re: How much do you keep in a rainy day fund?
« Reply #15 on: June 15, 2014, 02:19:30 AM »
I really like the idea of credit cards and HELOCs as part of a rainy day fund. One caution though, if the economy tanks again banks will close HELOCs and lower credit card limits. Easy solution, have a combination of HELOC and credit cards. Best credit card for rental property owners is the Home Depot/Lowes card. If a major repair comes up and you spend over 300 on materials (easy to do for a roof or appliance) they usually offer 0% interest for 6 months. The run a deal every so often for 0% interest for 24 months if you spend over 2 k.

My goal is 50 k in free credit card limits on three different cards, 20-30 k cash which translates to 4-6 months expenses on 20 units.