Author Topic: How much of an emergency fund do you keep per building?  (Read 2455 times)

antifragilista320

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How much of an emergency fund do you keep per building?
« on: March 05, 2016, 04:46:40 PM »
Hi all,  just curious how much of a 'emergency fix stuff fund'  you keep per unit/per building you own?

 Reason I ask is I could probably trim down my cash stashed away for the building and put it into market funds, divi stocks etc.

Cheers!
af

fishnfool

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Re: How much of an emergency fund do you keep per building?
« Reply #1 on: March 06, 2016, 08:07:11 PM »
Personally I keep a few months worth of mortgage payments in my rentals checking account. I'd say it depends on the condition of your property and history of repairs as to how much is enough to keep handy.

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SwordGuy

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Re: How much of an emergency fund do you keep per building?
« Reply #2 on: March 06, 2016, 09:37:20 PM »
We're just starting out so we don't have a good repair cost history.  Some components are brand new and others might be 20 years old, so we're planning for a higher-than-average one.

We're planning on retiring in a year or two so the fire hose of monthly salary cash will be gone.  For that reason we're planning on about $5k per each of our first 4 properties.   After that, we'll add $2k to the kitty for each of the next 4.    That should give us a good sized buffer (than can be raided to buy another house if it isn't needed).

Until the buffers are in place we're routing all rental payments to the buffer.

Your mileage may vary... :)

Us2bCool

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Re: How much of an emergency fund do you keep per building?
« Reply #3 on: March 07, 2016, 05:54:53 PM »
We keep the equivalent of one month's mortgage payment per house. If we only owned one property we'd probably keep two months', but as it scales it's a bit easier to have less on hand. Besides, that ends up being a hefty chunk of money sitting in a bank account.

antifragilista320

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Re: How much of an emergency fund do you keep per building?
« Reply #4 on: March 09, 2016, 09:05:59 AM »
Thank you all for replies! I own an old (100 years) 2 unit in Chicago. Been keeping a lot more than just one mortgage payment stashed away. Most big ticket items have a few years of life (hopefully!) left in them, and roof is new.  So perhaps as long as I budget to replace a/c water heaters etc.  within their respective lifespans I can dial back the amount I have on hand and move it to some liquid investments.


zephyr911

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Re: How much of an emergency fund do you keep per building?
« Reply #5 on: March 15, 2016, 06:58:04 AM »
I keep a $1K accounting buffer and a $20k line of credit. With leveraged cap rates well into double digits, the cost of not investing all available cash is far higher than any interest we'd pay if we borrowed for a major repair.

arebelspy

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Re: How much of an emergency fund do you keep per building?
« Reply #6 on: April 03, 2016, 04:46:34 PM »
Previous discussion on the topic:
http://forum.mrmoneymustache.com/real-estate-and-landlording/cash-on-hand-per-rental/

My answer:
Rules of thumb are places to start - general guidelines.  They are for initial planning.

One should dig past those when actually in the thick of it.

I would use a rule of thumb when making projections.  I wouldn't use it on properties I already owned.

What you need to do is evaluate the property itself and figure when you will have maintenance costs.  Project the roof replacement.  How much life is left on the water heater? 

Get the detailed expected depreciation and capital expenses for the individual properties in question and store that.  Add a buffer for downturns, extra repairs (that tend to group together, rather than being nicely spaced out), extra vacancies, reduced rent, etc.  Some of that will come down to what you are comfortable with, if the property has debt service or is free and clear, as well as your other sources of income that could potentially cover problems (are you still working, do you have a pension, do you have other income producing assets, how flexible is your spending, etc.)

That being said, if you just want a rule of thumb, here's the one I use (and yes, I realize by posting this everyone is going to ignore all of the above and just use the below, so you should be aware of that and purposefully ignore the below and do the above):
6 mo PITI + 20% of annual gross rent saved per property (for repairs, maintenance, etc.).

Again, this is so broad as to be almost meaningless (a property built in 2013 will probably need less maintenance than one built in 1972, some areas have higher vacancies, etc.), but there you go.
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