What keeps real estate investors awake at night?
- Tenant issues
- Bills
- Market Fluctuations, Economic drama, and unexpected expenses
Tenant issues are best addressed with great property management and choosing your properties wisely.
Regular bills, property management fees and vacancy allowances are best addressed by setting your property up with good cashflow to handle the regular issues that arise.
But what about the wild cards? Those elements that affect your property—but you have far less (if any) control over. Markets will go up and down, that’s all part of the real estate cycle. And these days economic drama follows political drama very closely. As one investor you can’t possibly be expected to have control over those issues. Occassionally, unexpected expenses can come up with your property; for example, weather-related damage that your insurance company decides to decline.
But wait—didn’t you invest in real estate for your financial freedom?
One of the best ways to mitigate the “wild-cards” is to have a reserve fund, also known as a “sleep-at-night” fund. And yes, it is absolutely best to set it up when you acquire the property! Some people also suggest leaving the first year’s positive cashflow in your bank account to top-up your reserve fund; personally, we love this idea.
So, how much? Every real estate investor is about the numbers, right?! Your bare minimum should be 3 months of expenses: mortgage, taxes, insurance, utilities (even if your tenants pay them, consider the worst-case scenario where they come back to you). Do you have personal cash reserves that you could draw on if absolutely necessary? Part of your choice is about how much to leave in your “mini-business”=your property, versus how much to leave in your personal liquid assets. There is no one right solution for every investor.
If you’re doing this for your financial freedom, your reserve fund should be that buffer for the unexpected. Most of our investor colleagues are all creating property Proforma’s with a reserve fund. That money isn’t “wasted;” it’s sitting at the ready, and allowing you a good night’s sleep!
We’re always happy to have real estate conversations. Contact us at https://mountainsedgedevelopments.com/ or @MtnEdgeDevelops.
