Having a reserve fund
July 13th, 2006 by KenricI forgot all about this because it happened while I was on vacation. I wanted to stress the need for investors to have a reserve fund for emergencies. Alot of investors are going no money down because they don’t have the funds for a downpayment. I always wonder how these investors who have no money for downpayments can afford vacancies or repairs.
Last week while on vacation I got a voicemail message from a tenant that the AC unit went out. Luckily I had cell coverage that day and was able to call the tenant to find out the problem. I had the tenant take care of the problem since I wasn’t in a position to call a bunch of AC vendors and schedule a repair. My tenant handled the whole thing, paid for it and I reimbursed her when I got back. The cost of the repair was $590.
On the exact same day, I was checking my email on my cell phone and found out that SFH#2′s AC unit went out also. What are the odds. Luckily, this was new construction so I got the builder to go look at it and take care of it for free. But… what if this was another home? If it was any other home I would be paying for it out of pocket. I’m sure the repair bill would have been around $500.
That would have been $1,100 of unexpected costs to absorb on one day! Luckily I do keep alot in reserves for things like this. But as you start to accumulate properties, things like this happening become more and more probable.
With regards to cashflow, I can totally understand why many seasoned investors do not think +50, +100 or even +$200/mo is considered positive cashflow. If you get one unexpected repair your cashflow for the year is gone. One vacancy month and you are negative for the whole year.
Posted in Real Estate | No Comments »
Stumble it!
