As an investor, it is important to be prepared for the unexpected.
Now more than ever we are seeing the grave importance of protecting the future of your investment by building a reserve fund. Your reserve fund is your “emergency” cash fund. A reserve fund should be large enough to cover unexpected situations, not only maintenance that comes up. The amount you want to set aside can vary and depend on property type, size, age, and size of the portfolio, however, a good starting point is 2-4 months’ rent. Remember, a reserve fund for rental properties is an investment itself.
An easy way to calculate a reserve fund for a portfolio with 1-10 properties, add up the following expenses for all of your properties:
Then, multiple it by three, and then cut the total in half to reveal your minimum emergency fund.