Being new to this game, it feels wise to keep a little too much reserve as compared to not enough.
With the current sale of one of our properties, we are in a position to put this $$ away comfortably (for a rainy day?? - no pun intended – I live in Or-E-Gone) and still have plenty available to invest in Lonnie deals.
We are liquidating some of our rentals. Another one is closing on Friday.
Just want to play it safe until I have a better handle on our new adventure in Lonnie deals. The money I put away for reserve will always be easy to access if the “super” deal comes our way. Our goal is to purchase a small to medium park someday.
With heartfelt thanks for your suggestions, advice and super posts,
Bobbie
I am trying to setup a reserve in case some of our houses come back to us. Not sure I’m doing this correctly, so would really appreciate some feedback, suggestions or advice.
Currently own 5 mobiles.
Two with space rent @ $395
Three @ $385
Here’s what I was thinking for reserve.
2 months space rent plus $1,500 each mobile.
That comes to $11,500
Does this seem like enough to put away to cover unexpected houses that we take back?
I would rather be safe than sorry.
Thanks in advance for any help you can send my way.
Bobbie
Posted by Ryan (NC) on March 08, 2006 at 05:58:35:
We use 2.5x our total MH payments, ie lot rent, loan payments, any other reoccurring monthly expense.
I need a safety reserve to sleep well at night but I think the extra 1500 per home would be better spent doing more deals. This topic has been playing heavy on my mind lately as realistically you will likely need to cap the reserve at a certain point to continue making a return on money that would other wise be sitting idle.
I too would like the input on this topic from the other folks here!
We are only working Lonnie deals so there are no monthly payments.
My husband quit his job October 21, 2005 to go into this full-time. Hence, no income coming in at the moment. We are selling some of our rentals and just collected a nice chunk of change off one of them. I want to make sure a reserve is setup while we have the $$ in hand. I was thinking when a note pays off, I can either pull the $$ out, or leave it there for the next deal (when the $$ is all gone).
I just want to make absolutely sure that if/when one of our houses comes back, we are in a position to rehab, pay space rent and buy the necessary materials.
I agree the $1,500 IS a little high, and probably over-kill, but what if we need $2,000 on a couple of houses to get them turned around (including back taxes) and we don’t have it in reserve. That would bite us hard in the rear end.
I’m sure having a wrestling with this. Hope to hear from others on how they are setting up their reserve account.
Posted by Tony Colella on March 08, 2006 at 17:57:54:
Reserves are important and I am glad to see you are preparing for those unforseen circumstances that always arise. So many folks just scramble at the last minute and try and scrape the cash together. This is not only stressful but dangerous and a poor business practice.
When first starting out, reserves are the most important (because of less cash flow) but also hard to come by. In time your portfolio will grow and the increased cash flow helps cover minor, routine problems.
There is a balancing act that occurs as time goes by. It is important to have the reserves but excess reserves do not create more income, thus the opportunity cost eats away at your success.
Initially I would say erring on the side of too much reserves is wise. In time you can adjust and keep the over balance of cash in motion.
Oddly I find that it is natural to feel the most comfortable when I have the most cash in the bank but the reality is that this means new business has stalled. I have to keep finding sound investments for the funds not needed for reserves while maintaining suficient cash to attack new business. Ah, may the game never end.
