Question: How much money do you put away for unexpected rental problems?
Jim Ingersoll: John Nuzzolese your thoughts?
Jay McGee: There is a LOT of debate around this. Banks want to see 6 months PITI. Alternatively, 5% of FMV of the property use to be the standard. I generally try to maintain the higher of the two (they’re typically fairly close).
Jay Helms: For each month rent is collected, I put back 5-10% for maintenance and repairs, depending on the age and condition of the home, and 5-10% for capital expenses (also depends on the age/condition of the home). Having those reserved has saved me several times.
Gita Faust: All depends on the tenant as well.
Scott L Moyes: ZERO. All mine are Triple Net Leases with 1st Right to Purchase. The leasee is 100% responsible for the property. As a result, the IRS treats them as the owner which entitles them to all the Fee Simple Bundle of Rights of Ownership, including tax benefits, but no claim of equitable interest in the property unlike a bogus and dangerous Lease Option or Seller Finance Scheme.Doing this gives me a higher monthly cash flow and no landlord or management duties. I also don’t need to hire a property manager.Just Sayin’
Jay McGee: I would put a disclaimer on this practice as in some states it would not be legal.
Scott L Moyes: It is legal in all 50 States and most countries. In fact it’s protected by federal law.
Jay McGee: Scott L Moyes how does this work with specific states residential Landlord/Tenant laws?
Scott L Moyes: Although legal in all 50 States there are a few States that treat it slightly different.
Jay Helms: The best spot to be in!
Scott L Moyes: Your own neighborhood is a good place to start. But most of the deals I do art within a 1000 miles of where I live. This is a simple business or you need is a phone and the Internet. I never see any of the houses I do or meet the sellers or meet the buyers.
Michael Jake: Triple Net example here in my town, Taco Bueno franchise comes to town and NNN leases 3 locations, within 2 years they shut the doors because it’s not as profitable as anticipated. The company that signed the leases (not the main franchise owner) BKs …See more
Jay McGee: Michael Jake I would want a substantial deposit and we are legally bound to no more than 2mo in VA. If I am interpreting the OP’s comments correctly the investor also wouldn’t be able to take advantage of the depreciation.
Michael Jake: Jay McGee I believe you are correct but I am no NNN expert. I stick to houses…B+, and A’s.
Scott L Moyes: I stick to ANY homeowner/seller that is willing to accept a Full Price Offer and leave ALL their existing financing and equity in place for a few years. One third of the deals I do are nice free and clear houses. True, most don’t want to that. But, i…See more
Jay Helms: You do NNN on residential?
Scott L Moyes: Absolutely! It is the only way I will do them.
Jay Helms: Scott L Moyes have not heard of that before. Interesting. Would love to learn more.
Michael Jake: Id like to know your thought process on NNN residential Scott
Scott L Moyes: Ask to join the FB group, “Lease Options Suck”. In the files, you will find, “My Personal Lease Option Horror Story” and other related articles and documents. That should get you started to understand what I’m talking about. You may be surprised how simple it is and what you find there.You may also want to look-up a new FB group I found today called, “Legal REI”.
Scott L Moyes: Michael Jake, I do what amounts to be NNN Lease so I don’t ever have to think about anything. My Resident is 100% responsible for the property. For agreeing to be 100% responsible, they receive incredible benefits and I get to charge more for the mon…See more
Lori Eubanks: At least 6 months reserves
Matt Reed: 2500 unit….
Scott L Moyes: A Smart Investor should NEVER be responsible for Monthly Payments, Maintenance, Upkeep, Repairs or Taxes and Insurance.
Michael Jake: Dude!!! There’s more than one way to skin a cat.
Jim Ingersoll: Michael Jake for sure!
Scott L Moyes: Agreed. Just make sure the cat doesn’t end up skinning you.
Laura Patterson: 6 months reserves
Kathy Kennebrook: I agree with Laura Patterson we keep 6 months reserves and we budget out of every rental payment for taxes and insurance which goes into a tax escrow account
John Nuzzolese: Thanks Jim, It is great to plan ahead and have a formula for reserve cash on hand in case of rental problems or vacancies, but many of us know that Murphy of Murphy’s Law strikes at the worst possible time sometimes. Especially when you’re first starting out and have only a few properties. So my answer on “how much” money in cash reserve or in if necessary, equity line money to have available is AS MUCH AS POSSIBLE, or more than you should need. It can be minimized some by having great tenants.