A savings account. An emergency fund. The piggy bank. Whatever you call it, most of us believe it’s wise to have some extra cash saved up for a rainy day.
We all seem to understand that “life” happens, but it’s still frustrating when the car’s transmission drops out in unison with a job loss or an expensive root canal. If you have an emergency fund, though, unexpected expenses aren’t so scary.
I think this advice is still applicable for businesses, especially in the rental industry.
How Big Should Your Emergency Fund Be?
An emergency fund can help you pay for unexpected repairs and help mitigate your vacancy losses. But how much should you keep in the emergency fund? The more properties you have, the more that can go wrong-but the good news is that it won’t all go wrong simultaneously.
If you have 10 units or fewer, I recommend keeping at least three months’ worth of expenses for at least half of your properties.
If you have more properties, in the 10 to 15 range or higher, you can probably get away with three months’ worth of expenses for a third of your properties. Or, to put it another way, one month’s expenses for each of your properties.