Liquidity is the name of the game. Without liquidity and cash reserves you put your property portfolio in jeopardy. It can be as simple as a boiler going out or tenants leaving. However my wife and I have friends that were hit by the recent hurricanes in Florida and Georgia. Potentially this a more extreme example however it is a good learning lesson.
Our friends property portfolio was working middle class. The tenants’ household income was in line with the national median household rate of approximately $57,000. Their jobs include bus driver, dietitian, and retirees working part-time. These tenants were working middle class… however they were not able to withstand a significant short-term cash flow crunch. The missed work….some of their work places were damaged….they had to incur alot of unexpected expenses such as additional gasoline to evacuate as well as days in a hotel. Basically these good solid tenants started having financial issues. That water failed to our colleagues. They had additional expenses of property clean up. In one property alone cost 3,400 USD. Taking away truck loads of trees gets very costly….All along there are still a mortgage to pay.
This is not just an American example….If you’re going to be in the property business and survive long-term, you need to have adequate cash reserves. Roofs wear out, boilers go & die, pipes burst, and yes, storms can happen.
How much do you have for reserves for vacancies or unexpected expenses?
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