The Kansas City rental market is pretty good right now. And that is good news for the real estate investor. Vacancies seem to be filling pretty quickly right now. So that means less time spent worrying about how many mortgage payments you will have to make without and income coming in.
A good rule of thumb for me, and what I would advise for my clients, is keeping a minimum cash reserve in your operating account of three month’s worth of mortgage payments for each property you use as income property. Does that sound like a lot? What if you want to use that cash to buy another can’t miss property?
Proceed with caution. Ever had a vacancy? It really isn’t that bad for one month, even two. But I had one client about a year and a half ago who owns 13 rental units. During one 4 month stretch they had 8, 7, 4 and 3 vacancies. It was a freak occurrence for them. Nothing like 8 of the 13 units being vacant had ever happened to them before. But it did. That is a huge cash drain. Had they not had the cash reserves it may have sunk them.
In fact, they scoff at my 3 month rule. For them it is 6 months. And that is fine with me. What isn’t fine with me is people who want to buy income property with 100% loans and finance the closing costs. With no cash reserves. That is a recipe for disaster. And I would rather they build up some cash before we proceed.