Sorry for the delay in sharing Tuesday’s tip until today. As they say, “It’s better late than never.”

As we’ve been saying for quite a while now, it’s that time of year when properties are more fun to purchase. Given the changes in weather and lack of desire for most buyers to move everything in the cold, sellers can’t sell their properties and they’re more desperate than ever. This is great for buyers and opens the door to some amazing returns.

Sadly though, the same problems hold true for investors and their rental properties. If a property goes vacant through the winter, you’re likely to be sitting on a vacant property for several months, and that means serious issues for your cash flow.

So how do you prepare for those months of unexpected vacancy? It’s simple: Build a reserve fund, and create a way to compensate for what’s lacking.

I was in a meeting last week with a new investor, who has just started working with Land Chasers, and our property manager when the investor asked about this very subject. “What would be a safe amount for me to have set aside for each property I purchase?” There is no magic formula. But, I think our property manager had a great rule of thumb for all investors to use when planning out funds for emergencies and down times:

1. If the property is vacant when you purchase it, you should have at least 3 months worth of mortgage, insurance, and tax payments for the subject property in a reserve fund. (Or however long your property manager expects it to take to fill that vacancy, plus one month)
2. If the property is occupied, then it’s wise to have at least one or two months worth of payments set aside as well.
3. Create an emergency fund of somewhere in the neighborhood of $2k per property. This should be used for any maintenance issues that may come up from month to month, but must be replaced immediately.

This isn’t a hard and fast formula for playing it safe, but hopefully it gets you thinking about how to protect your assets.

Tuesday’s Tip: Beat vacancy to the punch with some simple preparations.