What Not To Do With Your Duplex’s Positive Cash Flow

said on July 18th, 2011 categorized under: Buying A Duplex

Whitehaven Beach, AustraliaYippee! Now that you have positive cash flow from your Minneapolis duplex, you can take that long overdue trip to Hawaii, right?

Not yet.

Your investment property budget is subject to the same winds as your personal budget. In other words, before you spend your monthly cash flow on fun stuff, you should probably make sure you have enough reserves to weather any storm.

How much is that? Some experts say you should try to have enough saved to cover six months of mortgage payments.

Others focus more on having enough saved to cover any major repairs you might face; like the air conditioning going out on a day when the heat index is officially ridiculous.

And what happens if you have to evict a tenant who’s trashed the place? How much does that cost?

While there is no concrete rule of investing to determine how much you should have in reserves for a duplex investment, it’s probably wise to have the equivalent of several months of the amount of rent your property grosses on hand.

And enough cash to not have to use credit cards to cover major repairs.

Look at it this way — if you never have to use your reserves for a repair, eventually, you’ll have saved enough to buy another property.

After that, maybe you can go to Hawaii.