Why it is important to have a solid reserve fund.

You're in the landlord business, and other key must-do is establish a reserve fund. This reserve fund, this emergency fund, is paramount to our goal to build wealth. We want to be able to stay on track, invest regularly without interruption, without a lot of extra pressure, without a lot of strain and pain. The idea is to grow our holdings and to build cashflow. Whether your goal is for retirement or for family needs or just so you can be generous; we want to keep this going without interruption. The obstacle that gets in our way are these unexpected losses, these unexpected expenses, and even the expected ones like ongoing deterioration. We might have vacancy, and of course, we all know that's the most expensive event for any landlord and there are going to be vacancies. We may have that month where the rent's just not paid on time, and it we can't let the pressure break our bag that we've got to make a mortgage payment because the rent's not in yet.

Costly capital repairs. There will come a day. We'll need a new roof. There will be appliances and system breakdowns. We'll have to replace carpet. We'll have to clean and eventually, we'll have to paint and refresh the place. We're in the landlord business; these costs are all part of our ongoing expenses. So, the plan. Our plan is to set aside or build a reserve fund, an emergency fund. If we have the funds in the beginning, great time to set $1,000 aside. Another key part of this strategy is keep our personal debt under control. I remember in the early days as an investor, I came out of my pocket to pay for the taxes or to pay the insurance because I was so close on the boundaries. At the same time, I wasn't really too worried about it, and my friends all had Harley Davidson payments or boat and trailer payments, and I didn't have those things.

So, to make an occasional house payment when I had vacancy or to pay the taxes was just not that big a strain. To me, it was sort of a a forced savings plan in reverse, if you will. Another piece of advice that I was given long ago and I continue to give to our investors today: Segregate your rental property into one bank account and leave those rent proceeds in place. Let everything just come in and build up, and be in the same checking account where the bookkeeping is simple. These funds build up when we do have an emergency, when an air conditioner dies or have to call a plumber, it's just no big deal, and eventually when we get beyond the emergency fund, we now are building seed money for our next investment. As we invest, we buy one property, we work it until the pressure's off, and then we're free to move to the second one.

Healthy reserves gives us this confidence and helps us get out from under the pressure of that property. After all, the goal here, when we're trying to build cash flow for life; we want to get beyond one or two properties. When you can retire, you can take care of parents or children real comfortably with eight or nine or 10 rental properties, and that's something that any of us can achieve in a lifetime if we're just consistently investing as the years go by. These reserves in place gives us this freedom to continue investing. It's not if you'll have unexpected expenses, it's when. You're in the landlord business.