When this kind of question comes up on Dave's show, I seem to recall him saying to maintain a separate emergency fund for the rental business than for your personal life. However, I can't remember exactly what I've heard him say so I may be mistaken.I am trying to figure out how much my emergency fund should be. The Total Money Makeover did not cover calculating emergency funds if you have rental property.
I have 7 units total (6 rental, 1 house for me)
Do you take a percentage of units and figure it from there? For example do you figure it at 75% occupied? Or is there another way?
Any help would be greatly appreciated.
What I do, however, is exactly that (thus why I think I may have heard Dave say it ) - I maintain a separate business checking account for the LLC which is our rental business, and our original goal (when not doing renovations anyway like we are now) was to maintain a balance high enough to cover 3 months of expenses as if we were at 0% occupancy. That was when we only had one mortgage and 2 units (duplexes are my preferred type of property).
With more properties, we personally feel comfortable basing our goal amount on 50% occupancy - mainly because since we are in duplexes, 50% occupancy is enough to cover the mortgages across the board.
Ultimately I think it boils down to a question of how much risk you're comfortable with. If you're Dave - then that's 0 - Dave being extremely risk averse when it comes to debt. Me - I'm a bit more willing to take a few chances in the short term - like right now during our renovations since we are losing income on the unit being fixed, we are willing bring the EF down to 1 month while work is outstanding.