If you have been involved in real estate for more than five minutes, you already know that it is not simply about purchasing properties and collecting rent. Things break, tenants miss payments, and unexpected expenses have a way of showing up at the worst possible times. Unlike stocks, you cannot just press a button to sell a property when you need quick cash. That is why it is essential to have accessible funds and a solid financial system in place.
This article outlines some strategies that help keep your real estate portfolio running smoothly. From how much cash to keep on hand to where to store it for optimal returns, and how to stay organized, these systems make a significant difference whether you are managing a single rental or building a real estate empire.
Why Cash Reserves Matter in Real Estate
Real estate is not a liquid asset. Selling a property takes time, paperwork, and sometimes market conditions that are not in your favor. When unplanned expenses arise, as they inevitably do, it is much easier to deal with them if you have cash readily available.
Some investors plan to rely on Home Equity Lines of Credit (HELOCs) or other forms of credit in emergencies. While that approach can work, it is not foolproof. The 2008 recession is a powerful reminder that banks can freeze credit lines without warning, even if your mortgages are in good standing. And if your finances are already under stress, lenders are unlikely to extend additional credit. Maintaining your own reserves provides control and flexibility without depending on external funding or being forced to sell assets under unfavorable conditions.
How Much to Keep in Reserve
There is no universal number, but a commonly accepted rule of thumb is to keep six months’ worth of expenses for each property. These expenses should include the mortgage, property taxes, insurance, and average maintenance costs. Simply total your monthly expenses for a property and multiply by six.
In general, it is better to have slightly more cash than you think you need. However, too much idle cash could be put to better use elsewhere. The key is finding a balance that keeps you protected without leaving money on the table, which is where the six month rule of thumb comes in.
Managing Reserves Across Accounts
A practical approach is to split your reserves between checking and savings. For each property, having a dedicated checking account can simplify bookkeeping and provide a clear picture of that specific property’s performance. Trying to manage all properties through a single account becomes increasingly complicated as your portfolio grows.
The checking account should hold approximately two to three months’ worth of expenses. This account handles recurring costs such as mortgage payments, insurance, and minor repairs. Keeping this cushion reduces the need to shift funds if a tenant pays late or surprise issues arise.
Any funds above the two to three month threshold can be moved into higher-yield savings options that still offer accessibility. We will call the money in the account above the two to three months threshold “excess reserves”.
Where to Store Excess Reserves
High-yield savings accounts (HYSAs) are a simple and effective choice. They provide better interest than traditional savings accounts, and the funds remain relatively liquid. Be aware that business HYSAs typically offer lower interest rates than personal accounts, so take time to compare options.
For those looking to earn a bit more on idle cash in our current interest rate environment, consider low-risk investments like government money market funds, Treasury bills, or municipal bonds. These vehicles offer high yields while remaining safe.
Another option are Certificates of Deposit (CDs), which allow you to earn a higher interest rate than a typical savings account by locking in your money for a set period, though standard CDs usually penalize early withdrawals. Some brokerages offer mark-to-market CDs that fluctuate in value, so cashing out early could result in a gain or loss, similar to the behavior of bonds.
Planning for Big Repairs and Replacements
Anticipating large capital expenditures (CapEx) is an important component of managing your property. Major items such as roofs, HVAC systems, and furnaces all have predictable lifespans:
- Roofs: 15 to 25 years for asphalt shingle roofs and 20 to 25 years for commercial tar and gravel roofs
- AC units: 15 to 20 years, depending on climate and maintenance
- Furnaces: 15 to 30 years, varying by energy source
- Hot water heaters: 8 to 12 years for tank models, up to 20 for tankless
- Parking lots: 20 to 30 years for asphalt, up to 50 for concrete, gravel requires frequent upkeep
To prepare for these inevitable expenses, one strategy is to purchase bonds that mature around the time funds will be needed. For instance, if you expect to replace a roof in 2030, you could begin purchasing bonds that mature in 2028 or 2029 to ensure the funds are ready in advance. We recommend having the bonds mature well before you think you will need the money so that the funds are easily available if the expense happens early. Your AC unit does not care if its expected lifetime is another 2 years, but it stopped working today!
Keep Bookkeeping Accurate and Up to Date
Good bookkeeping is fundamental to properly managing your real estate. It helps you stay organized, make informed decisions, and prepare for tax season. Thanks to depreciation, real estate often shows paper losses even when the property is profitable. As such, you will want to have a method to help you determine if the property is actually profitable. In addition, if you want to bring on additional investors into your real estate ventures you can show these potential investors how your properties are actually performing, rather than showing them a tax return with a bunch of losses and telling them “I promise I’m actually making money!”.
For beginners, a basic spreadsheet with income and expenses may suffice. Start with simple columns for revenues and expenses and break these sections down into: date, amount, category (as shown on IRS Schedule E such as mortgage interest, cleaning, or management fees”, and finally, description.
Pay particular attention to tracking mortgage interest correctly. Only the interest portion is tax-deductible, and because the split between interest and principal changes monthly, automating this process with software, as described below, helps avoid tedious manual calculations.
As your portfolio expands, spreadsheets quickly become inefficient. At this point, it is wise to invest in real estate accounting software such as Stessa or Quicken. These platforms automate transaction imports, split mortgage payments into principal and interest, categorize expenses, and even facilitate rent collection. These automations reduce errors and save valuable time. In addition, the base version of Stessa is free so there really is no reason to be using a spreadsheet!
Maximize Rewards From Everyday Spending
Another overlooked opportunity is earning rewards on routine expenses. Real estate comes with ongoing costs for materials, maintenance, and travel so why not get a little back?
As of 2025, business credit cards such as the Amex Blue Business Cash (2% back on the first $50,000 annually) or the US Bank Business Triple Cash (3% back on gas, dining, and phone services) are great tools. Retailers like Lowe’s and Home Depot also offer business credit cards with cashback and discounts for frequent buyers.
In some cases, these cards offer promotional financing periods ranging from six to twenty-four months with no interest. If used responsibly, these promotions can help finance larger repairs or improvements without immediately depleting your reserves.
Conclusion
Owning and managing real estate is an ongoing financial commitment. However, with thoughtful planning of your cash reserves, you can avoid overreliance on credit and maintain flexibility in uncertain times.
By keeping a six-month reserve per property, preparing for capital expenditures, and leveraging automation in your bookkeeping, you can equip yourself to handle unexpected issues that crop up with confidence. Additionally, using rewards programs and financing offers can enhance your savings and improve your financial outcomes.
For more insights into managing cash for your rentals to tax planning and estate planning and more, download my e-book “Financial Planning for Real Estate” using the form on this page!