(Global) Reserve (or sinking fund) for a rental property

  

Many corporations have a “sinking fund” set aside to deal with investors who require their capital.  A sinking fund is a pool of money set aside by a corporation to help repay a bond issue. Bond agreements require a corporation to make interest payments to holders of the bonds and then at the end of the life of the bond, all the principal is to be repaid in full. A similar approach should be taken by a real estate investor who owns a rental property 

Suppose you have purchased a positive cash flow residential property and all is going well until one day, an unexpected problem occurs. It could be that there is a $400 repairs bill for the furnace, a $700 bill for unanticipated plumbing repairs or other unforeseen circumstances. Many investors would be scrambling to get these funds but there is a simple way to avoid this type of emergency. 

If your property has a monthly income of $1,000 then you should have between 3-4 months worth of rent (i.e.$3,000 and $4,000) sitting in the bank account for this property. If your property is outside a major centre, the amount to be held should be 4-6 months worth of rent or approximately $4,000-$6,000. because of the possibility of greater unknowns. This money will also assist in the event your property is vacant for a period of time.