I remember as a kid watching acrobats on the trapeze and those who walked the high wire do their thing at the circus, or on TV. How scared I was for them! Until, that is, Mom pointed out the huge net underneath them, offering a reliably soft landing if things went south. For some reason I remember being both relieved and a bit disappointed. As birthdays came and went, it occurred to me that they were brave, but not stupid, a fine line not apparent to an eight year old.
As regular readers know well, I’m OldSchool all the way. Prudently managed risk is one thing. Needless perilous behavior in the investment arena is silly at best, and ruinous at worst. A cash reserve — generous to a fault — is the net real estate investors should have in place from Day 1. I’ve referred to it as a Sominex Account, which baffles those under 40. 
If that’s you, think Ambien instead. It’s a sleeping pill for Heaven’s sake.
Generous cash reserves are what allows us to sleep at night when Murphy decides it’s our turn in his barrel. When you own a couple multifamily properties, and in one week you must reroof one, and replace a forced air heater in the other, sleep comes more easily with the sweet knowledge it’s already in the bank. Does it irritate you any less? Nope. It sure beats not having it though, and that’s a fact Jack.
When people make the decision to become a client, they do so knowing a healthy cash reserve account is a must. No reserves means I won’t work with you. I can count the exceptions the last three decades on one hand. Though I say it’s so you can sleep, that’s not the whole truth. Primarily it’s so I can sleep.
The next question is always about the formula I surely use when calculating what amount clients should have in their Sominex Account. There is no formula. It’s different for everyone, cuz everyone’s different. Duh. Comfort zones are talked about much here, and that includes mine. Just cuz you can buy five properties easily, doesn’t mean you should. Owning over a million bucks worth of income property with a $5,000 reserve won’t cut it — not on my watch. I much prefer that last property be bought by someone else, so your reserves will, you know, actually mean something.
The importance of this concept cannot be overvalued or overstated. In fact, picture losing your grip on the trapeze, five stories high. Then at the precise moment you know in your heart a fall is imminent, you relax. The net is in place. You’re not gonna be squashed like a bug. Your fall is merely inconvenient, not fatal.
Think about that feeling the next time you wonder if dipping into your Sominex Account for some vacation money is wise.
Splat!
Gimme a call and let’s get you on the road to a magnificently abundant retirement. 619 889-7100 finds me every time it’s tried. Have a good one.
Related posts:
- Real Estate Investors Learn Lessons – Many Of Them As Kids
- The Challenge Of Coming Back From Loss — Real Estate Investors Learn From Mistakes
- Real Estate Investors – Learn To Make Time Your Friend
- The Sominex Account Illustrated Via NASCAR For Real Estate Investors
- Old School Style Real Estate Strategies — All They Do Is Work
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