Most real estate investors spend the money from the rental property cash flow. Don’t make that mistake. Now, you might be reading this right now and thinking to yourself, “What are you talking about? Are you kidding me? That’s how I pay for my business expenses and keep my business going each month.”

Well, okay, that’s how you do it, but if something detrimental happens with one of your rental properties or if all of a sudden half of your tenants lose their job at the same time, what are you going to do? Are you going to be able to use that money to re-advertise your homes to get new people in them? Are you going to be able to pay for the problems that come up with the properties when they move out? Are you going to be able to put the money back into the properties to get them nice again?

Those are the things that you need to think about. And I would highly advise you that if you do, and hopefully you do, have a surplus with cash flow, passive income coming in from your rental properties, that you save that money for reserves for when you need it for those properties down the road.

Because if you have not needed it or used it yet, I can virtually guarantee that you will need it some time in the future.

Now, let me tell you a little story. We’ve all heard the term before, when it rains it pours, right? Well, it seems to me that I’ve experienced that somewhat recently with quite a few of my rental properties.

About 50%, within a few months, were all vacant. My tenants moved out or I had to evict them because they stopped paying or there was a job loss or whatever happened, it all seemed to happen at one time with my properties.

And to top it all off, one of my rental properties had a mold problem. So, I had to go and spend a small fortune, about $6,000 to get the mold removed from this property, to avoid any problems with the tenant and make sure I was doing my due diligence and civic duty as a good landlord.

So, if I did not have money in reserves with the positive cash flow income from my rental properties, then it would have been a very difficult time for me to have to find a way to keep those payments being made and get that mold taken out of the property and put a little bit of money back into these houses to get them fixed up, painted or whatever and back on the market.

So, if you have not experienced that yet, I hope that you don’t. But it’s very likely that you will, at some point, experience a situation similar to this. So, it’s always best if you do not spend the cash flow from your rental properties. The cash flow in your business should come from other sources. It should come from non-refundable option deposits. It should come from your quick flips, your sale and different things like that.

So, if your business is living on the cash flow from your rental properties, you want to seriously think about different income alternative sources as soon as possible.

The second thing you need to do is take action so you have a reserve for when things do go wrong. You need to have a reserve, because Murphy lives everywhere. And if something can go wrong, it will go wrong. And you need to have the cash reserves in your business to sustain your business when this happens.

So, make sure that you do have a reserve amount of money that your business can live off of if necessary, especially if detrimental things happen all at once. The difference between making it through difficult times and collapsing under pressure may just be those extra reserve funds you have so smartly saved.

Planning for financially challenging times is not the most pleasant task, but one to do so those times aren’t as stressful. You must continue to learn, plan and take action for all the good, bad and ugly business.