Cash reserve is the money you have left after paying your down payment, closing costs and related fees. Since you bought the property on a mortgage, you will be paying monthly mortgage payments and fees (if applicable). To be able to pay your monthly dues, you will need to have extra money after your down payment and closing costs. This leftover money is your cash reserve.
Benefits of having cash reserve
Cash reserve is always available to use during emergency situations. By having cash reserve, you will be able to make purchases faster and cover random expenses or payments. In real estate, you can use cash reserve to make your monthly payments. Furthermore, you can use your cash reserve to increase your monthly payments if you want to finish paying off your mortgage faster and increase equity in your property.
Should you want to became a real estate investor? You can use your cash reserve as a down payment on other properties.
What would happen if you don’t have cash reserve?
The biggest mistake a buyer can make is to buy a house and forget cash reserve. What do think will happen is you lose your job for six months without cash reserve to cover your mortgage payments? You will not be able to make your monthly payments. As a result, you could lose your house in a foreclosure.
It is not only real estate investors and home owners who need cash reserve. Everyone needs an emergency cash reserve to cover unexpected payments like medical expenses, car repairs, etc.
