The defensible number for real estate cash reserves is two numbers, not one: 10% of your portfolio’s value available within 48 hours, plus 50% on top of any projected renovation budget on a value-add deal. That is the rule Kyle Dooland of JK Real Estate Partners runs after a decade of buying one-to-four units in Cleveland and mobile home parks in Michigan.
The percentage does not shrink as you scale. Ten percent of $10 million is a real number, and a bigger portfolio has more that can break, not less. The rest of this article walks through why cash flow is not a reserve, how a Michigan park with 30 lots turned $3,000 a month of profit into a monthly loss, how to pre-commit standby capital with private lenders before you need it, and how to underwrite so the deal funds its own buffer.
Key takeaways
- Hold 10% of total portfolio value in capital you can deploy within 48 hours — bank cash, line of credit, credit card, or a partner who will wire on a phone call.
- On larger renovations or value-add projects, carry 50% more than your projected rehab cost, on top of the 10% portfolio reserve. A $800,000 budget means arranging $1.2 million.
- Receipts proving a seller spent money on a system are not proof the system was replaced. Verify what portion of the infrastructure the work actually covered.
- Monthly cash flow is not a reserve. A park cash flowing $3,000 a month goes negative fast when each water line excavation runs $5,000 to $10,000.
- Pre-commit reserve capital with lenders in advance — Kyle pays 1% or 2% on money that never moves and steps up to a premium rate if it is actually drawn.
From the Real Estate Pros Show
This article draws on an interview with Kyle Dooland of JK Real Estate Partners on the Real Estate Pros Show, hosted by Michelle Tack.
The 10% Rule: Liquid Capital You Can Move in 48 Hours
Kyle Dooland’s first rule of capitalization: if you own real estate, hold 10% of the portfolio’s value in capital you can free up within 48 hours. Not 30 days. Not “I could refinance.” Two days.
Buy a single-family house for $100,000 and you should have $10,000 sitting somewhere accessible — a line of credit, a credit card, a business partner who will move money on a phone call. A storm takes the roof and two windows, and you are writing a check that week, not opening a lender conversation.
The number that trips people up is what happens on the way up. On one house, $10,000 is not frightening. On a million dollars of real estate it is $100,000. On $10 million it is $1 million.
Just because you own more real estate, it doesn’t mean you’re all good, I don’t need no buffers anymore. Actually, you need more, because you have a bigger portfolio that can go awry.
That is the part investors get backwards. Scale feels like safety because the rent roll is bigger and one vacancy stops mattering. But the exposure scales with it — more roofs, more furnaces, more water lines, more simultaneous failures. The 10% is proportional for a reason.
Where the money sits matters less than how fast it moves. The test is whether you can convert it to a contractor deposit in two business days without asking anyone for permission. If the answer involves a loan application, an appraisal, or a partner vote, it is not a reserve.
Why Cash Flow Alone Is Not a Reserve: The Mobile Home Park That Ate Itself
Kyle’s first mobile home park was, on paper, exactly what you want. Just under 30 lots in Michigan, bought for under $30,000 out of pocket, cash flowing thousands of dollars a month. Due diligence was done. The water lines were known to be older, and the file included receipts showing the previous seller had spent over $100,000 fixing them.
Problem solved, they thought. It was not. That $100,000 fixed one portion of the system. The rest of the original lines were still in the ground.
Over the following year the older lines started failing one after another. Fix one, another breaks. Fix that one, another breaks. Every failure means an excavation company on site replumbing underground — $5,000 to $10,000 each time, and worse in a Michigan winter.
Run the arithmetic that Kyle ran. A park producing roughly $3,000 a month in cash flow, absorbing $5,000 to $10,000 in repairs in a given month, is not a cash-flowing asset. It is a monthly loss with a rent roll attached.
Two lessons carry over to any asset with buried or concealed infrastructure:
- Documented past repairs are not proof of a completed system. Ask what percentage of the runs, the roof, the electrical, or the plumbing was actually replaced, and get it mapped. A receipt tells you money was spent, not that the problem is gone.
- Cash flow is a return, not a reserve. Reserves have to exist independently of the income the asset produces, because the events that drain reserves are the same events that interrupt the income.
The park was salvageable because it was bought right — at a discount, with real upside — and they were able to sell. Buying at a discount is the first safety net. It is not the only one you need.
It’s a lot less fun to ask for money when you need it. Have it there in advance, because when you need it, that’s not the time to start making calls.
— Kyle Dooland, JK Real Estate Partners
The 50% Renovation Contingency on Value-Add Deals
Kyle’s second rule applies the moment you move into larger renovations or value-add projects: carry 50% more than what you think the renovation will cost, and carry it in addition to the 10% portfolio reserve. The two numbers stack.
The deal that proves it is one he came close to buying and did not. One of Cleveland’s Millionaire Row mansions — roughly $600,000 for a 20-plus room property. The original renovation budget was $800,000. Then due diligence went deeper on a historic building, and the real number came back at well over $1 million.
Under a 50% contingency rule, an $800,000 projected budget means arranging $1.2 million before closing. That is not a padded number for its own sake; on this deal the actual cost landed inside that band. Without it, they would have been $400,000 short in the middle of a gut renovation on a historic structure.
The reason to commit that capital up front is not accounting neatness. It is negotiating position.
If we had just squeezed in with that $800,000, and now we need $400,000 more, it’s a lot less fun to ask for money when you need it.
An investor asked for money before the deal starts is evaluating an opportunity. The same investor asked for money mid-renovation, on a stalled site, is evaluating a rescue. You get a worse rate, a worse structure, or a no — and every week you spend raising it is a week of carrying costs on a building that produces nothing.
The number that goes in front of your capital partners should be the target plus the contingency, stated as such. Say the budget is $800,000 and you want the extra $400,000 standing by.
Structuring Standby Capital With Private Lenders Before You Need It
Kyle pays for reserve capital that never gets used, and he considers it cheap. His approach: commit the overage with investors in advance, pay them 1% or 2% on money they never have to move, and pay a premium if it is actually drawn.
The step-up is what makes it work for both sides. His example — instead of a 12% rate, pay 15% on capital that actually gets deployed. The lender earns something for holding the position, and earns considerably more if the call comes. You get a funding commitment you can act on in days instead of weeks.
Treat the specific numbers as his practice, not a market standard. Rates, step-ups and commitment structures vary widely by lender, relationship and deal, and how these arrangements are documented has legal and securities implications worth running past counsel before you paper anything.
The logic underneath the numbers is what transfers. Raising capital during a crisis prices you badly on both dimensions that matter:
- Price. A lender who knows you are stuck sets the rate. A lender approached before closing is competing for an allocation.
- Speed. Underwriting, diligence and wire timing on a cold raise take weeks. A pre-committed line takes a phone call.
As Kyle puts it, when you need it, that’s not the time to start making calls. The 1% or 2% is the cost of not making those calls under pressure. On the mansion, the difference between having $400,000 committed and having to go find it was the difference between a project and a problem.
Building the Reserve Into Underwriting, Not Bolting It On After
The reserve conversation gets much easier when the deal is underwritten to fund its own buffer. Kyle’s screen is cash flow after every real expense — taxes, insurance, management, maintenance, mortgage and utilities — plus a capex line of at least $100 per month per 1,000 square feet of property. That capex figure is treated as an expense before the deal is called cash-flowing, not as a bonus taken out of profit.
What clears that bar in his Cleveland market: roughly $400 to $500 per door per month in cash flow, and closer to $300 per door on a duplex, which works out to $500 or $600 a month for the building. Those are net numbers, after the management fee and the contingency repair buffer are already deducted.
The first line of defense is not the reserve at all. It is the buy. Kyle’s stated golden rules are simple: buy at a discount and buy cash flow. If a property fails either one, it does not get bought — there are other opportunities.
That discipline is what saved the Michigan park. Because it was purchased at a discount with genuine upside remaining, there was room to exit when the water lines turned the economics upside down. A deal bought at retail with thin cash flow gives you neither a cushion nor an exit when the surprise arrives.
Practically, the sequence for any acquisition looks like this:
- Underwrite to a discount on value and positive cash flow after all expenses, including the per-square-foot capex line.
- Confirm the 10% portfolio reserve still holds after the acquisition, not just before it.
- On any value-add, arrange the projected rehab plus 50% before you close.
Frequently asked questions
Does the 10% reserve rule apply per property or across the whole portfolio?
Across the whole portfolio. Kyle sizes it as 10% of total portfolio value, which means the dollar figure grows with every acquisition rather than resetting per deal.
The reason is that the percentage does not become less necessary at scale. A $10 million portfolio calls for $1 million available, because there are more roofs, systems and tenants that can fail at once. Recheck the number after each purchase, not just before it.
Do reserves have to be cash in the bank, or can a line of credit count?
A line of credit counts, as long as it passes the speed test. Kyle’s standard is capital you can deploy within 48 hours, and he explicitly includes a line of credit, a credit card, or a business partner alongside bank cash.
What does not count is anything requiring a new application, an appraisal, or a fresh approval. If accessing it means starting a lender conversation, it is not a reserve.
How much contingency should I carry on a heavy value-add renovation?
Carry 50% more than your projected renovation cost, on top of the 10% portfolio reserve. On an $800,000 rehab budget, that means having $1.2 million arranged before you close.
The Cleveland Millionaire Row mansion is the case for it — an $800,000 budget on a roughly $600,000 purchase, pushed to well over $1 million once due diligence on a historic building came back. A 50% contingency would have covered it.
Why isn’t a property’s monthly cash flow enough of a cushion on its own?
Because capital events are lumpy and cash flow is not. A Michigan mobile home park producing about $3,000 a month went negative when water lines began failing in sequence, with each excavation costing $5,000 to $10,000 — more in winter.
Cash flow is a return on the asset. A reserve has to exist independently of it, because the failures that drain reserves are often the same ones that interrupt income.
How do I get private lenders to commit reserve capital I may never draw?
Pay them for the commitment. Kyle’s approach is to pay 1% or 2% on money the investor never has to move, with a step-up in rate if the capital is actually deployed — his example is going from 12% to 15% on drawn funds.
Rates and structures vary by lender and relationship, and how you document a standby commitment carries legal and securities considerations worth reviewing with counsel. The principle holds regardless: arrange it before closing, when you are offering an opportunity rather than asking for a rescue.
The bottom line
Before your next acquisition, write down two numbers: 10% of everything you currently own, and 150% of the rehab budget on the deal in front of you. If you cannot show where both come from and how fast they move, the deal is undercapitalized regardless of how good the spread looks.
