What Is a Hard Asset Reserve for Landlords

When you own a rental property, the income can be very lucrative. But you’ll also need to be prepared for the inevitable maintenance issues, property updates, and volatile financial markets. While having savings secure in a designated account is smart, it’s even smarter to have a hard asset reserve. 

If a tenant doesn’t come through with an on-time rent payment or other lines of credit dry up, you want to be ready. Keep reading to understand what a hard asset reserve can look like for landlords.

Defining a Hard Asset Reserve

Think of a hard asset reserve as a collection of materials, often physical, that can be made liquid easily. These assets will exist beyond the usual banking or brokerage accounts. And they’re designed to be a safety net if you hit a financial emergency and need cash quickly. 

Hard asset reserves should contain items that can maintain their value. These items also should hold mass appeal so they’re easy to sell if the need arises. In short, you’ll want assets that can add stability to your broader portfolio. 

Thinking in Terms of Tiers

Situations where you need money urgently to maintain operations or address HVAC problems can be stressful. And if your credit lines take a hit of you can’t access money through your bank, you could be in a real predicament. 

Rather than relying on one emergency fund, it’s better to have a few separated into different tiers. When your money is organized according to tiers, you won’t have to worry about frozen accounts or delays. You’ll also have assets available to serve different needs.

Think of your first tier as the one you’re most likely to access frequently as a landlord. You may have an account open for rent deposits that you also use to tackle minor repair issues, for instance. 

Your second tier can provide relatively quick access, but more growth opportunities. Perhaps you have a brokerage account where you buy stocks, mutual funds, or bonds that can bring a solid return on your investment. These assets generally can be sold quickly, too, but they do come with some risk if the market swings. 

Finally, your last tier can correspond to your hard asset reserves. Precious metals, fine art, and other tangible items with significant value can exist in this tier. When the other two tiers aren’t able to meet financial needs, you can reach for the third tier. 

Considering the Best Hard Assets

Hard assets should be physical items that have a reliable level of value. Some equipment, real estate, or jewelry could work well as hard assets. These items should be easy to recognize as valuable commodities so you can sell them quickly, if needed.

Precious metals, like gold or silver bullion, can be another strong option for your hard asset reserves. Especially when you choose the most collected silver bullion coins, you’ll be making a wise investment that will hold its value. Further, precious metals have international appeal, and bullion can be sold in smaller amounts more easily than larger bars can. 

Don’t forget to consider how you’ll store precious metals or other assets, too. You may want to secure a safe-deposit box at your bank or look into a safe you can keep at home. Make sure not to tell anyone about your stored hard assets, either, to keep them safe. 

Looking at Asset Allocations 

You don’t need a hard asset reserve that consumes a large portion of your total reserves. In fact, less is more. Aim for hard asset reserves to be around 10% of your total pool. If you have $200,000 in your total pool, that means around $20,000 of that amount should be hard assets. You’ll want to weigh other factors as you determine your needs, however.

If you own several properties, some of which have aging plumbing or HVAC systems, it can be smart to keep your hard reserve total a little higher. After all, if two properties suddenly need upgraded AC units or new roofs, you’ll need a lot of money ready. 

Track everything when you purchase hard assets, too. Write down any identifying information. Keep everything secure and make both hard and digital copies of all pertinent details. 

The local market conditions and comfort with hard assets can impact the size of your reserves, too. Ultimately, you should aim to keep a more diverse portfolio of assets and monitor it carefully.

Prioritize Preparedness 

As a landlord, you have to wear a lot of hats and be diligent about finances. That’s why it’s so important to make sure you have a hard asset reserve. You’ll establish a solid source of money if you can’t access bank accounts or are otherwise limited on cash. 

Aim to keep distinct tiers of funds. And make sure your hard assets are safely stored. When you’re intentional with your decision-making as a landlord, you can be ready to weather any financial storm and chart a strong path forward.