Yes, you should set aside reserves for an emergency – emergency being an unplanned surprise. This does not include money identified for capital improvements or certain non-recurring operating expenses (closing costs, one-time expenses, etc.). Negative cash flow is not included in the calculation because as a general rule NetGainR.E.Inc. does not believe income property should be purchased with a negative cash flow. The exact amount of reserves set aside depends on the age, construction and topography of the improvements and land. As a guideline, given a down payment of 25%, your reserves should be in a range between 2% and 10% of the down payment amount.