You did it. You closed on your first rental property. The tenant is in, the first rent check cleared, and you feel like a real estate investor. Then, the call comes. The HVAC unit is dead. It’s a $5,000 replacement, due now. If that scenario makes your palms sweat, you’re not alone. It’s the single biggest fear of every new landlord, and it’s the moment your investment feels less like an asset and more like an anchor.
The difference between panic and a calm, calculated response is knowing one number: your Days Working Capital. This metric is your business’s Financial Runway—the exact number of days your real estate business could survive if your income suddenly vanished. It’s the most honest measure of your investment’s health and your ability to sleep at night.
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What Is Days Working Capital?
Days Working Capital (DWC) is the number of days your real estate business can continue to operate using its available cash reserves if rental income stopped tomorrow. It measures how long your investment could survive without new money coming in — a true stress test for your property’s financial health.
In simple terms, it connects your cash balance to your daily operating costs and tells you how much “time” your money can buy. For landlords, it’s not just a metric — it’s a survival number. When a major repair hits, a tenant moves out, or the market slows down, your DWC tells you exactly how long you can keep paying the bills before your reserves run dry.
Key Attributes
- Available Operating Cash: The liquid cash in your dedicated business bank account, ready to be deployed for property expenses.
- Daily Cash Burn: The average amount of money your property costs you each day to cover its essential, non-negotiable expenses.
- Financial Runway: The final output, measured in days. This tells you how long your available cash can cover your daily burn without any rental income.
Think of it this way: Reserves are a pool of money. Your Runway is a measure of time. Money is what you have; time is what it buys you.
Why This Number Is Your Shield Against Panic and Bad Decisions
Tracking your Financial Runway provides significant benefits beyond simple accounting. It empowers you to run your real estate business with confidence and make informed, long-term decisions.
- Survive Vacancies Without Stress
A tenant moves out, and it could take 30, 60, or even 90 days to find a new, qualified tenant. Your Financial Runway covers the mortgage, taxes, insurance, and utilities during that income gap, so you don’t have to pull from your personal savings or accept a problematic tenant out of desperation. - Handle Emergencies with Confidence
A leaking roof, a burst pipe, or a dead water heater are not “if” scenarios; they are “when.” A healthy runway turns these emergencies into manageable business problems, not personal financial crises that force you into high-interest debt. - Make Better Business Decisions
When you know you have a 120-day cushion, you can afford to be patient. You can wait for the right tenant, negotiate better terms with contractors, and make clear-headed decisions that benefit your investment in the long run. - Critical for House Flippers
For a house flipper, this metric is your project’s lifeblood. It’s the countdown clock on your carrying costs (loan interest, taxes, insurance). A project delay or a slow market can evaporate your profit if your runway is too short.
Key Takeaway: Your Financial Runway is more than a metric; it’s a strategic tool. It protects you from the two biggest threats to a new investor: unexpected expenses and the poor decisions that come from financial pressure.
How to Calculate Your Financial Runway in 5 Minutes
The official corporate formula can be complicated. This simplified, practical version is perfect for a landlord with one or a few properties.
Your Financial Runway Calculator
Step 1: Find Your Available Operating Cash (A)
This is the cash in your dedicated business bank account for this property.
- CRITICAL NOTE: If you don’t have a separate account, make that your #1 priority. Co-mingling funds makes this calculation impossible and puts your personal assets at risk! A. Your Operating Cash: $7,000
Step 2: Calculate Your Monthly “Bare Bones” Expenses (B)
List all fixed costs you’d pay even if the property were empty.
- (P.I.T.I., HOA fees, utilities you cover, landscaping, etc.)
- IMPORTANT: Do NOT include variable savings like your monthly “repair fund” budget here. This calculation is for fixed operational costs only. B. Your Total Monthly Expenses: $2,050
Step 3: Find Your Daily Cash Burn (C)
Take your monthly expenses and divide by 30.
- C. Your Daily Cash Burn ($2,050 ÷ 30): $68.33
Step 4: Discover Your Runway!
Divide your available cash by your daily cash burn.
- our Runway ($7,000 ÷ $68.33) = 102 Days
How Much Runway Do You Actually Need?
There’s no single magic number, but here are strong targets to aim for as a real estate investor.
- Minimum Target (90 days): This is a healthy start. It gives you a three-month buffer to handle a standard tenant turnover without breaking a sweat.
- Gold Standard (180+ days): This is where you achieve true peace of mind. A six-month runway means you can likely weather a major repair and a vacancy at the same time.
Your ideal number can depend on your property. An older property with a finicky boiler (Class C) might warrant a 200-day runway, while a brand-new build in a high-demand area (Class A) could be perfectly safe at 90 days.
Common Pitfalls and Limitations
While powerful, be aware of these common mistakes when relying on this metric.
- Forgetting “Lumpy” Expenses: This calculation works best with monthly costs. Don’t forget to set aside money for large, infrequent bills like annual property taxes or insurance premiums if they aren’t escrowed in your mortgage payment.
- Ignoring Capital Expenditures (CapEx): Your runway covers operations. It’s not designed to cover a new roof in 10 years. You still need a separate, long-term savings plan for major capital expenditures.
- Co-mingling Funds: Using a personal bank account makes this calculation unreliable and is a poor business practice. A dedicated business account is non-negotiable.
FAQs: Days Working Capital
What’s the difference between Days Working Capital and my personal emergency fund?
Days Working Capital is designed for your business, not your household. While a personal emergency fund protects your lifestyle from job loss or medical bills, Days Working Capital safeguards your real estate operations from vacancies or sudden repairs. In short, Days Working Capital keeps your investment stable when rental income pauses.
Should I include my property manager’s fee when calculating Days Working Capital?
Yes, if the fee continues regardless of occupancy. For example, if your manager charges a flat monthly rate, that expense belongs in your Days Working Capital calculation. However, if the fee is a percentage of rent collected, exclude it since no rent means no payment. Days Working Capital only measures unavoidable, recurring costs.
What does it mean if my Days Working Capital number is negative?
A negative Days Working Capital indicates that your property’s short-term liabilities exceed your available operating cash. This signals your business is undercapitalized and at higher risk. To correct this, increase your reserves until your Days Working Capital reflects at least 90 days of stability—your minimum Financial Runway target.
Conclusion
Don’t just calculate your Financial Runway—act on it. This isn’t an academic exercise; it’s the most honest measure of your investment’s health. Take 5 minutes to run the numbers for your property right now. The answer will tell you exactly what to do next:
