CapEx Budgeting - $5k in reserves + cash out refi?

[William S.]

I have a rental in a suburb with some nice modest appreciation. All in for $121k, worth roughly $145k. Nothing needs to be replaced in the near future, more long term expenses. I see two options

1. Set aside $166/m for future CapEx. I did a long term breakdown to get this number of each item

2. Have $5k in reserves. In 15+ years if something needs replaced do a cash out refi to pull out money to pay for CapEx. Basically the house/bank pays for the CapEx cost, I don't

Does anyone utilize strategy #2? Seems to be the best strategy. Option 1, the money would be stuck in the bank getting no interest (losing money due to inflation).