How much do you normally budget in Reserves

[Joseph Dzwiniarski]

I just closed on a newly built 6 unit multi-family apartment. Everything was built and installed 2 years ago and is immaculate condition. Now here in lies the problem. The HVAC systems are all high-efficiency  and need proper maintenance once a year for flushing of the systems. Additionally, the fire suppression system will need to be maintained and signed off every two years. That costs $ (hoping to learn how to maintain most of the HVAC systems in the future).  If any of these systems breaks down that will cost some $$ too. Since I'm viewing this property as a long-term hold, I built in a pretty hefty maintenance and reserve budget of $8k (about 7% gross rents) assuming in 10 years i will need to replace/maintain these high efficiency systems. 

Are there any good tips on how to better estimate reserve costs for new apartments? Do you think I'm going a bit overboard/underboard in my estimates?

[Jim D.]

@Troy Luster I think he means he is setting aside 7% of gross rents every year, so that they'll build up over time for when big ticket items need replacing.

Most investors set aside between 5-10% for ongoing repairs and maintenance, and another 5-10% for capex. Since your units are new construction, your costs will likely come out on the low end of that scale, especially during the first decade. 

If you're unsure, it's always better to be conservative and well prepared.