rental property reserves

[Sebastian Roy]

Hello everyone,

  I am curious as to what is the best way to separate/save cash reserves per category for your rental property? 

  In the biggerpockets podcast episode 193, @Brandon Turner said that for most of his rentals, he saves a certain percentage of his rental income for each category (Vacancy, CapEx, repairs & maintenance, and Property management) each month and deposits it into his personal bank account. He says that he keeps enough money in his account to cover any costs that may come up so its not a problem for him to come up with the needed money. Brandon later states that for his partnership deals (to keep finances more organized) he deposits a certain percentage of monthly income into different bank accounts per category (example: 6% vacancy, 8% CapEx, 10% repairs & maintenance, 10% property management fees).

I feel like this is the best way of saving the reserves because you will not only be more likely to have the money already saved the moment you need it (whereas in your personal bank account you are more likely to tap into it), but you can also easily track how much money your are spending in each category.

 Finally, If you have multiple properties, I believe it would be best to create a separate bank account for each property to save reserves instead of having one bank account for all your properties and comingling the cash because it is likely certain properties will require more maintenance than others and will require more money in expenses, so with this method it is easier to get off track.

If anyone has any advice or methods they use to save reserves for their rental properties, I would much appreciate hearing them.

Thank you, Sebastian.

[Joe Scaparra]

The more properties you acquire the more reserve you will need. However, I use an arbitrary number like 10k in my duplex account for maintenance use. I tell people that the positive cash flow for the first year is reserved for maintenance reserve then I start paying down the mortgage years 2-14. The loan should be paid off and I replenish the reserve on a as needed basis. I have one bank account for all properties, but I don't use a LLC which would require you to have a separate bank account for each LLC. I also used the profits on all my properties to pay down the loan on one property. After the first one is paid off they start to domino fast. I had good income from other sources so I had the advantage of not having to take real estate profits to live on. Hence I now have all 19 units paid off. Cash flow is good. Cheers.