Establishing Reserves when doing deal analysis

[Tyrel Gordon]

Hi guys, I'm a new real estate investor looking to purchase my first multifamily. I've been doing reading on deal analysis, listening to the podcasts here (Great source of info!) and everything else needed to be successful as an active real estate investor. I'm specifically interested in multifamily housing, and I've been gearing my reading towards gaining information in that niche. Now, my question is for those of you who are experienced in deal analysis generally how do determine the amount of rent collected per unit that you set aside as a reserve for Cap Ex, emergency repairs and other unforeseen costs? I've read both as a percentage of each unit's rent or a flat amount per month per unit. I'm sure either method can be viable under any circumstance, but I'm more so curious about what the experienced investors have found to be the better route. Is there anything besides deferred maintenance that might increase/decrease the reserves you set aside?

[Todd Dexheimer]

$300/unit is the general rule of thumb. I would also highly recommend starting with at least 6 months worth of principal and interest payments in a reserve account. 

If you have a small property, I would put 5-10% of the income into a reserve account