Determining an appropriate reserve fund based on property age

[Nicholas Ball]

Hi,

I'm looking to properly estimate expenses in my model when searching for deals. I'd like to be able to get a general idea of the expenses before doing further research into the property to determine specifics (like determining the age of appliances). I'm primarily looking for single family homes/condos/townhouses/apartments in the Seattle area - at least to start with.

In the model, I already have 2% of the purchase price set aside for maintenance, but I'm curious how much more I need to budget into this category based on the age of the unit. Does it make sense to increase the maintenance or reserve budget for a property that is 30 years old compared to one that is 5? Is there a rule of thumb that can be used to accomplish this? Or does it really depend on the specific age of the unit's components (water heater, appliances..), which would require me to do further research anyway?

Additionally, should I change what I budget for maintenance and/or replacement reserves for an apartment vs a house, considering that with an apartment there would be no concerns about the roof, yards, or any outside features? 

Thanks guys!

[Adrian Chu]

Originally posted by @Nicholas Ball:

Hi,

I'm looking to properly estimate expenses in my model when searching for deals. I'd like to be able to get a general idea of the expenses before doing further research into the property to determine specifics (like determining the age of appliances). I'm primarily looking for single family homes/condos/townhouses/apartments in the Seattle area - at least to start with.

In the model, I already have 2% of the purchase price set aside for maintenance, but I'm curious how much more I need to budget into this category based on the age of the unit. Does it make sense to increase the maintenance or reserve budget for a property that is 30 years old compared to one that is 5? Is there a rule of thumb that can be used to accomplish this? Or does it really depend on the specific age of the unit's components (water heater, appliances..), which would require me to do further research anyway?

Additionally, should I change what I budget for maintenance and/or replacement reserves for an apartment vs a house, considering that with an apartment there would be no concerns about the roof, yards, or any outside features? 

Thanks guys!

@Alex Chin, thanks for the mention.

Each property is different.  Age is one factor but I have seen 3 year old properties get trashed as if they were like 30 year old ones and 30 year old properties as nice as 3 year old ones.  

Similar to how condo associations run their reserve studies, you would want to analyze each item (i.e. roofing, siding, etc) and their remaining useful life as well as the cost to replace.  Then, you can determine how much you need to allocate each month to budget for potential repairs.

With apartments, you have economies of scale.  X units sharing 1 roof vs 1 unit having its own roof, etc.  You would still have to maintain everything.

But in your last question, are you trying to compare condos vs houses? With condos, the HOA generally takes care of many of the outside features like roofs, siding, etc in exchange for monthly HOA dues.