The Importance of a Repair Reserve

[Michael Hayworth]

Just in the last month, I've had:

• A slab leak at one property.
• A rat chew through a PEX line at another property, flooding the house.
• A crumbled pipe shutting down drainage at another property, requiring a partial repipe.
• A bad foundation shift at another property that's going to require shoring up.
• And finally, my tenant at my only out of town rental called to let me know her neighbors were shooting off guns for New Year's, and she has bullet holes in her wall and roof. (And this is in a decent neighborhood!)

The month from hell, right? Well, sorta. I am kinda twitching a little bit whenever the phone rings, wondering what's next. ;) But I think about how much worse this would be if I wasn't setting aside a reasonably repair reserve every month.

I generally keep about 15 rentals. I buy them in bad shape and renovate them to pretty good standards, but a lot of them are older, and we know that problems will eventually show up with infrastructure. It's crazy to have five houses calling with problems all in the month, but that's kinda the way life works, isn't it? Things run along smoothly for awhile, then suddenly, everything can go to s***.

We put aside 6% of rent every month, religiously, into a repair reserve account. So when all this stuff hit all at once, and it's going to be somewhere in the $18K neighborhood, we had almost enough in there to cover all of it. Very little out of pocket money to spend. (Now we just hope we get time to rebuild those funds before the next thing crashes!)

If you're a newer investor, please don't neglect your repair reserve and your property tax reserve. Make sure that money is being set aside for when you need it. Because you're going to someday.