50% Rule - Where do I keep the money?

[Jason Haymond]

Hello all! I’m familiar with using the 50% rule as a napkin number, which includes more immediate things like upkeep, property management, and property taxes; but for the long term things like a roof, what do I do with that money? Here’s a scenario: (Let’s talk about just the roof as an example, as it’s degradation rate is fairly stable. Unlike a water heater which could technically break down at any time without warning) I buy a property with a brand new roof. Like a smart investor, I religiously plan for a portion of my gross rent to go toward replacing that roof in 20-30 years. In the mean time, where does that money go? Should I have an account specifically for long term money holding? Should I put it into CD’s? Or on items that I can pretty reliably predict to be long term expenditures, can I use that money as down payment on another property (eventually) which will build value, and then be available to finance against when it comes time to replace the roof of the original property? It seems to me that with VERY careful book keeping, and plenty of crisis planning to ensure adequate liquidity in the event of a freak occurrence not covered by insurance, that there shouldn’t technically be an issue with this. Please share what you do, why, and your thoughts on using a scenario like the one I described. Thank you!