Reserves for rentals

[Shaun R.]

From what I've read most people set aside a percentage of monthly rent for repairs, vacancies, capex, etc... Instead of taking a small percentage every month for these things, I'm leaning towards putting everything that is left after PITI and building a reserve for each property of $5,000. I like the idea of building reserves for any problems more quickly. Once the reserve is met, everything after PITI will be considered cashflow. Does anyone do anything similar to this or is the general consensus to set aside a percentage monthly? The $5,000 is just an arbitrary number and may be adjusted over time depending on how things go.

[Andrew Johnson]

Shaun R. I do have a "pot of money" for reserves but it's a lot more than $5K. If a new roof is needed, simply, $5K won't cut it. However, I think the purpose (for me) of looking at cap-ex holdbacks is that in a long-term scenario (10+ years) it will likely all balance out. Maybe you set aside the money today, or set it aside money by month, but it's still money set aside. In essence, your $5K set aside is "lost day zero cash-flow" to juice "near-term cash-flow". Bottom line, you're paying either way regardless of the timing of *when* you look at reserves vs. cash-flow.