Estimating Maintenance & Capex Reserves

[Steve Uhlig]

Good Afternoon Investors, 

I am looking at 1-4 unit properties in the suburbs outside of Philadelphia, Pennsylvania.  My question is centered around estimating maintenance & capex reserves when analyzing potential deals.  As I have learned, failure to properly take these two factors into account is what causes many an investor to purchase a bad deal.  I believe the Bigger Pockets calculators recommend estimating between 5-15% of gross monthly rent for a maintenance reserve and at least $200 as a capex reserve in a single family home or at least 8% of gross monthly rent as a capex reserve in a multi-unit.  I realize that all of this depends on the shape of the property, but I am curious as to what seasoned investors use as a maintenance reserve and capex reserve when running quick screens on dozens of properties.  I would think you would want to be conservative, but not so conservative that you price yourself out of every property.  How is this done when quick screening properties for a closer look?  Many thanks for any information or advice you can provide.

Steve

[Caleb Heimsoth]

There are many threads on this. I recommend reading some of those. Best and most accurate way is to look at cost and useful life left on major capex items. Then divide that by the total life remaining.

A water heater will cost me 1000 to buy and install. If I assume t last 12 years then my monthly capex for that item is 6.94 a month.

Do that for your furnace (1500-3000 in my markets), roof, AC etc.

Let’s say a furnace cost me 2k, a roof 5k And ac 1500 Furnace id say 25 years. Roof 30 years and AC 15. So 6.66 for the furnace, and 8.33 for the AC, and 13.88 for the roof.

This all assume everything is brand new, it’ll be less obviously if it’s older. The costs stays the same the time is what varies. I’ve got several properties that are all brand new. So if those capex items last as long as they should I’m at a total monthly budget of 35.81 a month.

You can vary the time as you want as far as things lasting. A furnace may only be 20 years. aC maybe 12 so on. Depends on area and market some too. I’ve got several rentals that don’t even have AC as an example.

I find it best to just have reserves for this stuff vs saving monthly. But if you want the monthly route the above way is the most accurate. If you want to get reallt fancy you can throw in time value of money, since a 5k roof today will cost more 25 years from now.