Vacancy, Repairs, and CapEx monies

[Jonathan Roberts]

Curious what to do with the Vacancy, Repairs, and CapEx monies you withhold/save from rentals? Seems that one would want it readily available when the need arises, but also put the money to work as well.

What do you do with said monies?

Thanks!

-Jon

[Joe Hines]

@Jonathan Roberts

Sounds like you've got good strategy for to accumulate your reserves. I set aside 3% of the purchase price and 5% of rent each month into a CapEx reserves savings account. Like you, it seems this strategy accumulates cash since expenses are running a little less than contributions. I have a regular job that pays decently, so I don't take money out of my RE business. Instead, I keep in it the business and focus on growth. Here's what I've been doing:

• Do yearly punch lists of capital expense projects needed to keep the houses at the right place in the market.  Sometimes new roofs are on the horizon, bathroom remodels, etc.  I use this money when I think I can get a good return on the reinvestment.  That's what is for and I like keeping my homes well-maintained.
• Buy a new house.  As long as you can keep your reserves at the right level, use the money to expand.  If you can find properties with the right numbers, the returns are solid.  This was a milestone for me:  For the first time, I was able to use the income from the other homes to purchase a new home.  Geometric progression in action!  
• As a last resort, I'd consider pulling the money out of my business and investing it in other investments. I manage my rentals through an LLC, so I'd be making these investments in accounts listed to me personally. No need to keep the money at additional risk in the LLC.