Budgeting Vacancy and Capital Expenditures

[Anthony Emberger]

Hello everyone. This is my first time posting to BP as I continue my education into investing in Real Estate. I'm looking into purchasing my first property in the next few months after accruing some more savings to either put money down for a rental or have some cash with a partner for a BRRR property. So far BP has been great resource and I'm excited to be part of this community.

After reading about budgeting for vacancies, capital expenditures, and other expenses, I was curious to how you physically handle that money after you complete the process and have tenants. If said expenses were budgeted at $350 a month, do you not touch that $350 in the account and only pull out the calculated cashflow each month? Or do you have a reserve of 3 to 6 months expenses and pull out the income less that month's expenses?

For example: 5 month reserve of $5000. Leave the budgeted expenses in the account which builds each month. $5000>$5350>$5700>etc.

Or 

Pull out all income less expenses leaving $5000 reserve, pocketing the $350.

I guess this comes down to technique, risk management, and how well the property is in shape. Thoughts?

[Michael Stutelberg]

What I have are separate bank accounts for the tenants rent payment and my reserves. My tenant direct deposits into the checking account each month and I transfer out the cost of mortgage/insurance/taxes. I leave the maintenance, vacancy, capex and cashflow in the checking account. I will reimburse myself for any maintenance and capex issues using the money in the rental account. Talk to your CPA for withdrawing the cashflow and maintenance/capex.