Newly Reserves Question

[Jennifer Anderson]

Just a thought I had and wanted some clarification on: when running analysis on rentals, cap ex & repairs are always a part of that calculation, no matter what - and that I understand. BUT, once you’ve accumulated a certain amount in savings, is it still necessary to continue compiling that savings indefinitely? Is there an amount that you can kind of cap out at for the property depending on age, etc? Does the percentage drop at some point? What about with multiple properties - 10, 20, 100? Is this just a learn as you go kind of thing?

[Christopher B.]

Hi @Jennifer Anderson,

Others may have a different opinion, but I say keep the reserves going for the duration you own, or plan to own the property.  You can use the cap ex reserves for a large ticket item like roofs, windows, furnace, A/C, or when trends change down the line, and you need to renovate to stay at, or get back to market rent for your rentals. 

There are rules of thumbs with the percentages, most with 5-10% for both categories of CapEx and Repairs, some with an amount per unit per year of CapEx for larger complexes. After picking something, look back at each years' expenses, and see what the percent was. Were all expenses covered by your reserves, or did you go over?