Replacement Reserves Budget

[Amity Word]

Replacement reserves are funds that are set aside from a property’s operating cash flow to fund future capital expenditures. Normal wear n tear or repairs.

How much should one set aside or budget for replacement reserves on an investment property per month?     For example I rent a $300,000 3 bed/2 ba 1960s home.  

[Sergey A. Petrov]

There is no magic number. Each property is unique. For multi units, there are reserve study consultants and professionals but that will likely be cost prohibitive on a single family home. What you can do is walk around, look at major components (however you define them - anything over $1k to replace or anything over $10k - depending on your comfort level), make a list, then call a professional in each trade (a roofer for a roof, a fence replacement company for a fence, etc), have them come, look, tell you how much life is left on each and how much it’ll take to replace. You then build a spreadsheet and determine how much money you’ll need to put away monthly so you have enough for each item as it comes up. Make it simple or account for inflation, money your saved money will earn over the years assuming you won’t just keep it in a checking account, etc. I can tell you that most investors with a handful of properties just pay for things out of pocket, get additional loans, or do something else when the roof goes instead of planning for it… both approaches are ok depending on your personal financial position!