Covering Small or Cap-Ex Expenses

[Thomas D Price IV]

Hi all. I'm starting out and have a general question that may be obvious. Say I purchase a rental and get a tenant. 2 months later, they inform me "the air conditioner doesn't work."  I find out a new one is needed and full replacement, say $8-10k. Thats a lot of money. Am I expected to just have this money sitting in a reserve account to handle this expense? What if another Cap-ex expense hits right after that for the same property, or another one for a different property? I'm wondering how everyone else handles/covers their expenses, and also how they replenish them once the money is spent. I'm afraid of draining the reserves, or worst case the problem hits, and there's not yet enough money saved/reserved for Cap-Ex.

[Bruce Woodruff]

I would consider having a separate account with a set amount that is always kept the same. Say $10,000. Start off your LL journey with this amount and when it gets hit for a repair, add money to bring it back to full.

Since you're just starting out, you would ideally do major repairs when you purchase the property, so that you start with a clean slate, so to speak.... If this did not happen, then you do have a way to figure out your upcoming expenses...make a list of all systems in the house and check to see their estimated life-span. Some will fail sooner, and others will last much longer...but at least you will have a road map and a budget that should come close.

You hopefully will not find out that your expenses constantly outpace your income, so doing your due diligence prior to buying the property is critical....