How long do you continue to put into your Vacancy/CapEx/Repairs?

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I know the "emergency fund" for your investment properties varies on your comfort level, experience with the market and number of doors you have. 

My question revolves around capex/vacancy/repairs. From what I've seen on the podcasts, people put a % of rent away to cover for those costs. At least that's what Brandon does. 

What I'm curious about is how long do you continue to contribute into this? Is there a threshold where you stop after you've reached a certain point, or do you contribute until you're able to cover the cost of the purchase price? Also, does this amount change as your portfolio grows, or do you do have funds for each door/property you have?

Thanks!

Hello Casey,

When determining how much money to put away each month toward CapEx/vac/repairs, you can take a simple approach or you can fill out an excel document with formulas. Erring toward a basic explanation, until home builders figure out a way to make appliances that never need maintenance and never need to be replaced, and figure out a way to make an indestructible house that will never have foundation issues, so on and so forth, you will always need to set aside money to handle such expenditures. General rules of thumb abound, but the last thing you want it to try and put an extra $30 bucks in your pocket a month by forgoing placing it in a designated account, then have a $3,000 plumbing bill come in thanks to some outdated pipes.

With appliances, lest an exception occur, you can generally estimate how long one will last. Say you expect your new microwave to last at least five, maybe seven years. (They generally last nine to ten years, but tenants will be using these appliances, not you.) Okay. You can't foresee microwave prices that far into the future, but right now, say $300 bucks. Seven years is eighty-four months. Three hundred divided by eighty-four is about $3.60. So, each month, for one rental unit, you should plan to save $3.60 so you can buy a new microwave in 7 years. Then you do that calculation for each CapEx appliance: range, fridge, microwave, water heater, dishwasher.

Then comes the unexpected CapEx expenditures. While inspections can reveal what you might need to worry about, unexpected instances occur. You can't possibly know, but you can prepare yourself ... financially.

If you're eager to pocket an extra couple bucks a month, then by all means, do so. But it's wise to keep that slush fund robust so your tenants don't have to wait for you to muster up the cash to pay for the A/C to be repaired. 

Depending on the way you have the property financed, you could always consider getting a line of equity on your property. That way, assuming you didn't save for such contingencies, you have immediate cash available. The thing about this route is that you will be paying interest on the payments. Even though it's a small amount comparatively speaking, it's still something to consider.