Apartment Property - Reserve Expense/Account?

Question

I'm doing my due diligence on a 100+ unit apartment that I will be purchasing.

Wanted to ask other BP's who own 100+ apartments.  Do you keep a reserve fund/expense account on your books? If so, how much is it, do you keep it at a fixed percent or dollar amount?

Thanks.

Rich Weese · Answer

Daniel- I think it is a huge mistake if you don't have a cap-ex acct. Just for example, I have adaquate financial status, but I do maintain a 5% of value in reserve on my 154 unit in Dallas. I sleep well at night and keep most of my other monies at work. Rich.

p.s. On older properties with multiple buildings, the a/c's, driveways and roof are the big ticket items.

Daniel Yoo · Answer

I found that there isn't usually a reserve account on multifamily, although I've seen it more often in single family calculations.
          
          Guess it's because apartment owners make enough money to pay for most capital expenses.  Cha-ching.

Daniel Yoo · Answer

Thanks Rich, I spoke with a handful of apartment owners and for the most part they didn't keep a reserve acct. They paid for the majority of capital expenditures when they bought the apartments (new a/c's too) with the philosophy of less headache with maintenance. I don't know how they've depreciated the capital expense.

I'll most likely do a 3-5% reserve account for this one (new roofs, chiller system, a/c's done last year).