reserve requirements

2 Replies

On commercial property... What are the typical reserve requirements?

@Ron Steele for apartments many lenders require a minimum of $250 per unit per year for capital replacements, things like roofs, parking lots, etc. If you add in upgrades to keep the property competitive over time with things like landscaping, kitchens and baths, etc. the number can get up to 450 or higher. Also if the property is older, masonry construction, central heating and/or hot water it can go higher too.

This will vary depending on the market and the property of course and whether you're trying to show numbers to your lender or you really want to cover expected future costs. Often times the local landlord or property owners association will have data on it. The best way is to have a Physical Needs Assessment or Property Condition Report done with estimated life and replacement costs for the major systems then build an item by item budget for each.

Good hunting-

@Ron Steele - What Giovanni explained is Cap Ex Reserves and usually used to calculate your cap rate and DSCR - which both need to be a certain number for the bank to loan on the deal.

You might also be talking about the reserve requirements by the bank for you to get the loan. I have experienced them wanting 6 months on all properties (own now and want to buy) but they look at P&I only for commercial wheras residential look at PITI for reserves.

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