Reserve Accounts

[Jim Biggs]

Who typically keeps the reserve account in a large multifamily transaction, buyer or seller?

[Roy N.]

@Jim Biggs

Reserves are typically set aside out of net income (along with debt service and taxes) and belong to the business.

If you are purchasing the business as a going concern (XYZ Properties Inc.), the the reserves come with the business (unless the existing owners drain them into retained earnings and pay them out as dividends first).   The reserves, and any other retained earnings, will be priced dollar for dollar into the purchase.

If you are simply purchasing an asset (i.e. the 24 unit building at 123 Some Street), the reserves still remain with the business and you only get the asset.