I have a 48 unit property. I currently have two checking accounts. One is an operating account and the other is for deposits. I was curious how other operators manage cap ex reserves. Do you have these in a separate account ?
@Andy N. yes, for my deals have another bank account for cap ex.
Sometimes the lender will hold a portion in their own escrow account.
@Brian Adams so are you running three accounts per property? What percent of rents do you put back?
@Andy N. yes, 1 bank account for operating, 1 for security deposits, 1 for capex.
What do you mean "What percent of rents do you put back?"
I don't. I just maintain healthy reserves all the way around. Two accounts.
@Brian Adams for your cap ex reserves do you put back a set % of gross rents?
We have 2 accounts. One for security deposits and another for operations. What percentage are people putting in their capex accounts, if separate? Are you putting in a percentage of total rents or NOI?
Could someone explain what is a cap ex ?
@Yiftach Ilyov ....Cap Ex is Capital expenses.....its the expense category for big ticket long term items like roof, carpet, paint, HVAC, etc that every property will need to have repaired/replaced at some time. Some people set aside a certain % of the income from the property (typically 8-10% of the monthly income on the property) into a separate account so when those big ticket items come up, the cash is sitting there available to pay for those items..... that account balance is allotted just for CapEx expenses.....other just lump it into one account and keep big reserves available and all their expenses come out of the same account
CapEx should always be accounted for in your cash reserves....you will have those expenses sooner or later....some just partition it out rather that lump it
@Ned J. i always appreciate a lesson. Thank you man
I just asked this question today myself on another thread. We have 2 buildings (duplex and a triplex) and are using 1 checking/operating account and 1 savings (for deposits) for both buildings. I was wondering if we should have separate checking/operating accounts. SO far the feedback I've gotten is don't over think it, learn and use QuickBooks - oof.
We don't set aside any CapX money (yet) as we're still getting our systems in place and still spending money on upgrades/turning over units, evictions, etc... but it's budgeted for.
Keeping track of Capex, profit, cash flow, etc. can be a nightmare with out a good books and records system in place. One of the biggest reasons small businesses fail is from lack of knowledge of the financial position. A business owner can always do a rough estimate of the company's numbers, but 9 times out of 10 will fail to account for expenses that don't come to mind.
That being said I agree with @Christen G. , Quickbooks is a great way to keep track of the building's operations. You can input multiple bank accounts, customize the chart of accounts, and get real time reports. Putting the time in upfront to learn Quickbooks or have someone do the books for you can save you a ton of time on the back end once tax season comes around or when you need reports to show your financial position to make business decisions.
What are the average expenses for using a booking program like QuickBooks?
Enterprise is the best but something is better than nothing so below is the enterprise link and QB online. Pricing depends on users/services:
@Andy N. I buy large deals and pre-fund my capex reserve at the time of purchase.
For example, recently closed a 556 unit deal and part of the $10 million capital stack, $2.5 million is for capex. Here is a link to the deal for the background of the purchase From Buying a Duplex to Closing a HUGE Deal – 556 Unit Apartment
I don't put a set % of gross rents back to capex.
However, what does happen, is the lender requires a certain dollar amount per door to fund capex reserves. Every month when the mortgage payment is made and in addition to escrows for taxes and insurance, the lender will collect funds for capex. A good estimate to use when underwriting deals is $300 per door and this is on an annual basis.
To run the math for you, approximately $167k a year (556 units x $300 per door) or $14k a month.
The funds are held in lender's escrow and you submit invoices to the lender to be reimbursed for capex items. Usually the lender will send an inspector to sign off on the work. Once approved the lender will send funds back to operating account.
I agree with @Michael Ruh that if you are doing bank reconciliations yourself it can be a nightmare. I use third party management and they perform these activities for me and has never been an issue.
Actually it is better to have accounts setup for a specific purpose so the team knows how money in each bucket will be spent and allocated.
Actually the higher up you go in QuickBooks depends on how much data you need to enter and how much data this program will hold. Enterprise Solution is for really big time investors. Corporations, big timers. Big Real Estate Markets that entail Brokers with a ton of agents, etc.,
A typical landlord who has one house or 300 houses can use QuickBooks Pro. QuickBooks Premier is for people who have Inventory. We don't have inventory. Our properties are not inventory.
CPA's use QuickBooks over any other software program. They would use QuickBooks Accountant Edition because this program entails all versions of QuickBooks and allows them to work with clients who use various versions.
We use Buildium and the one issue that we see with the program (otherwise, it is a great property management program) is that it makes it difficult to tie more than one bank account to a property.
To answer your question, we have two accounts per property, an operating account and an account for deposits. Like @Brian Adams said, we budget $250-$300/door/year depending on the condition of the property.