Reserves for Multi-Family

[Daniel Mills]

Hi guys,

I own 8 SFHs and keep a reserve of 6 months PITI for each property. I'm in the process of buying 38 units (19 duplexes) with a couple of partners. We are trying to decide how much money to keep in reserve for maintenance and cap-ex. The duplexes have been well maintained by the previous owner but they are about 100 years old each.

Any advice would be much appreciated.

Thanks,

Daniel

[Michael Le]

Originally posted by @Dan Albrecht:

@Michael Dang - How many months reserve do you require or recommend at that $300 per unit per month? Is this just for PITI?

The lenders will generally require that you put aside $250-300 per unit per year... not per month. If you have a 100 unit apartment then it will be $25k for the entire year. This is for future potential repairs that will likely happen on any property as it gets older. This reserve is on top of whatever they might require you to escrow for critical repairs that they already see needs repair now. So if during their inspections they see you need to repair your parking lot now they might escrow $100k for it. On top of that they will require the reserve for when your roof, foundation, HVAC, etc breaks down. It has nothing to do with your PITI.

That said your lender does have requirement for you to have 10% (or 8-10 months) of liquidity on hand post closing. Meaning after you have put down 20-25% down payment you still have money left in the bank. The purposes of this is to ensure if you have any issues you can still pay that PITI. But that's something they want to see you have available before they even give you the loan. It is not something they'll let you save up for.