How Much Do You Keep In Each Pot?

2 Replies

As I start to build my road map for my first multi-family, I've of course been analyzing with CapEx, PM, Repair, and Vacancy. The question is, how much do you cap these reserve "pots" off at?

Here is what we've come up with but, considering my lack of experience, I'd like more experienced opinions on this. Since each property is different we chose to use percentages, mostly. Also we're trying to stay conservative so that we don't end up using credit cards if at all possible.

CapEx - This is indefinite up to the value of the home. Considering we are only putting 5% gross rents into it, that'll take some time but we figure we'd rather be prepared for complete catastrophe.

Vacancy - 6 months total gross rents. If we can't fill our vacancies in 6 months, we're doing something very wrong.

PM - indefinite. Even though we'll be owner occupying, setting it aside will give us some buffer if rates go up for some reason so we can reposition. Or it can be tapped for repairs if needed.

Repairs - 10% value of property. 

Thoughts?

"how much do you cap these reserve "pots" off at?"

i do not understand.

You can reasonably assume that you will not always have CapEx expenses, a vacancy, or repairs. Hopefully, the property is in good enough shape and your tenants are gentle enough to the property that the balance of your reserves will continue to grow. So, at what point so you say, "I have set enough aside for (vacancy, repairs, capex)" and start using those funds to help fund other investment?

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here