reserve funds

6 Replies

any suggestions on how to calculate a safe but not overly burdensome reserve fund for single family homes. How much should I put aside for emergency repairs.

That's a pretty broad question, but it all depends on the condition of the property.

How old is the roof, window, water heater, furnace, ac, etc?

In my area a furnace can run 5k and a roof could be double that cost depending on the size.  Also make sure you are saving at least 8% for maintenance costs that come up.

I have found that by keeping between 4-6 months worth of operating funds (monthly payment + utilities) in the bank I have been able to weather anything that has come up.  

Don't think of it as just "emergency" repairs. Every property needs periodic painting, landscaping and other improvements.

@Daniel Levine

I generally think of it this way:

By the time I pay off my mortgage I'll have put in 3 water heaters, 1.5 furnaces, 1.25 BRAND new roofs and painted the place 1.5 times.  Add all that up, add 20% for maintenance and inflation, then divide by 360.

Or just put $150/month aside.  If you don't spend it, all the better.  It's bonus money.  If you didn't book it as "pre paid expenses" you'll have already paid taxes on it when you sell the place.  BONUS!!

thanks, I was kinda thinking of it like Aaron Montague. If i expect to have to replace the roof in a few years then I am going to need a chunk of change sooner than later. However instead of putting too much money in reserves, and thus not investing it, I would anticipate how much I will need in the future and build a reserve to meet that deadline. So I was thinking of setting aside the cash flow until I had enough to replace a roof then i would use the money for something else. Since a roof is one of the most expensive cap ex item I figure it should cover anything else that comes up. 

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