Maintenance, Vacancy, & Cap Ex Savings

6 Replies

Hey BP'ers,

A few questions about the amounts you are saving every month for maintenance, vacancy, & cap ex.

1) How do you keep track of it?
2) Do you keep it all in one account? 
3) What do you do with your excess (ie if you have no vacancies for 5 years or your maintenance balance is starting to look like a cap ex balance)?

@Eric La Pratt , if it's your first rental, put all of your income into the bank.  Do not pull anything out.  The return rate is just a way of measuring the effectiveness of your investment.  After you have 3 or 4 or more you can decrease your amount you hold back for vacancy, and sometimes for repairs, as your monthly cash flow will begin reflecting some of those costs coming out every month.  That is not true about cap ex.  Keep putting money away in a fund for roofs and other high priced items so the expenses do not leap out at you all of a sudden.  I have an account that money is added to year end taxes and big dollar insurance costs.  I keep trying to add to that for big expenses.  I also use that money to be proactive and replace ancient furnaces or put a new roof on a house that becoming obvious that needs attention.  Hope this helps.

Thanks @Jerry W.

That's my plan for sure. I am curious to know how people organize their money. Is it all in one savings account where you commingle cap ex funds between your properties? Is there a maximum percentage one might want to have saved (of course depending on the area and home)?

The way that we do that for our owners is to simply have a "balance" which is basically savings toward all their properties.  We have a reserve set for owners based on how many properties they have but there is no set rule for that amount.  Obviously the more homes they have the larger the total sum but the smaller the percentage that would exist for each individual home.

Great question, I like it.

Nice insight @Aaron Wyssmann . What type of accounts? Regular checking / savings or something a bit more aggressive?

How do your tenants track the amounts? I use a spreadsheet and make a draw when something requires. Presumably simple accounting software would do the same thing. 

@Eric La Pratt , I do not use the same method of saving that I used to. I have a checking account that I try to keep funded at about $5K. That will cover most any major repair that I cannot do myself. If it is a lot bigger I have 2 fall back plans. First plan is I have a credit card with a very large limit that is paid off every month. In a pinch I can put a lot of money on it. Second plan is that I have a good bit of equity built up and in a pinch I can call and get a quick loan for $10K or more. After you work with the same bank for awhile you can usually just call them and say hey I need X$ can you do a loan or a second on this property with a one or 2 year term. Many will even do a signature loan for small amounts. If it is going to be a huge hit the property might have to be refinanced but I have never had to do that for repairs, just for buying new properties. I try to be proactive and replace things that are big ticket items whenever the checkbook is full. I have 2 water heaters in the warehouse as well as a lot of extra roofing materials. The big ticket items for me are usually replacing sewer lines out in the street. It is not always the condition of the carpet or paint that dictate whether I replace or paint a house on a turnover. Sometimes it depends on how much money is in the CapEx account.

I don't have fancy software or anything. I have 2 business accounts with savings accts attached - my mgt co acct and an LLC that owns 3 of my larger multi-families.

In one savings acct I keep taxes and insurance reserves for the commercial properties that don't pay through mortgages.  In the other I have cap Ex  & small op exp savings.  It fluctuates a bit, but like @Jerry W. - I keep it at around $5k and it's been fine for me.  Depending on the size and type of portfolio you have, it may need to be larger.  I don't invest that money, though.  It is just insurance.

There may be a way to have a sub-savings acct at your bank.  If not, I would open a dba or something and have a separate savings acct earmarked for what you are saving for @Eric La Pratt .  You'll get the feel for what you'll need with time.  Never hurts to have a little too much cushion in a reserve acct!