Just wanted to share how glad I am about having started a separate savings account for capital expenditures.
I did a quick calculation, estimating the remaining lifespan and cost to replace of the primary components in each property (roof, furnace, etc...). I came to the conclusion that I should be stashing at least $466/month away for those times when big ticket items need to be replaced (repaired).
In addition to this, I try to do as much preventative maintenance on these things as possible, and the money spent on this DOES NOT come out of the capex account (rather, general maintenance).
I set up an online savings account through Barclay's https://www.securebanking.barclaysus.com/login.do due to their favorable interest rate and no cost. I set up automatic monthly debits from my personal account into this account and forgot about it for the past 5 months.
Now there is a nice balance in there that didn't hurt to build. And when that furnace dies on me or when it is time to replace that roof I'll still be able to pay my phone bill! I'm sharing this with the community because I wish I had started this sooner, and I hope that other landlords don't make the same mistake I did. I realize how lucky I was that not having this before didn't hurt me.
Must assume you're a buy&hold investor, so how does $466/mo relate to your CGI - - aka what's your CapEx rate?
Some expenses are way out on the horizon, like a new roof - - 20yr guarantee is common and 30yr is better materials. Others are such low r/r costs, imo just take the hit on NOI and move on.
I'm suggesting that NOI will vary year/year for normal wear+tear and there's nothing wrong with with that, but you're conservative approach is well founded.
Many do not put depreciation into the PnL (like me) and just use it April 15. Effectively, your reserving CapEx cash is funding your Depreciation Deduction. Can't wrap my head around that but my reaction is queasy.
Smart! Good planning.
Thanks for sharing!