Vacancy, Repairs, and CapEx monies

3 Replies

Curious what to do with the Vacancy, Repairs, and CapEx monies you withhold/save from rentals? Seems that one would want it readily available when the need arises, but also put the money to work as well.

What do you do with said monies?


Thanks!

-Jon

I keep a working amount in my business account, enough to get through most repairs, etc. anything more I pull out of the busIness and invest with my personal funds (money market, mutual funds, etc). If a big ticket item comes up, I’ll contribute from my personal finances. Still keep everything separate, but I don’t see the reason to keep multiple tens of thousands of dollars in the business.

@Jonathan Roberts

Just starting out with investment properties, but been an investor for a while. My plan is to save a year's worth of reserve fund from property, then the rest would be used to purchase other properties. If a big expense comes into play, I have two credit cards that are $30k limit each with only 4% Annual interest rate (active duty military). So I would use the credit card to pay for emergencies, and liquidate the other investments I have which are stocks to pay for the extra expense. 

Or I know some people that have a HELOC against a home with a ton of equity and uses that as the emergency funds.

Of course that is only if the saving I had earlier was not enough which I think it will be cause I won't touch the net cash flow either and either put it in reserve funds or towards a new property. 

In theory, by the time I have 5+ cash flowing properties, I wouldn't need to tap into other funds since the reserve should cover it all. 

@Jonathan Roberts

Sounds like you've got good strategy for to accumulate your reserves. I set aside 3% of the purchase price and 5% of rent each month into a CapEx reserves savings account. Like you, it seems this strategy accumulates cash since expenses are running a little less than contributions. I have a regular job that pays decently, so I don't take money out of my RE business. Instead, I keep in it the business and focus on growth. Here's what I've been doing:

  • Do yearly punch lists of capital expense projects needed to keep the houses at the right place in the market.  Sometimes new roofs are on the horizon, bathroom remodels, etc.  I use this money when I think I can get a good return on the reinvestment.  That's what is for and I like keeping my homes well-maintained.
  • Buy a new house.  As long as you can keep your reserves at the right level, use the money to expand.  If you can find properties with the right numbers, the returns are solid.  This was a milestone for me:  For the first time, I was able to use the income from the other homes to purchase a new home.  Geometric progression in action!  
  • As a last resort, I'd consider pulling the money out of my business and investing it in other investments. I manage my rentals through an LLC, so I'd be making these investments in accounts listed to me personally. No need to keep the money at additional risk in the LLC.