Does maintenance reserve count towards your cash flow?

Question

Hey BP,

Just curious to know what everyone's opinions were on the cash flow situation. Do you count the maintenance reserve (I budget about 10%) as cash flow? I see a lot of articles where people are talking about cash flows of $400 or better. I just wasn't sure if they were including the maintenance reserve as cash flow. I personally refer to it as an expense that will be put away and not touched until needed. $400 seems a little unrealistic for a lot of situations IMO..

Thanks!

Kevin Siedlecki · Answer

Ryan S. - for tax purposes, money set aside for CapEx and maintenance is still income. You could be in big trouble if you do not report it as income. One way to look at is that the IRS knows we need those accounts, and that's why we get the depreciation deduction.

In terms of cash flow per unit, I only do small multi families, so I can't speak for large apartment buildings, but depending on acquisition costs, anything less than $400 per unit per month in cashflow (after maintenance, vacancy, and CapEX) wouldn't really make sense for me in my market.

If I could get properties cheaper, I guess something like $200-300 could work, but I would definitely pass on anything under $200 in the initial analysis. So many of your calculations for long-term expenses are guesses, that if you're only getting $100-200 per unit, one stroke of bad luck wipes out your profit for a year or two. You might have done your analysis guessing 8% CapEx, but if the real number after 10 years turns out to be 15%, and you only had $150 of cashflow every month to cover overages, you're basically profit-less after 10 years.

Levi T. · Answer

I personally would not buy a property that did less than $300 a month. Hustle and try to find a deal that produces 500+

Levi T. · Answer

Like I said, hustle and build a network to bring in these deals, ask around if anyone your friends or anyone know may want to sell a property for x dollar. You won't find deals like that on MLS.

Wayne Brooks · Answer

Ryan S. I'm guessing you're referring to cash flow, after financing costs, and these guys are paying cash.

Joe Ebanks · Answer

What do you budget for vacancy, repairs, cap ex:

and what types of units have you been acquiring:

Thanks!

Ryan Sajdera · Answer

Wow! that's pretty amazing! I'm new to the investing world in the last year. Where are you looking to find awesome deals? How can I get started?! Ryan

Levi T. · Answer

I did apartments for years, but then everyone wanted one so the cap rates crashed as everyone started overpaying for them... so now I'm SFH'ing it because that's where the caps are awesome.

I just landed my 60th SFH this year, my operation numbers are totally deferent than let's say someone with sub 20 units just cruising, as I'm buying and remodeling entire neighborhoods at times.

Kevin Siedlecki · Answer

@Wayne Brooks - My places are financed small multi-families. To me, if it meets my COC ROI, I'm looking at cash-flow per structure, and since mine are small, I need more per unit to protect against a new roof, a bad winter of plowing/shoveling/damage, or other bad surprises. I'd be more willing to take $200/unit on a 25 unit apartment building, if the rest of the numbers work, but not on a 2-4 unit house.

Ryan Sajdera · Answer

I haven't come across any deals that would realistically produce THAT much EOM cash flow. I mean, where are you finding rentals that produce that much monthly cash flow?  Seems like everything I look at would only be about 150 after its all said and done..

Ryan

Ryan Sajdera · Answer

So, after ALL expenses including maintenance reserve, what do you typically look to cash flow? Do you set a target for each unit? Seems like 200 would be a good goal for monthly cash flow

Does maintenance reserve count towards your cash flow?

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