Hello Bigger Pockets Fam,
I was wondering how much I should be putting aside for reserves for maintenance and repair costs for my rental property. I do not want to underestimate the cost and get hit with a lump sum later in the future. This rental property has a brand new roof, floors, rennovated kitchen, new plumbing pipes, and new paint job done. I wanted to know if there is any formula you guys follow such as 1 percent of the property value, or 1 percent of insurance premium deductibles. How do you guys plan to find out how much money to put aside each month?
Great appreciate your answers in advance. Thanky you very much!
I am usually a little more conservative for maintenance and capital expenses. Normally I'll set aside 7% of gross rents per month on repairs and 8% of gross rents per month on cap. ex. Depending on the age of the property and how recently it has been renovated you can probably adjust these numbers slightly lower. So in your case you could probably get away with 4-5% for each since everything is newer. Hopefully this helps!
I agree with Ryan. It can really depend on the specific property an instance where everything is newer or if any expensive items need to be replaced soon. My minimum for both repairs and capex are 5%
@Young Kim Closer to 10-15% if you combine them, but yes that is correct!
I see. Thank you so much!
@Young Kim The running rate @Ryan Husser mentioned sounds reasonable. If you're looking for a starting reserve, you might consider 6 x monthly mortgage. And then as issues arise it may dip below or raise above but that could be a goal for reserve. Of course it also depends how much monthly rents and mortgage is, as an HVAC expense wont vary much, but this provides some sense.
I'd rec. placing 5%-10% of your net earnings every month into savings. I'd also highly recommend getting some large credit line credit cards, personal credit lines and business credit lines from you bank (or banks) to have as additional reserve. Don't go to these clowns advertising her and other places about their ability to get you 250k in credit lines for a 2% fee. They are doing the same thing I am telling you to do, minus any of their BS fees. When I first started out, I applied for several credit cards, then as my balances in my checking accounts grew, the bank offered me credit lines. That's how you do it. Just stay away from Chase.