How do you handle a reserve when you inherit a property you didn't build the maintena
online · Member since 2026 · 99 posts · 44 votes
How do you handle a reserve when you inherit a property you didn't build the maintena
7 Replies
- Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes2mo
@Giuseppe Cavucci, a few thoughts:
1. Your situation is a little different from an investor UNLESS you intend to use this as a starting off point to acquire and grow your portfolio. An investor is often "active". They may be acquiring new properties, doing rehabs, and REFINANCING properties over time. Some of those actions like the refinancing may allow them to set aside chunks of money to grow their reserves.
2. I am not one to dive into the weeds and try to calculate the amount of reserves I think I need from a deep and detailed assessment of the components of a property.
Perhaps, if I did had 100 properties and did that to all 100 the AVERAGE might come out close enough, BUT I believe the individual property assessments would be all over the map and NOT accurate. I also think someone doing it this was as a one-off would be more likely to be inaccurate.
3. Don't think of "reserves" as just 1 thing. It doesn't need to be just a pile of cash sitting somewhere waiting to be used.
Reserves can be an open line of credit. It can a property with equity that you could sell or refinance. It could even be a purchased warranty (which I HATE)! lol
4. Reserves can also be "TIME" as crazy as that sounds!
In my own situation, my property taxes are NOT escrowed, so I budget for those myself. I budget so that I have probably 25% more than is needed when the bills arrive! So, my habit is to pay them immediately and take advantage of the 2% discount for early payment.
However, if the situation was DIRE, I would tap that money and put a roof on a house or whatever and still be able to pay my property taxes later in the year with additional money that comes in normally.
My FLEXIBILITY aka "RESERVE" is the time built into my systems.
5. So, identify all your "flexibilities", all the levers you can pull as things come to happen. They will be different for everyone. No, they aren't the same as a cash-reserve, but that are part of the "plan".
6. The reason having a PLAN is important is that nobody can or should keep enough cash/credit available at all times to handle every possible situation. It would be very inefficient and lower your overall returns significantly.
7. In your situation, I would simply identify any big ticket items that are an issue now or you expect to be in the NEAR future. So, for example if the roof is shedding shingles and appears 35 years old, you want to be able to replace it in the next few years.
8. To tack on to the roof example, realize that MANY things can be repaired/maintained LONGER than what people think of as their normal lifespan.
If you ask a roofer or home inspector, they will tell you a 20 year old roof with a 25 year warranty architectural shingle is "nearing end of life". Its nearing the end of the warranty, but in many cases with some maintenance as you lose a shingle here and there etc you can keep that roof to 30, 35, even 40 years!
9. If you don't have the means to set aside cash reserves right now consider opening a line of credit on the property or even doing a cash-out refinance to establish a reserve fund. Its easier to get lending when you don't need it as opposed to when the situation unravels in some way.
10. Home warranties! I HATE them! I personally avoid ALL purchased warranties and some insurances. These include gap insurance when you buy a new car, extended car warranties, extended warranties on tools, appliances, etc, and home warranties.
The insurance companies make BIG money on these because people pay WAY WAY more than they pay out in claims. I KNOW in the long run if I skip ALL of them I will be well ahead over time. However, I also realize every once in a while I'll get bit and suffer a loss that would have been covered, but knowing I'll be ahead in the long run is more important.
I am able to skip these things because I can "stand the loss". However, if you are not in a position to "stand the loss", these could be a good buy for you. If you have no reserves and covered issues could cause your financial situation to deteriorate then these products could be exactly what you need UNTIL you can establish some reserves.
They do serve a purpose, but IMO ONLY for people who are not in a position right now to cope with the covered issues.
- Real Estate Broker · New York, NY · Member since 2020 · 2k+ posts · 1k+ votes2mo
Hey Giuseppe,
I'd rather be conservative upfront than get caught off guard later. If I don't have documentation on major systems like the roof, HVAC, or plumbing, I assume they're closer to the end of their useful life and set my reserves accordingly.
As I own the property and learn more about its actual maintenance needs, I can always adjust those reserves. I'd much rather overestimate in year one than underestimate and end up with an unexpected capital expense.
All the best! Feel free to reach out and connect with me - my DMs are always open!
- 2moDenise SuppleeBusiness MemberRealtor · Willow Grove, PA · Member since 2017 · 979 posts · 642 votes
I wouldn't automatically assume the worst, but I'd probably budget a little more conservatively until I got to know the property. I've found that inspections and trusted contractors can tell you much more than a seller's memory. Every property is different, so I'd adjust my reserves as I learned more over time.
Spark Rental Co-Investing Club577 Reviews - Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes2moYou don't "know" what the market rent for a specific unit will be...unless you research, and then "estimate" the amount that will balance between leaving money on the table and providing the return you are looking for.
Quote from @Giuseppe Cavucci:
Most advice about maintenance reserves assumes you've owned the property since day one and know exactly when everything was installed.But if you bought something with an unclear history, inspection report is vague, seller "doesn't remember" when the roof was done, how do you set your starting reserve?Do you assume worst case on everything until proven otherwise, pad it and adjust down over time as you learn more, or something else entirely?
Genuinely curious how people handle that uncertainty when they're starting from zero information instead of their own maintenance records.
You don't "know" what repairs and updates will cost...until you research, and get specialists to provide more accurate numbers.
Reserves are no different, except that if you already have a substantial pot of money and/or credit that can be used to bail you out of a crisis situation, you really don't have much of a need to closely consider the potential costs for long term.
HOA's have been doing "reserve studies" for years (at least, they should have been), and their process is straightforward and can easily be applied to individual properties. All it takes is something approaching 20/20 eyesight, and a little bit of research and estimating.
Identify the key elements that will cost X dollars or more for major repair or replacement. HOA's typically use $10,000 as that threshold.
You should already know when the structure was built, so that determines the starting point of the aging process for every element. Known updates or replacements would change the starting point only for a specific element.
"Residential construction useful life" tables are readily found online, and give you the industry estimates of expected life for each element. Some are 50 years, some are 20, some only 5 or 10...on average. Naturally, your experience may vary, depending on local climate and environment, deferred or preventative maintenance, and the quality of all former occupants and "handy" persons. THIS is where that 20/20 comes in. Simply examine each element to determine it's apparent condition. You do need some level of experience to make a useful guess, and for certain elements you need either a lot of experience or the benefit of a Pro to examine it, but there should be signs of age or wear that can indicate whether you are looking at something that is more, or less, likely to fail within 1 - 3 years, given it's known age. Part of that is also recognizing the physical quality of the specific element...did it start life as a cheap knock off, or was it a quality product when new?
Estimate the cost of major repair/replacement today...this does not have to be super accurate, unless you have determined repairs are imminent, but you need a number that is within a realistic range, based on your ability to access those funds when they ARE needed.
For each element, calculate the estimated remaining life, based on the statistical info and your visual/Pro investigation. Simply divide your estimated cost by the number of years until the major repair/replacement is statistically anticipated, and that is the amount you set aside for that element each year.
Annually, re-evaluate the apparent physical condition. Often towards the end of life, deterioration will ramp up, or you will have had frequent/repetitive service requests due to an element. Determine if you need to reduce the estimated remaining life, thereby increasing the amount of funds you are setting aside early, to reach the total estimated cost "in time".
Avoid the practice of "kicking the can down the road" and deferring an anticipated major repair/replacement "just one more year" to try to save money, or worse, to enable you to re-allocate the funds to something else. For many elements, the speed of deterioration ramps up the closer you get to functional end of life, and you risk causing damage to other elements prematurely. Paint, plumbing, and roofing, are prime examples of this.
Over a longer term, you do need to adjust for inflation to the cost of the repair/replacement; and possibly increase the actual funds on hand due to earned interest, but overall, if your initial cost estimates were close, you will have the substantial funding available when needed. - Real Estate Agent · Memphis · Member since 2026 · 558 posts · 323 votes2mo
If the history is unclear, I'd rather budget conservatively until I have better information. We usually start with the assumption that major systems may be closer to replacement than we'd like, then adjust our reserves as inspections, maintenance records, and actual performance give us a clearer picture.
One of the first things I'd do after taking over a property is document the condition of the major components and establish a maintenance baseline. Even if you don't know exactly when everything was installed, having your own records from day one makes future planning much easier.
- 2moDrew SygitBusiness MemberProperty Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votesIf you have a property professionally inspected, they usually estimate the age and useful remaining life of major cap-ex categories.
Quote from @Giuseppe Cavucci:
Most advice about maintenance reserves assumes you've owned the property since day one and know exactly when everything was installed.But if you bought something with an unclear history, inspection report is vague, seller "doesn't remember" when the roof was done, how do you set your starting reserve?Do you assume worst case on everything until proven otherwise, pad it and adjust down over time as you learn more, or something else entirely?
Genuinely curious how people handle that uncertainty when they're starting from zero information instead of their own maintenance records.
Logical Property Management4.9458 Reviews - 2moMike FisherBusiness MemberNew Lenox, IL · Member since 2024 · 99 posts · 55 votes
When the history is a black box I don't guess at a number, I go buy the information. Before close I pay for a real roof cert and have the HVAC, water heater, and panel inspected and aged off their serial numbers (every unit has a date stamp on it), not the seller's memory. That turns "I don't know" into a rough remaining-life figure for the big four.
For anything I still can't pin down, I assume it's near end of life and reserve like it's getting replaced soon, then ease off as the first year of real behavior tells me otherwise. It's a lot cheaper to over-reserve for 12 months than to eat a surprise roof in month three with nothing set aside.
The first year on an unknown property is basically paid tuition to learn the building. After that your own records take over and you can right-size it.
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