Not all property owners realize that it’s important to keep some cash aside to deal with maintenance issues and repairs on your rental properties. You have to have a bit of money on hand for certain things, otherwise you will struggle to make necessary repairs or keep your house well maintained and able to attract good tenants.
You need to have maintenance reserves. This simply means having money available for repairs, insurance payments, taxes and other expenses that may come up in the future for your investment property. At Cavalier Estates, we always advise property owners to keep the equivalent of one month’s rent in the reserves. This will ensure that everything continues to work well. If you really want to keep yourself covered with more cash on hand than you will likely need, you can set up a reserve fund that is one month of rent and then add a year of taxes and insurance costs to your reserve fund. When you have that money collected and saved before you even start paying yourself with the rents that come in, you’ll be in good shape. It might end up that you have a stress-free year with your rental property and you don’t need to spend all that money in the reserve fund. In that case, your lack of expenses means you’ll have a little extra cash at holiday time.
Keep a basic checkbook register. This is easy to do, especially if you only rent out one or two properties. Elaborate programs are often unnecessary. All you need is a basic check register that helps you keep track of your reserves and expenses. If you have a large number of investment homes, a program such as Appfolio will probably be necessary.
When you don’t have a reserve fund in place, you will find a lot of deferred maintenance with your home. Keeping up with the costs of maintaining your property will be difficult, and when your tenants move out, you might find you don’t have enough cash to get the place ready for a new tenant. You have to have a reserve to take care of such issues. Build up your reserves as aggressively as you can, and remember to try and keep 10 percent of your monthly rent in the reserve account. This can be saved for future remodels and upgrades you might want to do.
Don’t get too comfortable if you have a lot of money saved up and you have not had to spend it yet. You don’t want to blow all that money because as soon as you spend it, you’ll need a new roof or some other major expense will turn up. I can tell you from personal experience that as soon as you think the money is yours to spend, you will need it for your rental property.
If you’d like to talk further about how to establish a maintenance reserve, please contact us at Cavalier Estates.