- Why Reserve Funds Are a Must for Property Investors -

Real estate investors, especially new ones, often overlook the need to create a reserve fund for maintenance. This has the potential to be a costly mistake for property owners.

Most people wouldn’t drive a car without changing the oil and making sure the tires and brakes are in good working order, but it’s surprising how many assume that properties don’t deteriorate over time.

Tenanted properties are made up of a lot of moving parts, many of which have a limited life span. Roofing materials can last 15 to 30 years, but if the roof is not maintained then the likelihood of failure increases.

Heating and cooling systems also need to be maintained. Without regular maintenance, the odds of failure increase dramatically.

So, with this in mind, it seems clear that creating a reserve fund to deal with regular maintenance and upgrades just makes sense. Investors should be looking at this as part of the cost of doing business. As properties age, more care needs to be taken so the investment retains its value.

Repair or reserve funds should be established when a property is first purchased. A good practice is to set a minimum reserve for capital expenses. The minimum reserve is at the discretion of the investor, but a good baseline is the estimated value to recover the roof surface. If it would cost $10,000 for the roof, then that much should be in reserve for repairs at all times.

In addition to the minimum starting amount, a percentage of monthly rental income should be put into the reserve account. This will ensure that the investor is capable at all times of dealing with unexpected expenses.

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Contact a San Antonio Commercial Real Estate Expert:

Contact Luke LeGrand, ePRO via email @ luke@kwcommercialsa.com or call 210-843-5853