Reserves for Capital Improvements
Learn about the Importance of Setting Aside Reserves to be Used for Future Capital Improvements.
What are Reserves for Capital IMPROVEMENTS?
Reserves for Capital Improvements is rent that is set aside that is used for major repairs and improvements that will need to be made to the rental property. Major improvements and repairs would include roof replacement, siding replacement, & HVAC replacement.
Note: It's important to know the difference between Capital Improvements/Expenditures and small Repairs because Cap Improvements are treated differently for tax purposes. Capital Improvements are depreciated over time based upon the useful life of the improvement, whereas the repairs can be deducted from the Net Operating Income for the property.
Note: It's important to know the difference between Capital Improvements/Expenditures and small Repairs because Cap Improvements are treated differently for tax purposes. Capital Improvements are depreciated over time based upon the useful life of the improvement, whereas the repairs can be deducted from the Net Operating Income for the property.
How to Calculate Reserves for Capital IMPROVEMENTS
Reserves for Capital Improvements can be calculated in various ways:
- per Year
- % of GSI
- % of GOI
