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Main Real Estate Terms maintenance reserve

maintenance reserve

See alsoreplacement reserve,reserve fund Related Terms: Dictionary of Real Estate Terms replacement reserve

an amount set aside from Net Operating Income to pay for the eventual wearing out of short-lived assets.

Example:Singer buys new apartments, each containing $3,000 worth of carpeting and appliances that have a 10-year useful life. Each year she deposits $300 in a replacement reserve account to pay for recarpeting and new appliances in 10 years.

Dictionary of Real Estate Terms reserve fund

an account maintained to provide funds for anticipated expenditures required to maintain a building. A reserve may be required by a lender in the form of an escrow to pay upcoming taxes and insurance costs. A replacement reserve may be maintained to provide for replacement cost of short-lived components, such as carpets, heating equipment, or roofing. Deposit of money into such a fund does not achieve a tax deduction.

Example: A property management firm anticipates that property taxes will be due in 6 months, insurance must be renewed in 2? years, and carpeting must be replaced in 6 years. Accordingly, they establish a reserve fund by depositing a portion of monthly revenues in an account. Monies from the fund will be used at the appropriate time to meet the future expenditures.

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maintenance reserve