Ask most new investors how much they’ve set aside for reserves, and you’ll hear vague numbers: “I’ve got $100K saved,” or “We’ll use some of the cash flow.”
That’s not a plan. That’s a hope.
In a rising interest rate environment with increased maintenance costs and tighter lender scrutiny, having a formal reserve plan isn’t just smart — it’s necessary. One simple framework that’s gaining traction among experienced operators is the 30-30-30 Rule.
🧮 What Is the 30-30-30 Rule?
It’s a reserve budgeting model that breaks your surplus or cap reserves into three clear categories:
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30% for Immediate Repairs
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30% for Long-Term CapEx Improvements
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30% for Emergency Reserves
The final 10%? Use it for reinvestment, additional float, or as a discretionary fund for value-add plays.
This model ensures you’re not overcommitted to just one type of expense and provides coverage across the board — from roof leaks to HVAC replacements to unexpected city code violations.
🛠️ Why This Matters
Multifamily real estate is an asset class that lives and dies by predictable performance. When unexpected capital expenses hit — like a $90,000 parking lot resurfacing or $40,000 sewer line replacement — they don’t just hurt your cash flow. They erode investor confidence and compromise refinancing outcomes.
Banks are also getting stricter. Many now demand detailed CapEx schedules and reserve strategies in underwriting packages. The 30-30-30 Rule gives you a professional structure to present.
📊 Let’s Break It Down:
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30% Immediate Repairs: Think day-one plumbing, electrical, safety items, or deferred maintenance that you MUST address in year one.
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30% Planned CapEx: These are strategic improvements like kitchen upgrades, roof replacements, or exterior painting that boost rent and valuation over 3–5 years.
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30% Emergency Fund: Market downturns, fire damage, natural disasters, tenant lawsuits — this fund helps you sleep at night.
📈 How to Implement
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Tie your 30/30/30 split to your annual revenue target.
Example: For a $1M/year property, a 5% reserve equals $50K. Allocate $15K to each reserve category. -
Build a monthly funding plan.
Don’t wait to “save up.” Build it into your P&L as a non-negotiable. -
Store reserves in separate, labeled accounts.
Don’t just lump them all in one checking account.
🧠 Pro Tip: Show This to Your Lender
When a lender sees you’ve allocated reserves intentionally — not reactively — it improves your credibility. It can even result in more favorable loan terms.
🚀 Final Thought
You don’t have to overcomplicate your reserve plan. But you do need one. The 30-30-30 Rule gives you a flexible yet disciplined strategy that balances safety with scalability.
Don’t treat reserves as leftovers. Make them part of your investment thesis.
