$18,856 in HVAC replacement costs over six weeks!!!
When I saw the bills, my first thought was Tiger King’s infamous line, “I’ll never financially recover from this.” While I’m joking, it underscores the importance of having a solid capital reserve strategy. For busy parents juggling a side hustle in buy-and-hold real estate using the BRRRR method (Buy, Rehab, Rent, Refinance, Repeat), proper capital reserves are essential for weathering unexpected expenses.
Here’s how we handle CapEx reserves with a hybrid approach, ensuring we’re prepared for the big expenses that inevitably come with rental property ownership:
1. Cash Reserves
Holding cash is a straightforward way to fund a CapEx reserve, but low interest rates can make it less appealing. Recently, we’ve been using savings accounts from Capital One and Mercury Bank, which offer 4%-5% interest. While these accounts have limitations on monthly transactions, they’re perfect for reserve funds you hope not to use frequently.
For busy parents working with the BRRRR method, these higher-interest accounts provide a balance between accessibility and letting your cash work for you, even while it sits.
2. Lines of Credit
The second piece of our reserve strategy includes lines of credit, such as home equity lines and credit cards with zero balances. While we keep these cards handy, I cut them up once they arrive to avoid the temptation of relying on them unnecessarily.
Lines of credit provide a reliable safety net, especially when unexpected expenses—like replacing an HVAC system—arise. For busy parents with limited time, having access to credit ensures flexibility without tying up too much cash.
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3. Bank On Yourself Policies
The third leg of our hybrid approach is leveraging the cash value of our Bank On Yourself whole life insurance policies. These policies serve as a hybrid rainy day and opportunity account. The funds can be used for hard money loans, rehab projects, or CapEx reserves, all while continuing to grow in value.
This strategy lets us multitask our money. By contributing monthly to these policies, we’re not only preparing for unexpected property expenses but also building life insurance coverage to protect our family.
Why CapEx Reserves Matter
Many investors talk about saving for CapEx (capital expenditures), but few actually plan for these expenses in a consistent way. For anyone using the BRRRR method, putting back 5% of your monthly rental revenue—or setting funds aside quarterly—is non-negotiable. HVAC systems, roofs, and other major repairs aren’t if expenses; they’re when expenses. Proper planning will save you from financial stress when those costs inevitably arise.
Maximize Your Money’s Potential
If you want your CapEx reserves to do double or even triple duty, consider this strategy:
Take the 5% you’re saving monthly for CapEx and fund a Bank On Yourself policy. This allows you to build life insurance for your family while growing cash reserves for major expenses. When the time comes, you’ll have the funds to cover HVAC replacements and other costs while securing your family’s future.
Big Takeaway for Busy Parents Using the BRRRR Method:
Planning ahead for CapEx expenses is critical to managing your rental properties successfully. By combining cash savings, lines of credit, and Bank On Yourself policies, you’ll create a robust financial safety net that protects both your investments and your peace of mind.
What’s your current strategy for handling CapEx? Let me know—I’d love to hear how other busy parents are managing their reserves while growing their portfolios with the BRRRR method!