In this video, Mendell Gosnell of Centurion Real Estate Management explains the company’s “reserve requirement” for properties they manage, distinguishing it from long‑term capital reserves for major repairs. He describes typical reserve amounts for single‑family homes (generally $500‑$1,000), how the reserve is held in the client trust account and designated in the management software, and walks through a concrete example: a $2,000 monthly rent, $150 management fee, and a $500 reserve holdback, resulting in a $1,350 owner distribution. Gosnell also notes that owners can pre‑pay the reserve or have it deducted from the first month’s rent, after which the reserve balance appears on monthly statements. The purpose of the reserve is to cover ongoing operating expenses and the management fee, ensuring smooth cash flow for the property owner.
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Hi, my name is Mendell Gosnell with Centurion Real Estate Management. One of the frequent questions we get from our clients is, what is the reserve amount? And can you explain that to me? A lot of times it's interpreted incorrectly. So this is not a reserve that you're setting aside for your property on a monthly basis for capital expense improvements. Like, hey, I've got to replace my roof in 5 or 10 years and I need to set some reserves aside. We highly recommend you're doing that. We have some worksheets that will help you to accomplish that, to find out what amount of reserves you should be setting aside to be ready for eventual capital expense items. But we have a, what's called a reserve requirement for each one of our properties that we manage. So for a single-family home, it might be something like $500 to $800, maybe $1,000. That's usually set depending on the property and the needs of the property and what the anticipated monthly expenses are going to be on the property. So it's usually— we do have a, um, minimum standard that we like to have. That's usually about $500 for a typical single-family home, and then it goes up from there. That allows us to pay any ongoing operating expenses, to be able to take our management fee. And we don't set that money aside in a separate bank account. It's actually in the client trust account. However, we do designate that in the property management software, whatever that limit is. And so usually explaining it with an example is a great way to kind of understand it. So if you have a house that's renting for $2,000 a month and you have a property reserve amount that's set by us at $500 a month, and you get the first— we take over management and there's no expenses at all, let's just say, to keep the example real simple, and we collect rent and it's $2,000 rent received. And let's say that our management fee is just $150 on that property. We would keep $150. So that would bring the amount of from $2,000 down to $1,850. And then when we go to process the owner distribution at the end of the month, we would hold back an additional $500 from that amount and send the remaining. So if it was down from $2,000 to $1,850, then we hold back the $500 property reserve amount, that would be $1,350 that would be going to you. So a lot of times people will sign up and they'll actually prepay that reserve amount so that it's already funded. But we're also willing to take that out of the first months and get you going, set that money aside. Then the following month that we would start off, the beginning balance that you would see, which should be that $500 unless there was any transactions that happened in between, sending the report and the beginning of the month. But hopefully that explains kind of in a nutshell what the reserve amount is and the reserve requirement that we have here at Centurion Real Estate Management. Thanks for watching.
