Money or securities set aside to cover
unexpected costs or circumstances arising
out of business operations. Reserve funds,
for real estate purposes, are most commonly
associated with condominiums.
A special fund
established for the purpose of some
contemplated future event, such as major
repairs or replacement of outdated
mechanical systems, or renovations. Reserve
funds are mostly used by condominiums
corporations.
In most cases, the fund is simply a
savings account or another highly liquid
asset, as it is impossible to predict when
an unexpected cost may arise. However, if
the fund is set up to meet the costs of
scheduled upgrades, less liquid assets may
be used.
Anyone can create a
reserve fund, it is much recommended that
each investor creates a reserve fund for
themselves.
An individual, for example, may put
money into a reserve account to save money
in case of unexpected unemployment. A
business, such as one dealing with
rental properties, will put some
rental income into a fund used to pay for
any unexpected repairs to the properties.
Condominiums often will set up reserve funds
in which condo owners pay a set monthly
amount to maintain the quality of the
condominium.
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