A property manager of a 40-unit apartment complex budgets $75 per unit per month, or $3,000, into a dedicated account, and $36,000 accumulates over twelve months. The account is designated solely for foreseeable repair and upkeep needs such as exterior painting, roof patching and appliance repair, and not for the manager's compensation or for day-to-day operating costs. Which budget item does the dedicated account represent?
Correct Answer
A) Maintenance reserve
Money set aside in advance for repairs and upkeep the owner can foresee is a maintenance reserve; it accumulates so the work can be paid for when it comes due instead of through a special assessment. Operating expenses are the recurring costs paid out of current income as they are incurred, not amounts banked for later. A capital improvement budget funds additions and betterments that extend the property's life or add value rather than preserve what exists, and the management fee is the manager's own compensation.
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Related Topics & Key Terms
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Related Concepts
Community property is a form of ownership recognized in certain states where property acquired during marriage is considered equally owned by both spouses, regardless of who earned the money or whose name is on the title.
Condominium ownership involves owning a unit of airspace within a multi-unit building plus an undivided interest in the common elements shared with other unit owners. Each unit is separately taxed and financed.
In a cooperative (co-op), the building is owned by a corporation, and residents purchase shares of stock in the corporation that entitle them to a proprietary lease on a specific unit. Residents are shareholders, not property owners.
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