Property Management
In Michigan property management, a 'reserve fund' or 'replacement reserve' is set aside to:
APay operating expenses during high vacancy periods
BFund future major capital expenditures such as roof replacement, HVAC systems, or parking lot resurfacing✓ Correct
CCompensate the property manager during slow months
DReduce the owner's income tax liability
Explanation
Replacement reserves are funds set aside from rental income for future major capital expenditures (roof, HVAC, elevators, etc.) that will eventually need replacement.
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Key Terms to Know
Earnest Money
A deposit made by the buyer when submitting a purchase offer, demonstrating serious intent and serving as consideration for the contract.
ContingencyA condition in a purchase contract that must be satisfied before the sale can proceed to closing.
Purchase AgreementA legally binding contract between a buyer and seller that outlines the terms and conditions of a real estate sale.
Option ContractA contract giving the buyer the right, but not the obligation, to purchase a property at a specified price within a specified time period.
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