Property Management
In Minnesota, a 'reserve for replacement' in an income property budget is set aside for:
APayment of property taxes
BFuture major capital expenditures like roof replacement, HVAC systems, and parking lot resurfacing✓ Correct
CThe property manager's emergency fund
DLegal fees for potential tenant disputes
Explanation
A reserve for replacement (capital reserve) is a budget line item set aside annually to fund future major capital expenditures—roof replacement, HVAC systems, parking lots, elevators, and other long-lived components. Proper capital reserves ensure the property can fund needed improvements without requiring large, unexpected cash infusions from the owner.
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Key Terms to Know
Fiduciary Duty
The highest legal duty an agent owes to a principal — requiring the agent to act in the principal's best interest above all others.
Earnest MoneyA 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.
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