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Explainer: Reserve Funds

Reserve funds consist of liquid assets set aside for future projects or unexpected costs. Typically, hoteliers contribute to reserve funds on a scheduled basis so that they can accrue interest and grow in value. Reserves are usually kept in cash so they can be accessed quickly in the case of an emergency. Many hoteliers create reserve funds specifically for PIPs, with experts indicating that most properties set aside around 4 percent of profits annually—though that is rarely enough to cover costs.

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