3% of expenses is different from 3% of the gross is different from 3% of the purchase price. How long do roads last? Not forever. Pipes, electrical? If you figure a 50 year average lifespan then 2% of cost to rebuild is the right number.
Cost to rebuild is surely higher than your income, so 3% of your income is going to be too low. If you don’t do capital investment and improvement then you end up putting the money in when its time to sell and the Buyer demands it.
A quick-and-dirty calculation: You could buy a park at $50k per lot, at a 7% cap rate will spin off $3500 per year “profit” on a gross of $10,000 per year. If rebuilding a lot costs, say, $25k in today’s dollars and a lot (along with the pro-rata portion of infrastructure) lasts for 50 years, then you should save $25k / 50 = $500 per lot per year for capital improvement. That’s 5% of your gross.
But your bank might require only $50 per lot per year maintenance reserve. Ours does.