Maintenance & CapEx Reserve

Maintenance and CapEx reserve is money an investor sets aside each month to cover two categories of future costs: ongoing repairs and maintenance (leaky faucets, broken appliances, pest control) and capital expenditures — the big-ticket replacements that happen on a predictable cycle (roof every 20-30 years, HVAC every 15-20 years, water heater every 10-12 years, flooring and appliances at similar intervals). In underwriting, most experienced investors budget around 10% to 15% of gross rent for the combined reserve — split roughly as 5-8% for repairs and 5-8% for CapEx.

Why beginners miss it. No one sends an invoice for a reserve. A property can go months without a repair and years without a CapEx event, so a novice who looks at their bank balance after twelve smooth months assumes the deal is printing money. Then the HVAC fails in month 13 and costs $7,000. The reserve is the discipline to acknowledge that big expenses are not if but when, and to price them into the analysis from day one.

For building a realistic operating budget, see property management and costs. For applying these numbers when screening deals online, see find cashflow rentals on Zillow.