Investing metrics
CapEx reserve
Cash set aside for predictable, infrequent replacements and major building work rather than routine monthly repairs.
Glossary
Investing metrics
A capital-expenditure reserve is money earmarked for major components such as roofs, HVAC systems, paving, appliances, or exterior work. These costs are irregular but foreseeable, so excluding them can make current cash flow look stronger than the property’s long-run economics.
A component schedule is more useful than one generic percentage. Estimate each component’s remaining life and replacement cost, subtract funds already reserved, and divide the funding gap over the remaining months. Revisit the plan after inspections, replacements, and material price changes.
Example: a roof expected to cost $18,000 in six years implies $250 per month before considering investment earnings or inflation. The reserve is a planning amount; it does not decide the accounting or tax treatment of the eventual work.
Reserve formula
For one component: (estimated future replacement cost minus current dedicated reserve) divided by months remaining. Add component amounts to estimate the monthly property reserve, while keeping assumptions visible.
CapEx is not routine maintenance
A repair that keeps an asset operating, a replacement that materially extends useful life, and a cash reserve for future work are different records. Ask an accountant how a completed expenditure should be classified and depreciated.