A CapEx reserve is a savings discipline for the big-ticket items every property eventually needs: roof, HVAC, water heater, flooring, major appliances. Each has a rough useful life and a replacement cost, so instead of being ambushed by a $12,000 roof in year nine, you set aside a steady monthly amount that accumulates toward the known future bill. The right amount depends on the property's age, condition, and systems — a new build and a ninety-year-old brownstone do not reserve alike.
The reserve matters most in your math. A property can show positive monthly cash flow for years while quietly consuming its roof and furnace; underwriting that ignores capital reserves is overstating returns. Treat the reserve as a real line item in your budget and pro forma even though it is not an operating expense in the accounting sense — and keep the money actually segregated, because a reserve that lives in your checking account has a way of getting spent.