How Much to Budget for Vacancy and CapEx Reserves
Two line items decide whether a rental is a real business or a slow-motion surprise: vacancy and capital expenditures. Both are near-zero most months and then, one day, expensive. Reserving for them is what separates investors who last from those who quit after one bad quarter.
Vacancy: budget it even when you're full
No unit is occupied 100% of the time. Turnover, repairs between tenants, and the odd slow market all cost you weeks. A common reserve is 5–8% of gross rent, higher in softer markets. Set it aside every month so a vacant unit is an inconvenience, not a crisis.
CapEx: the big, certain, occasional costs
Capital expenditures are the major replacements — roof, HVAC, water heater, appliances, flooring. They're rare, so they feel ignorable; they're expensive and inevitable, so ignoring them is how a "cash-flowing" rental ends the year in the red.
Estimate each big component's replacement cost and lifespan, then reserve monthly. A $9,000 roof with 20 years left is about $37 a month you should be setting aside today — long before the leak.
Keep reserves separate from cash flow
The mistake isn't forgetting these costs exist — it's counting the months they don't happen as profit and spending it. Move vacancy and CapEx reserves into a separate account, and your reported cash flow becomes real.
Track reserves per property. The EYRIE Portfolio Tracker keeps vacancy and CapEx reserves visible across your whole portfolio. See it on Etsy →