Replacement Reserve Per Unit Calculator
Turn a major component’s replacement cost and useful life into the annual replacement reserve you should set aside per unit and per month.
How it works
Annual reserve = replacement cost ÷ useful life · Per unit = annual reserve ÷ units
A replacement reserve is money set aside now for the big, predictable expenses that are not part of routine operating costs — roofs, HVAC, parking lots and appliances that wear out over years. Sizing it from each component’s cost and remaining life turns a lumpy, surprise capital bill into a smooth monthly line item. Lenders on multifamily loans commonly require a reserve of roughly $250–$300 per unit per year, and skipping it simply defers the cost, not eliminates it.
Worked example
A 20-unit building expects $250,000 of replacements over an average 25-year life, so the annual reserve is $10,000 — $500 per unit per year, or about $41.67 per unit per month.
Frequently asked questions
How is a reserve different from a repair budget?
Repairs and maintenance are routine operating expenses handled from current income. Reserves fund capital replacements — long-lived components — that occur every 10–30 years, so they are saved gradually rather than expensed as they hit.
What is a typical per-unit reserve?
Agency and bank lenders often underwrite $250–$300 per unit per year for stabilized multifamily, and more for older buildings. A component-based figure like this one is more precise because it reflects your actual roofs, systems and their remaining life.
Does the reserve affect net operating income?
Treatment varies. Some operators include reserves as an operating expense (lowering reported NOI), while others treat them below the NOI line as a capital item. Be consistent, and know which convention a buyer or lender is using when they quote your NOI.
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Educational estimate, not financial or investment advice.