What is your biggest cash flow killer, vacancy or repairs & CapEx?

Question

Coming from the business world I have always been a believer that if you have cash flow you can usually stay in business. Next, you have to control the controllables (expenses). In Business, Especially the real estate investing business there are always things you do not account for.

For Example, currently as I write this, we had a 5 year old washer go out and chose to replace vs repair. An old leaky fridge, has ruined flooring and it will likely be a new fridge and some flooring repair. We save aggressively for repairs & Cap X  (~28%) Sometimes I feel like this isn’t even enough haha!

When it comes to vacancy, for us we typically have a fast turnover unless we are doing remodels. An example of this, a tenant just bought the way out of a lease, with a 30+ day notice, we started advertising immediately and just got an application today from a qualified tenant that will start their lease the day the other persons last rent payment covers. So we will have no vacancy.

For us, it is definitely repairs and CapEx, older appliances, we have a couple properties that will likely need exterior paint in the next couple of years. When these thigs happen to us, it just reminds me this is a business with expenses and you need to be prepared for them!

How much do you save for these things?

Richard F. · Answer

Typically, the problem is the size of the unexpected expense. There is zero correlation between the gross income or number of doors and some random percentage of reserves to establish for a long term hold.

Age is the primary driver, and there are statistical tables that inform on the expected "useful life" of Residential Construction elements. Everything deteriorates and needs major repair or replacement. Your local environment, and your Preventative Maintenance practices can reduce or extend that useful life.

This is actually one area where Condo projects at least take the wise First Step. They develop a Reserve Funding Plan that takes into account each major element (either $10K per, or an aggregate of related small/misc items totaling over $10K), the useful life; known or estimated current age; remaining estimated life (based on annual visual inspection and adjusted accordingly); and the cost of major repair or replacement (either with recent estimate, or inflation adjusted older estimate). The total adjusted, estimated cost is simply divided by remaining life to determine how much is needed to "reserve" for EACH element to be replaced at the expected time. You contribute to the reserve fund accordingly, and the money will be there when needed.

Where Condos often fail, is each year they review finances, and decide to NOT fund for one or more elements that year to keep monthly fees down for Owners. This snowballs into large shortages when elements actually fail, and forces the dreaded "Special Assessment".

For an Investor with a fee simple property, you are proactively saving for all of these expenses. If your pockets are deep enough, you don't need to take the step of planning, but if you are on a tight budget, you darn well better plan, and act, for them.

Ryan Stomel · Answer

Commercial side here — the answer for me is almost always deferred CapEx disguised as repairs, which is a slightly different beast than the options above. In NNN leases my tenants pay repairs directly, but I'm still carrying roof, structural, and parking lot. The damage isn't the repair cost itself, it's that it never came as a surprise — I had plenty of warning and pushed it. Parking lot went from a $40k resurface to a $90k replacement because I let it go two more years. The mental model I use now: anything with a 10-15 year useful life gets a monthly reserve, tracked separately per property. I don't lump reserves together the way you mentioned — learned the hard way that a bad year on one property shouldn't drain what another property has been building. For Ryan's question about collecting data over time, this is exactly right. The first 5 years of a portfolio you're guessing on reserves. Years 6-10 you're actually calibrating.

Thomas Meyer · Answer

You re asking the correct questions on preparing for "when" you need to throw money at a rental and how much to save.  We manage single family homes and I would suggest 1-4% of the homes value per year should be set aside for repairs.  Where landlords consistently fail on management is not inspecting homes throughout the lease term and tenants that fail to notify tenants of minor issues that turn into major issues.  We had a tenant who failed to disclose a water leak under a sink in Eagle and that damage was $800 but had they notified us it would have been $150.00 but that is where you lease contracts come in.

Drew Sygit · Answer

Maintenance!

Jim Johnson · Answer

Great question — and honestly, it depends on which one you’re not controlling well.

Vacancy is usually the bigger hit when it happens because it’s a 100% loss of income, not just an expense. But it’s also more controllable through pricing, marketing, and turn speed.

Repairs and CapEx, on the other hand, are more predictable but lumpy. They don’t show up every month, but when they do, they can wipe out multiple months of cash flow at once — especially with older assets.

Most operators end up thinking about it like this:

• Vacancy = short-term shock (but avoidable with strong leasing systems)
• CapEx/repairs = long-term drag (but manageable with reserves and planning)

Your 28% reserve is actually on the conservative side, especially if you’re holding older properties — which is why it still feels tight. Big-ticket items (roof, HVAC, appliances, flooring) tend to cluster, not space out nicely.

The bigger shift is treating CapEx as inevitable, not unexpected. Once you underwrite it as part of the deal instead of an occasional surprise, the numbers feel more realistic.

If anything, strong operators focus on:

• minimizing vacancy through systems
• smoothing CapEx through reserves and timing

Both matter — but vacancy hurts immediately, while CapEx tests whether your long-term planning is accurate.

Thomas Meyer · Answer

Some landlords value upkeep and some don’t but the ones that don’t freak out when they see a bill to clean up a home that’s been neglected but they still want that rent.  It’s better to keep homes looking good. Managing older homes is a challenge

Greg Namrow · Answer

Vcancy gets a lot of attention from me, but repairs and CapEx usually do the real damage because they hit unevenly and tend to come at the worst of times. A month of vacancy is painful, but a roof or plumbing issue can crush good deals. That is why I like to (overly conservatively..) underwrite all three separately instead of treating them like one reserve item. For residential rentals, I go with 5-10% vacancy reserve, 10+% for repairs & maintenance, and 5%-10% for CapEx depending on the age and condition of the property (new construction = 5% | aged properties = 10%).The older the property, the more I lean toward cash reserves by door as well, because percentages can look fine on paper right up until it hits the fan.

V.G Jason · Answer

I treat capex, vacancy, etc., as above the line items not below the line items.

I would say definitely repairs, though. Fortunately, not that many vacancies. Small little jobs to change this or that, as most of capex was done prior to leasing.

Ryan Spath · Answer

Agree with the deep pockets. The reason I even started thinking like this is recently I have come across to many older properties with LL that are "tired" and the properties are even more so. We have a "reserve calculator" with "useful life reference" that serves well. Just curious what others that are living that life in the right way of maintaining properties are doing. With active income currently this isn't a major concern, just wanting to plan for the future so our personal properties never become tired.

Ryan Spath · Answer

Thanks for sharing your insight.

What is your biggest cash flow killer, vacancy or repairs & CapEx?

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