Replacement Reserves

Definition: Amounts set aside for future replacement of major property components with limited useful lives, such as roofs or mechanical systems.

Example

An owner budgets annual contributions toward a future roof replacement rather than treating the entire future cost as unexpected.

Keep the distinction clear

A reserve contribution differs from the actual replacement expense. Appraisal, accounting, lender, and association rules may treat reserves differently, so follow the stated convention.

Related terms

Replacement Cost · Net Operating Income (NOI) · Cash Flow

Keep studying

Income Approach: NOI, Cap Rate, Property Value, and Cash-on-Cash Return

References: FREC Course II syllabus: investment concepts

Pronunciation (US): ree-PLAYS-munt ree-ZURVZ (capitals show stress)

Pronunciation reference: Merriam-Webster