Replacement Reserve

Replacement reserves are annual allocations for future capital expenditures — roof replacement, systems upgrades, common-area refreshes. Typical LA multifamily reserve: $300–$500 per unit per year.

What it means in practice

Reserves are not immediate cash expenses but a planned allocation for future capital work. Including them in the operating expense calculation produces a more honest NOI. Underwriting that omits reserves overstates NOI and therefore valuation.

Why it matters for LA multifamily

LA multifamily buyers in 2026 consistently model $300–$500 per unit annual reserves — higher on pre-1978 inventory approaching major capital milestones (seismic, plumbing, roof). Sellers who exclude reserves from their NOI presentation face buyer adjustments during underwriting.

Related terms


From the Sterman LA Multifamily Glossary — defined the way a broker with $1.41 billion across 254 closed transactions actually uses these terms.

Michael Sterman, Senior Managing Director Investments, Marcus & Millichap.

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