CAPex fund – Why do I have to escrow money for repairs?

Why Do Blanket Loan Borrowers Have to Escrow Money for Repairs?

A CapEx fund (capital expenditure fund) is an escrow reserve that lenders require borrowers to maintain for property repairs and maintenance throughout the life of the loan. This is standard practice in commercial and multifamily lending, and it exists to protect both the lender and the borrower by ensuring capital is available when roofs, HVAC systems, plumbing, or other major building components need replacement.

Typical CapEx reserve requirements range from $450 to $1,500 per door per year, depending on the age, condition, and type of properties in the portfolio. The funds are collected monthly as part of your loan payment and held in an escrow account managed by the loan servicer. When a qualifying capital expense arises, you submit a draw request to access the funds.

CapEx reserves cover roofs, HVAC, plumbing overhauls, and other major building components

What Expenses Does a CapEx Fund Cover?

The CapEx reserve is designated for significant repairs and replacements that maintain the structural integrity and habitability of your rental properties. Common qualifying expenses include:

• Roof replacement or major repair -- the single largest capital expense for most rental property owners
• HVAC system replacement -- furnaces, central air conditioning units, and ductwork
• Plumbing and electrical system overhauls -- not routine maintenance, but major system failures
• Structural repairs -- foundation work, framing, load-bearing wall issues
• Appliance replacement -- water heaters, built-in appliances required by lease terms
• Safety and code compliance -- fire escapes, egress windows, lead paint remediation

Routine maintenance such as lawn care, snow removal, and minor cosmetic repairs typically does not qualify for CapEx draws. Those are operational expenses covered by your rental income. The CapEx fund is specifically for the larger, less frequent expenses that protect the long-term value of the collateral.

How Does the CapEx Draw Process Work?

When you need to access CapEx funds, your property manager or you (if self-managing) submit a draw request to the loan servicer. The request includes documentation of the repair needed, contractor bids or invoices, and photos if applicable. Once approved, the servicer releases funds from the escrow account. Most draw requests are processed within a few business days, so you are not left waiting while a critical repair sits unfinished.

Investors who are accustomed to self-funding repairs sometimes view the CapEx escrow as an unnecessary restriction on their cash flow. In practice, it functions as a forced savings account that prevents deferred maintenance from eroding property values. Lenders require it because a portfolio of well-maintained properties holds its appraised value, which protects the collateral backing the loan. It also protects you from unexpected large expenses derailing your cash flow projections.

Learn more about reserve requirements and loan structure under our blanket and multifamily loan programs.