Question on vacancy reserves

[Tip Lee]

Hi, 

Newbie here. I have a quick question regarding "vacancy reserves". Im having a bit of a hard time wrapping my head around this, but I think its very simple and Im over thinking it. 

When calculating vacancy reserves- Do I simply tally up what the property would make if every unit was rented, and then set aside a percent of that for "vacancy reserves"? Like if the property grosses $8000 in rents and I want to factor a 10% vacancy, I would plan to set aside $800/month for that? 

If so, does that money just go into an account to help offset months where the property does not bring in $8000 in rents?

Or am I subtracting $800 from the $8000 to account for not really always having every unit rented, and then I base my whole budget off of $7200 instead? 

I guess im just confused on if the "vacancy" is actually money set aside, or just money I subtract from my gross income when making my budget to account for the possibility of not having every unit rented. 

Thanks so much!

[Oren K.]

Bob - I'll take door #2 (Price Is Right reference)

You can not put away money that you never receive otherwise if totally vacant you would be getting $8000 (in your case) by magic from someone and not have to do anything (how I wish this was possible ;).

The vacancy is not a 'reserve' but 'unrealized' income.

Oren