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#AskBP 080: What Are Capital Expenditures and How Do I Estimate Them Correctly?

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What Are Capital Expenditures and How Do I Estimate Them Correctly?

In this episode of the #AskBP Podcast, Scott Trench talks about Capital Expenditures, or CapEx. You’ll learn about some of the unique characteristics of this type of expense, and how to predict and plan for them in the future. This is a subject that a lot of investors struggle with, and Scott explains how these types of expenses need to be accounted for, planned for, and conservatively managed. Don’t miss this episode on this critical kind expense!

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Brandon Turner is an active real estate investor, entrepreneur, writer, and co-host of the BiggerPockets Podcast. He is a nationally recognized leader in the real estate education space and has tau...
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    Ram Srinivasan Business Consultant from Calgary, Alberta
    Replied about 5 years ago
    Hi Nice response. I do have a question though. It would be hard to put a per month figure for every capital expenditure. Are there any rule of thumbs to follow that estimates all compoenents, say for a single family house? In addition aren’t there statistics our there tajt gives the average life span , and can we just not use that? Love this show
    Scott Trench President of BiggerPockets from Denver, CO
    Replied about 5 years ago
    Ram, I’d suggest that you do go through the exercise of trying to list out every single capital expenditure you can think of and try to calculate a per month figure for them in aggregate. While you will of course be wrong on every single one, it’s a great exercise in understanding all the hidden costs that most new investors dismiss or overlook until it’s disaster time. The problem with using statistics is that they are just that – statistics and averages across a large number of devices or experiences. If you had 300 properties, then statistics would be a great way to go about this, but with a small number, or just one property, averages don’t apply, and I believe that it would be extremely risky to rely on averages. Personally, I’m of the opinion that planning for Capital Expenditures occurring in greater frequency and higher expense than my projections allows me to run a secure real estate investment. Instead of relying on my CapEx projections, I plan for an even more conservative 10% of Gross Rents per month to go towards CapEx over the long term for my duplex here in Colorado, and keep a large cash reserve of about $20,000 for any unexpected expenses. -Scott
    Ram Srinivasan Business Consultant from Calgary, Alberta
    Replied almost 5 years ago
    Thanks Scott!
    Jessie Flo from Woodstock, Illinois
    Replied about 4 years ago
    Great podcast Scott, this was very helpful!
    Jay Williams Rental Property Investor from Los Angeles
    Replied over 1 year ago
    As a newbie, this article is still relevant and helpful years later! I’m in CA and considering investing in one house hack here and purchasing 1-2 out of state properties this year. #goalsetting. No analysis paralysis here! Thanks so much Scott for this share!