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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 began buying rental properties and flipping houses at age 21, discovering he didn’t need to work 40 years at a corporate job to have “the good life.” Today, with nearly 100 rental units and dozens of rehabs under his belt, he continues to invest in real estate while also showing others the power, and impact, of financial freedom. His writings have been featured on Forbes.com, Entrepreneur.com, FoxNews.com, Money Magazine, and numerous other publications across the web and in print media. He is the author of The Book on Investing in Real Estate with No (and Low) Money Down, The Book on Rental Property Investing, and co-author of The Book on Managing Rental Properties, which he wrote alongside his wife, Heather, and How to Invest in Real Estate, which he wrote alongside Joshua Dorkin. A life-long adventurer, Brandon (along with Heather and daughter Rosie) splits his time between his home in Washington State and various destinations around the globe.

    Ram Srinivasan Business Consultant from Calgary, Alberta
    Replied over 4 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 over 4 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 about 4 years ago
    Thanks Scott!
    Jessie Flo from Woodstock, Illinois
    Replied over 3 years ago
    Great podcast Scott, this was very helpful!
    Jay Williams Rental Property Investor from CA NV TX, ?
    Replied 9 months 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!