Landlording & Rental Properties

12 CapEx Items Nearly Every Rental Has (& When to Replace Them)

Expertise: Business Management, Landlording & Rental Properties, Real Estate News & Commentary, Real Estate Marketing, Personal Development, Real Estate Investing Basics
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capex-rentals

For the sake of keeping this post short and sweet, we’re going to skip the big, complex explanation about what capital expenditures (CapEx) are as opposed to operational expenditures (OpEx), as you can Google that info.

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Instead, let’s get straight to the meat. You’ve got yourself a new-to-you rental, but you’re looking at a home built right after WWII where you have no idea what its 17 prior owners replaced or when. How do you know what will need to be replaced today, what can wait a year or three, and what can wait five or more years?

CapEx Items (Nearly) Every Rental Will Have

To answer that question, we need to lay out a list of CapEx items common to (almost) all rentals. There's absolutely no single rubric that will simultaneously encompass all of these, so we're going to have to break them down one by one. We'll do so by telling you when you are in definitely-replace-now territory, when you should call an expert to take a look at the situation, and when you can sit on it for at least a few years without a disaster likely. We're going to cover the following:

  • Roof
  • Sheathing (siding, brick, etc.)
  • Driveway, sidewalks, patios, etc.
  • HVAC
  • Water heater
  • Plumbing
  • Countertops
  • Wiring/electrical panel
  • Cabinetry
  • Flooring
  • Doors, trim
  • Appliances

When to Replace a Rental’s Roof

  • Replace immediately if: you can see more than a few quarter-sized holes of sunlight through the roof as you stand in the attic, there are 20 percent or more cracked or warped shingles on the roof, the valleys of the roof (where major runoff gathers) show significant damage, or the entire roof is sagging.
  • Call maintenance if: there are any holes with visible sunlight coming through, 20 percent or more of shingles are curling, cupping, or clawing, you have any noticeably missing shingles, your chimney flashing is not metal, you are finding roof debris (be it shingle granules, tile powder/fragments, or anything else) in the gutter.
  • You’ve got time if: you have moss or algae gathering visibly on the shingles or if only a few shingles are cracked or warped.

Related: How Much CapEx Do You Need to Include in Your Pro Forma?

When to Replace a Rental’s Sheathing

  • Replace immediately if: the siding is visibly sagging or cracked, has any visible holes in it, or poking under any warped or loose pieces reveals that the material underneath is no longer firm; a long vertical crack reaching across 4 or more layers of brick, or more than a couple of bricks are badly flaking or soft to the touch.
  • Call maintenance if: the siding is bubbling, a few pieces are cracked, or the wallpaper or paint on the inside of the exterior wall is peeling or coming loose (might mean moisture inside the wall); the bricks have visible or tangible salt deposits more than 3′ off the ground.
  • You’ve got time if: your siding is fading or a few pieces are cracked or warped, but not enough to easily fit a piece of paper into/underneath; the bricks are discolored or have insects congregating on them (even en mass) but not getting inside.

When to Replace a Rental’s Driveway, Sidewalks, and/or Patios

  • Replace immediately if: the cracks in the cement are more than 1/4″ wide or 3″ deep, the cement has already been patched and is 25 (asphalt) or 30 (concrete/pavers) years old, the cement has already been patched but is cracking again in the same places.
  • Call maintenance if: cracks are less than 1/4″ wide and less than 3″ deep, but are more than 2′ long in any straight-ish line, or are extensive in any 2′-square area, the cement is meaningfully impacting the rentability of the home. (Having someone resurface it is much less expensive and less ugly than a full replacement!)
  • You’ve got time if: cracks are minor, there’s grass growing between slabs.

When to Replace a Rental’s HVAC System

  • Replace immediately if: it’s not working!
  • Call maintenance if: your tenant’s heating/cooling bills are going up month by month, your home has humidity problems when the system is active, or the system blows dust every time it comes on.
  • You’ve got time if: some room are hotter or colder than others or the system is noisy.

When to Replace a Rental’s Water Heater

  • Replace immediately if: the water coming out of the faucets is below 100 degrees or there is water leaking around the base of the tank.
  • Call maintenance if: you hear sizzling or hissing noises during normal operation, the water coming out of the most distant faucet is below 110 degrees (assuming the water heater is set to 120), the pressure-relief valve is leaking, or the water heater is more than a dozen years old.
  • You’ve got time if: leaky water supply pipes can be fixed by tightening them yourself or the water isn’t as hot as the tenant might prefer but is still coming out of the most distant faucet at 100 degrees or more.

When to Replace a Rental’s Plumbing

  • Replace immediately if: you have lead, polybutylene, or galvanized steel pipes; the line connecting the house to the sewer is damaged (incoming or outgoing).
  • Call maintenance if: the water meter shows flow even when all water inside the house is shut off, you have red or yellow-tinted water coming out of your faucets, you have sediment in the bottom of the shower/sink after running the water for a while, visible pipes have signs of corrosion or are sagging, or you have brass or older PVC pipes.
  • You’ve got time if: None of the above applies.

Related: How to Estimate Future CapEx Expenses on a Rental Property

When to Replace a Rental’s Countertops

  • Replace immediately if: they have deep cracks, pitted areas, divots (for which you don’t have the relevant chip) in stone, or large chips in Formica.
  • Call maintenance if: you have scuffs, very fine cracks, small scratches, or divots with intact, or glue-able chips in stone.
  • You’ve got time if: your countertops are intact.

When to Replace a Rental’s Wiring/Electrical Panel

  • Replace immediately if: one or more outlets (or breaker switches) are turning brown and/or are warm to the touch, a burning smell occurs every time you use a certain outlet, circuit breakers flip within minutes of being switched “on,” or the wiring is aluminum or is more than 40 years old.
  • Call maintenance if: a light is flickering even after the bulb has been replaced, a circuit breaker is flipping irregularly when the circuit is clearly not overloaded, you lack GFCI outlets in the kitchen and bathroom.
  • You’ve got time if: you have only 2-prong outlets in most of the home.

When to Replace a Rental’s Cabinetry

  • Replace immediately if: the cabinetry cannot hold the weight of a 16-person set of dishes and glasses, the wood/particleboard is warped badly enough (after drying) that glasses can’t stand straight, the veneer over the particleboard/plywood has large missing patches.
  • Call maintenance if: the wood/particleboard is bulging or warped and still wet; the fixtures are loose or ugly; or the cabinets are scratched, marred, or otherwise ugly in a fashion that can be solved with a refinish.
  • You’ve got time if: the doors won’t quite close or the cabinets look out of place but aren’t obviously damaged.

When to Replace a Rental’s Flooring

  • Replace immediately if: there’s a problem with the subflooring; the flooring is ugly enough to drive tenants away; hardwood is cracked or deeply scratched; tile is shattered; or linoleum, vinyl, or carpet has cuts large stick your finger in or flaps you can pull up with your fingers.
  • Call maintenance if: there are large stains; hardwood is scuffed; tile has cracks large enough to let water in; vinyl, linoleum, or carpet has cuts large enough to collect grime; or the transition pieces are missing, broken, or are a tripping hazard.
  • You’ve got time if: tile has fine cracks that won’t let in water; vinyl, linoleum, or carpet has small cuts that are hard to notice; or transition pieces have stuff collecting underneath them.

When to Replace a Rental’s Doors and/or Trim

  • Replace immediately if: trim is rotting or moldy, trim is badly cracked or broken, or door won’t latch.
  • Call maintenance if: trim is cracked (but not enough to fit a piece of paper in), trim or door is warped enough to feel air flow under/around doors/windows, door is hanging off-level but still closes and latches.
  • You’ve got time if: trim is ugly or doesn’t match the décor or door is hard to latch.

When to Replace a Rental’s Appliances

  • Replace immediately if: appliances aren’t working or appliances work but smell strongly of ozone and/or burning.
  • Call maintenance if: appliances are making unusual noises, vibrating excessively during use, or are performing inefficiently but effectively; or appliances work but smell off during functioning.
  • You’ve got time if: appliances are less than the age given on the chart below.

The Appliance Age-to-Repair Chart

  • Gas Range, Gas Oven: 25 years
  • Boiler, Freezer (Single-Purpose), Electric Range, Electric Oven, Gas Dryer, Fridge: 20 years
  • Dishwasher, Washing Machine, Electric Dryer, Mini-Fridge, Garbage Disposal: 15 years
  • Window A/C Unit, Microwave, Trash Compactor, Range Hood: 10 years

Stick with these guidelines, and you can keep your CapEx expenses to a minimum while also minimizing your chance of having to spend even more on an emergency replacement to keep your rental livable according to legal standards.

What has been your experience with replacing CapEx items in your rentals? Any nightmare situations that have occurred due to waiting too long?

Let me know with a comment!

While in the mortgage business, Drew rose to a VP position at the first broker he worked for and then started his own company. In the pursuit of excellence, he obtained several mortgage designation...
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    Giovanni Isaksen Investor from Bellingham, Washington
    Replied over 3 years ago
    Great article Drew! Shorting the CapEx is an easy way to jack up NOI but it’s also how value add deals are created. Combine that with tired landlords and that’s how we get to create value in CRE and apartment deals. Your age to repair chart is very useful. When we’re in due diligence on a CRE or apartment deal we build out a full age to repair chart for the entire property (AKA a replacement schedule) based on the inspection reports so we can reserve an adequate amount for CapEx going forward. This would save some headaches or a rental house too.
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @GIOVANNI ISAKSEN: good point about these concepts being useful for multi-family also and thanks for the positive feedback.
    Giovanni Isaksen Investor from Bellingham, Washington
    Replied over 3 years ago
    Thanks and back at you Drew. Note the last line should say “on a rental house” not “or”. D’oh!
    Domenick Tres from Vero Beach Florida
    Replied over 3 years ago
    Excellent information Drew! I especially like the replace-maintain-you’ve got time guidelines. Personally, I’ve been burned by trying to wait until something needed replacing in my rentals. I find it’s better to replace the major systems if they are near the end of their useful life before finding a tenant. Otherwise I end up with having to compensate tenants for days they can’t use their apartment while the heater is being replaced in the middle of winter!
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @DOMENICK T: excellent point, we appreciate you sharing. Bad timing with occupants can cost even more:(
    James Pierce Real Estate Agent from San Francisco, California
    Replied over 3 years ago
    We’ve found through experience that the closer you are to the ocean here in San Francisco, the more internal and external home maintenance expense you will occur due to the “marine influence” or salt air corrosion. My compliments on your excellent article. It’s just the beginning of what should be considered for coastal properties. Always get a Contractor (Home) inspection as well a roof and Pest inspection prior to purchasing on the coast in Northern California, particularly for homes built prior to WW Two.
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @JAMES PIERCE: thanks for that extra insight! We don’t have those problems with fresh water locations here in Michigan:)
    Michael Boyer Investor from Juneau, AK
    Replied over 3 years ago
    Nice outline! This piece gets at a philosophy I have developed on CAP EX, i.e., rigid versus flexible CAP EX. There is flexible CAP EX, like dated but functional cabinets. Sort of a “you’ve got time” item (or even an refinish option) as mentioned in the article. Plan to replace but not a rush (maybe next turnover etc)…. Whereas anything where a failure goes to habitability or could harm the property (HVAC, ROOF, etc), I call more rigid CAP EX. These I replace at the end of their useful life or first clues of issues (also as mentioned in the article). Not ones to put off. Priority. The nice larger theme here is the granular level of CAP EX (not one size fits all or set number or %). Rather it is more nuanced and depends on the property, the particular type of components and its function, and their condition/age. And you have to also add in your own observations and experiences to gear your actions as well. This is CAP EX in practice (not just theory) and how you maintain the property responsibly but efficiently.
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @MICHAEL BOYER: thanks for the feedback. This is one issue that newbies always seem to overlook.
    David Zheng Investor from Saint Louis, Missouri
    Replied over 3 years ago
    Very nice post!!! Super helpful. Thanks!
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @DAVID ZHENG: we’re glad you enjoyed it!
    Andrew Syrios Residential Real Estate Investor from Kansas City, MO
    Replied over 3 years ago
    Great article Drew, very good rundown!
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @ANDREW SYRIOS: your comment is appreciated:)
    Melroy D'Souza
    Replied over 3 years ago
    Great article Drew. Thank you, it was actually very timely.
    Drew Sygit Property Manager from Birmingham, MI
    Replied over 3 years ago
    @MELROY D’SOUZA: a good article and timely? Our lucky day:) Glad we could help and thanks for commenting.