Where to calculate Cap Ex?

3 Replies

Hey everyone!  I wasn't sure where to post this questions so, since it has to do with startign out a bit I placed the question there.

Bascially, I have tried to do some quick searches on this question, but I haven't come up with anything great.

Where do you calculate Cap Ex? 

I hear not to count it as an expense, but it definitely effects cash flow numbers.  I am wondering where you place that calculation in your numbers?  After expenese?  After cashflow?

Please feel free to give a brief or in detail anwser.

Thanks and I look forward to hearing from everyone.

I don't count reserves for vacancy, cap ex, or routine repairs as part of my cashflow because they go into separate subaccounts (virtual) from my cash flow that I can use for purchasing other properties or to pay down debt.  I am currently doing a 10% hold for cap ex and 10 % for repairs on my properties because I don't have any major things expected.  I am hopefully buying another property this month that has a questionable HVAC so I will probably divert all cash flow into the cap ex fund for it (about 40% of rent total) just in case.  In reality if I need to do a major replacement on a property and don't have enough in the cap ex fund yet I will either rob the Peter Property (another house's cap ex fund) for Paul's salary to pay for it anyway but I try to keep separate virtual accounts and books for each place.

@Ryan VanPatten  

The way I would look at it is to consider it after your determine your NOI (Net Operating Income)

For example, if NOI = gross rents minus vacancy allowance and operating expenses,

then your Cash Flow from Operations (CFO) = NOI minus your capex or reserves.

Most people make the mistake of considering cap rate and cash flow numbers before considering capex.  If you're going to spend that money, then you shouldn't really consider it true cash flow.  Using CFO to calculate cap rate and the like is a much better way to go.

Originally posted by @Louis Leone :

@Ryan VanPatten  

The way I would look at it is to consider it after your determine your NOI (Net Operating Income)

For example, if NOI = gross rents minus vacancy allowance and operating expenses,

then your Cash Flow from Operations (CFO) = NOI minus your capex or reserves.

Most people make the mistake of considering cap rate and cash flow numbers before considering capex.  If you're going to spend that money, then you shouldn't really consider it true cash flow.  Using CFO to calculate cap rate and the like is a much better way to go.

Cap rates do not include a capitalization of cap ex. That is overstating their value. Cap rates have no direct link to cash flow. The correct way to determine cash flow is just to subtract all expenses, operating & capEx from NOI. Cap rates would not be calculated here.

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