How do you calculate capex and repairs?

16 Replies

I've begun running numbers on properties and would like someone who has experience to lend a helping hand.  For properties that are basically turnkey, already renovated, and appear to need very little work, I've been allocating 10% of monthly rent to cap ex and 2.5% of rent for simple repairs.


For a property that my partner and I will look to renovate ourselves and will have everything new (basically a gut job), we are allocating 10% of monthly rent TOTAL for cap ex and simple maintenance/repairs.

I know every property is different, but I am curious how you savvy investors on BP calculate cap ex and maintenance/repairs?

Originally posted by @Spencer Cornelia :

I've begun running numbers on properties and would like someone who has experience to lend a helping hand.  For properties that are basically turnkey, already renovated, and appear to need very little work, I've been allocating 10% of monthly rent to cap ex and 2.5% of rent for simple repairs.


For a property that my partner and I will look to renovate ourselves and will have everything new (basically a gut job), we are allocating 10% of monthly rent TOTAL for cap ex and simple maintenance/repairs.

I know every property is different, but I am curious how you savvy investors on BP calculate cap ex and maintenance/repairs?

 Instead of using a % of gross rents to calculate capital expenses I think investors would be better suited to just itemize it.

For example.

  • A typical roof (Cleveland area, my market. Yours may be different) will last 30 years. The cost of a roof is going to be around $5,000
  • A furnace is going to last around 40 years. The cost of a new furnace install is going to be around $3,000
  • A hot water tank is going to last around 15 years. The cost of a new hot water tank install is going to be around $1,000

How old the above 3 items are on the prospective property is going to determine how much life they have left and how much you should account for in cap ex savings.

@James Wise Thank you for this insight.  Since I'm a beginner, this will be a little challenging at first.  However I like the way this approach handles the exact numbers and not estimates.

Excuse the beginner question, but is it easy to figure out when the last time something was either worked on or renovated?

@Spencer Cornelia , a couple of podcasts have been done on this.  Cont remember which ones, but @Ben Leybovich and Serge (spelled wrong I'm sure and cant remember his last name) covered it very nicely in a podcast and blog post.  Look it up.  There  also are a few spreadsheets in the files area that have it broken out.

Good luck

CapEx tracks replacements of physical components. Those are not denominated as a % of anything - they are denominated in $. So pro forma $.

Same can be said about turnover costs, R&M, pay roll, and many other line items :)

Just discussed something similar the other day. Hopefully this link works.
CapEx Calculation Controversy on the BiggerPockets forums
http://www.biggerpockets.com/forums/12/topics/586399-capex-calculation-controversy
I'm also a newbie, but I'll share what I determined. I'm conservative with my numbers and use a $200 per door CapEx until I can get accurate numbers. Then I'll do it as a line item of annual depreciation. I'm in the Cleveland metro. 15% property management, 8% maintenance, $40 per person for water, 8.3% vacancy, taxes from the county site, and insurance. Not sure if it would be different in your area.

@James Wise I wish I could like your post x1,000.

Each home is different and as part of your initial inspection you should take note of those items as well as appliances, painting exterior, windows etc.

Look what you will need to spend $ on in the next 5 years and those items 5+ years

For single families, I budget $100/month for repairs/maintenance and $200/month for cap ex. If I don't spend the $100/mo in maintenance, that goes to my cap ex budget at the end of the year. This approach will lower your cash flow, but will ensure that you have money for big expenses when they come about. 

@Spencer Cornelia if I am calculating in order to come up with a price to offer, I multiply the gross rent x .60. This is 40% for all expenses. This is just to estimate NOI and cash flow. After buying the property, I put 100% of the rent into an account and I pay all expenses and debt service from that account. What is left over is cash flow. I don't touch it. The account builds up over time and if I need to replace the roof 15 years down the road, I write a check from this account. Amazingly simple.

Originally posted by @Matthew Jure :

Just discussed something similar the other day. Hopefully this link works.
CapEx Calculation Controversy on the BiggerPockets forums
http://www.biggerpockets.com/forums/12/topics/5863...
I'm also a newbie, but I'll share what I determined. I'm conservative with my numbers and use a $200 per door CapEx until I can get accurate numbers. Then I'll do it as a line item of annual depreciation. I'm in the Cleveland metro. 15% property management, 8% maintenance, $40 per person for water, 8.3% vacancy, taxes from the county site, and insurance. Not sure if it would be different in your area.

$200 por door is not enough. We are under contract right now. We plan to deploy $1.4M on CapEx in the first 2 years, meaning we touch literally everything. Roofs, paint, windows/doors, flooring, cabinets, appliances - everything will be new.

I tried to get our PM to go with $250/door of CapEx reserve and they bulked. Made me use $300 - and that's with everything brand new spread out over a large apartment community. If you are talking smaller, that number becomes somewhat larger.

@Ben Leybovich

When I use CapEx that high, a good deal makes no money. Do you see anything else from my numbers that seems off?

Water is legit (pay that now), taxes are exact. Property management companies in Cleveland seem to charge 10% + 1 months rent to place (I assume 15% of GSI). I could lower vacancy to 5% and maintenance to 5% but doesn't fix it. Not sure where I'm off...

Originally posted by @Matthew Jure :

@Ben Leybovich

When I use CapEx that high, a good deal makes no money. Do you see anything else from my numbers that seems off?

Water is legit (pay that now), taxes are exact. Property management companies in Cleveland seem to charge 10% + 1 months rent to place (I assume 15% of GSI). I could lower vacancy to 5% and maintenance to 5% but doesn't fix it. Not sure where I'm off...

 Hahah and that would be because most deals that most people think are good, are not :)

Matt, feel free to email me your pro forma underwriting. Just on the surface, I am not sure what to tell you. 

Originally posted by @Spencer Cornelia :

@James Wise Thank you for this insight.  Since I'm a beginner, this will be a little challenging at first.  However I like the way this approach handles the exact numbers and not estimates.

Excuse the beginner question, but is it easy to figure out when the last time something was either worked on or renovated?

 Sometimes you'll see it written on the tank or furnace when it was last worked on our installed. On top of that you can look at the rating plate which will have serial and model numbers. 

When I posted this question, the idea of understanding the costs of home renovations and repairs seemed daunting.  After reading through the responses, I have decided to partake on a journey in understanding everything about home renovations in order to properly evaluate capex on investment properties.

After a day of reading through J Scott's Flipping/rehabbing books and watching YouTube videos, I now realize this is possible.  Today's topic was roofing and I feel really comfortable with everything relating to roofing.  I now see the value in estimating the exact capex costs - explained greatly here by Brandon Turner.

Thanks for the replies.  I now have a fun Sunday ahead where I will learn about HVAC, drywall, and sheetrock.