Capex estimations

11 Replies

Anyone have any suggestions on how to estimate upcoming capex costs for bank owned properties, or properties where the seller doesn't know how old the roof is? (or other items where there's no sticker saying when an item was installed/purchased)

Easy.  Figure it needs to be fixed and or replaced.  Get a general quote for it from a roofer.  Use it

I agree with @Joe Villeneuve   determine what's wrong with the property and get quotes

Originally posted by @Bryan N. :

I agree with @Joe Villeneuve  determine what's wrong with the property and get quotes

REI isn't a guessing game. It also isn't a game of shortcuts (i.e. 2% RULE, 5% Rule, 50% rule, guesstimating rehab, etc..). Trying to find a magic one size fits all formula or shortcut, and using it, is why many investors fail, and are then forced to overestimate on the side of caution, which rejects good deals, and screws up bad ones, still misses the mark, and then they will criticize or call out those that are actually accurate...because accuracy can't be done.  Sorry, if you just do the work, you will actually reduce the amount of work you need to do...and, you'd be amazed how accurate you can be.

@Joe Villeneuve  Thanks for the response. But, my question is this. If there's nothing visibly wrong with the roof say, will you get a roofer out to every property before you put in an offer?

@Joe Villeneuve  

I know that already.  I was agreeing with you.  Thanks for the lecture.  Have another shrimp on the barbi as the old school Australia tourism commercials used to say.  

Originally posted by @Bryan N. :

@Joe Villeneuve 

I know that already.  I was agreeing with you.  Thanks for the lecture.  Have another shrimp on the barbi as the old school Australia tourism commercials used to say.  

 Sorry Bryan.  Didn't mean to make is sound like I was disagreeing with you.  I attached it to your post because I was agreeing with you and wanted to make a point of it.  Sorry.  My bad.

Originally posted by @John Matthews :

@Joe Villeneuve Thanks for the response. But, my question is this. If there's nothing visibly wrong with the roof say, will you get a roofer out to every property before you put in an offer?

 You don't need to get a roofer out to every job.  You just need to have a quote that you can apply to every roof...and the number of the roofer you would use.  If there is something unusual about a particular roof that makes it different than the one you got the original quote on, you can always take a picture and text or email it to the roofer with your question.  All the roofer needs to do is say the roof should be higher of the same based on the number you have.  A 1000 sf ranch, with a gable roof, is going to cost the same for every replacement...or at least close enough.  Your estimate is a range, and you assume the high end.  Just don't make the range so wide that you might just as well close your eyes and draw the quote out of a hat.

All of your standard rehab repairs/replacements you can do this way.

Roof, floors, kitchen, baths, paint, appliances, etc...

@Joe Villeneuve  I gotcha, so you're assuming that the roof needs to be replaced on every job, but using real costs to get a good estimation of what that cost is, and factoring that price into the offer price?

For my Buy & Holds I calculate a monthly amount to set aside into a separate account for Maintenance and Replacement costs. For these costs I physically have a checklist I fill out for each property and calculate an individual value instead of using a fixed percentage. Simply because on a $60,000 Triplex I have 3 of nearly everything vs a $80,000 Single Family Home with only 1 of each, percentages would be off for both properties.   

Here's an example of a Duplex I'm looking to close on next week and what I can expect to put aside in expenses and also take in:

2bd/1ba & 1bd/ba Duplex - Purchase Price $41,500

Income 1 $600, Income 2 $475,  Vacancy -$90, TOTAL INCOME = $985

Mortgage $220, Property Taxes $66, Management (6%) $65, Insurance $55, Water $60 TOTAL CORE EXPENSES = $466/mo

Snow Plow $21 ($250/yr), Lawn Care $0, Turn Over Cleaning $25 ($300/yr), Visits/Phone Calls $60/mo TOTAL MAINTENANCE = $106/mo

Ovens $400 x 2 / 8 yrs = $100/yr, Fridge $500 x 2 / 8 yrs = $125/yr, Dishwashers $0, A/C $0, Washer/Dryer $0, Water Heater $400 x 2 / 10 yrs = $80/yr, Furnace x 2 / 15 yrs = $267/yr, Roof $8,000 x 1  / 20 yrs = $400/yr, Carpet $2 x 600sf / 6 yrs = $200/yr, Yearly Total = $1,172/yr TOTAL REPLACEMENT EXPENSES = $98/mo

Total Avg Monthly Income = $985, Total Ave Monthly Expense = $670, 

Cash Flow = $315, Down Payment = $8,300, ROI = 45%!

I do my own Property Management and this house is already newly remodeled with current tenants so I won't realize these expenses yet, but I will ALWAYS keep those numbers in the calculations as repairs unexpectedly happen and I don't always want to be the one answering the phones.

@Chris Heeren  - That makes sense. That's exactly my plan, but my question was geared more towards determining any upfront (or soon) capital expenditures prior to purchase. Interesting to see your breakdown for expected life of each capital expenditure though.

@Chris Heeren THAT was excellent. I learned so much in 2 minutes reading your reply. Thank you for that. I know we can never be exact but the way you explained that was extremely helpful. Thank you!

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