Does Cap Rate include Capex?

Question

Just want to check my understanding.  When people discuss Cap Rates, I think it subtracts off for all cash expenses EXCEPT Capex.  Is that right?  Is there a measure that subtracts off for Capex?

Roy N. · Answer

Cash-Flow Before Taxes (CFBT) = Net Operating Income

- Debt service

- Replacement reserves (CAPEx)

Roy N. · Answer

@Cori Chekhovskiy

CAPEx is not an expense.  It is a reinvestment of capital.

It is often acquired by setting aside a portion of retained earnings in a reserve.  However, it could just as easily be acquired through a contribution of new capital by stakeholders (shareowners).

Adam M. · Answer

Doesn't mean you shouldn't budget a certain amount per month to be set aside. From an accounting perspective you'd have a replacement reserves account for the property and assign part of the cash inflows from the property to that. Then when you incur a large expense related to that property you charge it to that account.

Cori Chekhovskiy · Answer

Does anyone have a T12 that I could see? What I've been getting on deals doesn't seem as good as a T12 sounds.

Cori Chekhovskiy · Answer

Oh wow, @Andrew Johnson! What a scam!

I'm trying to label the true, bottom line money that can be spent, after setting aside for long term Capex.

Cori Chekhovskiy · Answer

Ah.  I see!  Thank you!

I'll have to search that in the forums.  It would be nice to see what % other people find acceptable.  :)

Adam M. · Answer

Agree w/ @Roy N. NOI is operating CF. General wear and tear should be calculated into your maintenance expense. CapEx is expenditures outside of general operating.

Cori Chekhovskiy · Answer

Understood.  Just seems there should be some name for the true FCF generated, after setting aside money that will eventually need to be used by the property.  That's the number I'm always calculating for my investment purposes.  Seems there isn't a name for it?

Does Cap Rate include Capex?

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