How to evaluate capex/deferred maintenace before purchase

2 Replies

I'm in the learning phase before buying my first rental.  I'm thinking I will do a fourplex, owner occupied.  I've found a target neighborhood where the numbers (1% rule, 50% rule) seem to work and the tenants are desirable.   The area is all boxy, mid-1980's roughly identical fourplexes. It seems that that age is right around when the effects of good/bad management begin to really show - some units are a little ragged, some pretty nice.

What I want to learn is how to be precise about capex estimating. I can think of a few ways:  please tell me how YOU recommend estimating capex.

My ideas:

1) Just use a trusty fixed % of purchase price. (How to choose that % for my market?)

2) Look at records from seller. (Can you trust this at all?)

3) Look at records for similar properties (How do you access this?)

4) Ground up approach: (cost of roof)/(useful life of new roof) + ditto for HVAC, paint, landscaping, ... 

5) Similar to (4) but inspector determines remaining useful life of roof, paint, HVAC, etc. and timetable for updates is established.

6) Other?

Several of these require that you have a specific property in mind and under contract, whereas (1), (3) and (4) four would work for a blanket area of similar candidates.

@Jeff S.

Of the 5 you have listed, I would say 4 and 5 are a better bet on getting cost.

Don't quote me on this but...I've had a few appraisals/inspections from my previous buys and can't honestly remember if I saw in one of those documents (maybe the inspection) where it was indicated the remaining life of say HVAC.

With that said, you can always take a picture of the system (HVAC, W/H) serial# to get the year it was manufactured. I do this to see what the year is in addition to self-inspection and getting my inspector to look at it.

I have recently put a document together that lists all the properties systems (yr or age, serial and model, remaining life) and factor cost with the remaining years. This helps me determine my CapEx when doing my analysis. Generally I was going with a blanket 10% on R&M and CapEx but I wanted to have a better idea of cost. I did this because I was loosing track of property upkeep (yrly check ups, etc)

I also call around to stay up on roof and HVAC install and purchase costs. 

Thanks, Daria.

I never knew you could "date" a WH or furnace from serial #.  Makes sense!

Now if you could only do that with a roof!

Actually roofs are very tricky here - we get crazy intense hail sporadically.  Last summer was crazy with roof replacements.