# Best ideas on Capex ratio

8 Replies

I know that there may not be a science for this but I thought wouldn't hurt to ask the question:

Just for initial planning purposes is there a way to come up with a swag at annual capex number for a class B apartment as a ratio related to its NOI, price, on-going maintenance costs, or some other parameter, way before you go on with a full due diligence?

For replacement reserves (at least in Texas) the lender will generally want \$250-300 per unit each year. So a 100 unit apartment will be \$25-30k to ensure you have money to fix big ticket items such as roof, HVAC, etc.

And I'm not talking about the capex to fix deferred maintenance or to upgrade your property to match the surrounding comps. This is only ongoing capex that will occur as your property ages.

Michael,

Thank you.  What an eye opener.  I am glad I asked the question and really appreciate the insight.

Best,

Michael

Also, note that that is in addition to the \$450-\$550 per unit in repair and maintenance each year.

@Sam Grooms and @Michael Le , Thank you gentlemen.

We use \$300/unit/year, but that is on buildings that we renovate. If there is differed maintenance, budget that and have that already in your reserve account plus 9 months of P&I payments. We use \$700-\$1000 for maintenance and repairs

So this is the part that I am confused about as well. Am I correct that Capex is not counted in the operating expenditure, and as such is not reflected in the NOI? So my math in calculating the actual cash flow of the property can be very different than that of the seller. How do you folks typically approach that in negotiation?

Originally posted by @Michael V Akbar :

So this is the part that I am confused about as well. Am I correct that Capex is not counted in the operating expenditure, and as such is not reflected in the NOI? So my math in calculating the actual cash flow of the property can be very different than that of the seller. How do you folks typically approach that in negotiation?

It doesn't matter how they calculate it. It doesn't matter how they run it. How will you be able to run it? That's how you should be underwriting it and coming up with your offer number. How they run it shouldn't come up in the negotiations.

Thank you gentlemen for your input.  I was away for over a week and am late in acknowledging your comments and support.  Thanks.