CAPX Rule of Thumb?

Question

What's a good rule of thumb for CAPX?

Nick B. · Answer

$8-10K is more realistic but any rehab amount depends on the actual scope of work and contractors bids.

You mentioned on hand reserves and that is an additional amount that is also raised upfront.

3 months of projected operating expenses and debt payments is typical for stable properties.

If the property doesn't cashflow as is, that amount needs to be increased to cover operations and debt until the property becomes self reliant.

Nick B. · Answer

$5K/door is allocated upfront for rehab. It is meant to be spent in the first year or so. Doing rehab out of cashflow is a recipe for disaster.

BTW, $5K is just a ballpark estimate of the immediate capex for preliminary underwriting. The final number is usually higher.

Theo Hicks · Answer

$250 to $300 per unit per year.

Nick B. · Answer

Outside lender, of course. This is a 160+ units apartment complex

Leif Cedar · Answer

That's amazing! Congrats! Did you finance that with an outside lender or use your own money?

Nick B. · Answer

One of the projects I invested in did not cashflow immediately because it was in bad shape and grossly mismanaged. However, there was a potential to increase rents by $200+. We spent over $20K/unit on repairs and upgrades and got the rents up by $300 or so. As a result, the property started to cashflow after 8 months and was later refinanced with investors getting 30% of their original money back.

As for this being risky, it not if you have enough capital to get through the initial phase. That's why it's important to correctly estimate initial repairs and raise additional money for reserves and operations.

Leif Cedar · Answer

Thanks. Do you buy properties that aren't cash flowing? That sounds risky.

Leif Cedar · Answer

OK, thanks. I guess it depends on how much value add there is. Some properties I've looked at have new roofs and are in pretty good shape.

Bryan Hartlen · Answer

Thx.  Got it.  We're targeting value add properties so our budgets typically include 8 - 10k or more for interior rehab plus exterior and mechanicals.  What we haven't figured out is a good starting point for on hand reserves?  If it's a planned flip exit we model this very thin with minimal risk.  If it's a hold then what?  5% or some amount / door?

Bryan Hartlen · Answer

Do you go into value-add deals with the $5k/door in reserve or so you build up to it over time using cashflow?

CAPX Rule of Thumb?

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