Rental Property - CAPEX & Cashflow

[Jordan Krasner]

hey guys, quick question

when calculating the cash flow or the COC % on a rental property, how does budgeting for CAPEX get factored in?

say i know in 5 years ill have to do the roof and it's going to cost me 15k, i need to budget 3k annually for it

the money isnt really an expense though as it's not being spent, but i am however losing cash outflow so it must affect the cash flow somehow?

as far as i know COC % = NOI - DEBT / TOTAL CASH INVESTMENT

where in this formula would the budgeting for capital expenditures get factored in?

thanks!!!

[Sam Grooms]

Capital reserves get taken out as well. Some people include this above NOI, others below. But it's a lender requirement, so you'll need to account for it in your cash flow calculations.