What is the Cap X Meaning in this Formula

Question

Hello I came across a CoC formula and was wondering if anyone in the community could answer this question.  The formula is:

CoC=(NOI - Debt Service - Cap X)/(Acquisition Cost)

What is the Cap X?  There is the monthly amount that you have to put away every month towards future Capital project like roofing etc, then there is the amount of money that is needed for the capital improvement that will be made to the multifamily property immediately after closing prior to raising rent (typically we include this as part of our capital raise).  Trying to figure out which is being referred to in this formula.

Allan C. · Answer

@Brock Mogensen while capex items are one off, you should include amortized capex in your return estimates so that you have a better portrayal of Long term returns. Simply divide the capital expenditure by service life.

Brock Mogensen · Answer

@Allan C. Agreed. But it also depends if you allocations in the capital stack for cap ex.  If you raise the correct amount of cap ex in your capital stack, all cap ex can be pulled from there..without having to amortize.

Marcus House · Answer

@Brian Sigmon yes it is for acquisitions.

Steve Morris · Answer

• CapEx is building improvements/repairs you can't expense (is take the whole cost in the same year against your income), but have to depreciate (ie a new roof you would take, I think, 1/7 the cost/year for 7 years).

I don't know if I'd include these in C-C since they're not really operating (ie regular recurring expenses) and you should be taking something out for reserves to pay for these on an ongoing basis.

Brian Sigmon · Answer

@Marcus House what is the context is it for acquisitions? Then it would be intended as the rehab budget.

Brock Mogensen · Answer

I think the Cap Ex in this formula is just saying to subtract any capital improvement expenses.  If capital improvement expenses are being paid with separate reserve funds, I don't believe you should include it in CoC calculations.  Since they are generally one off expenses.

What is the Cap X Meaning in this Formula

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