Hey pros! How are you estimating cap ex?

12 Replies

What assumptions do you guys use when analyzing deals when it comes to capital expenditures? I'm interested in the BRRRR strategy so theoretically I wouldn't have any cap ex for the first few years.

@Justin Manges you could figure 10%, that's what Brandon is going to tell you in his webinars. Or, like what you said, if your going to put a bunch of money in up front and you are taking care of all the major issues you could put it at 0% for a few years. 

We recently purchased a duplex that has new sewer, new roof, and in one unit all new HVAC and water heater. When we do the rehab on it next year I will more than likely do the water heater and HVAC on the other unit, then it's just done and shouldn't need to be worried about. On that property I pull out money for maintenance 10%, vacancy 8%, and property management 7% 

@Malcomb Stapel thanks for the info!

I was honestly thinking about going ahead and setting the money aside so it could build to a decent amount. I heard someone on one of the podcasts say they put it in an escrow account but I’m not sure what that means.

Someone suggested to me on here recently to do it this way: Roof cost =$10k, last 20 years, so set aside 500 per year, over 20 years that 10k. Hvac= $6500, lasts 15 years, so 15/65 per year....etc. just play with your numbers.

My property rents for $1300, I think if I did 10% and did 130 a month aside it would not be enough....

@Justin Manges

Capex are big ticket items like roof, HVAC, plumbing and windows etc.

Repairs are smaller items that can come up like repairing a leak or repainting or fixing some other miscellaneous small item.

@Justin Manges

Capex is big stuff that wears out (roof, AC, maybe driveway or house siding depending on your market.) repairs are appliances, small leaks, water heaters and such.)

Any estimate on capex that isn’t based on the type of property you buy, in the market you buy, around the same age as you buy, is pretty much useless. 

Try putting these numbers in to 100 year old homes on the north east coast.

20 years, more than a dozen properties…(all Vegas SFR, 5-10 years old when I purchased them)

So that’s 240+ rental property years. less than $1,000 on roofs and roof repairs (tile roofs) total, virtually zero on exterior house siding (stucco), zero for income tax, vacancy rates well under 0.5%, insurance that averages less than $600/year and property taxes around $220/year on $300k properties. BUT, being in Vegas, I have spent almost $40k on AC units (one every couple years since most properties have 2 each) That’s $2,000 per year, almost $175/mo for 12 properties. 

Repairs on the other hand can be just as much for me. Figure 2 appliances and at least 1 water heater every year, that’s a couple thousand a year.

But imagine 20 year shingle roofs, I’d have at least $60-$90k in roof replacements. So do you put $1,000 or $90,000 for your 20 year number, and that’s just one category. 

@Justin Manges I just budget 5% for CapEx and 5% for maintenance, but I also look at 1980+ homes. Older homes require more. If you wanted to get more detailed you could do a CapEx projection by itemizing all of the CapEx items (roof, AC, water heater, etc) and the replacement budget and the expected life duration based on the current age which would tell you roughly what monthly budget you'd need to account for

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