Budgeting for capex and repairs

Real Estate Agent · Boston, MA · Member since 2016 · 451 posts · 214 votes

Does anyone have a set of criteria for how to determine how much to set aside for capex and repairs? I know it's generally 5-15% of the rent in each instance, but assuming a newer home needs less and an older needs more. Any rules of them that you follow?

1 Reply

107 views

4 Replies

Jump to latestLatest

Sort by

Kevin Sobilo
Realtor · Hanover Twp, PA · Member since 2018 · 3k+ posts · 3k+ votes
4y
@Kyle Spearin, I own older homes (~100 years old), but I rehab them before putting them into service so they are in good condition when I start.
I budget 5% for cap ex, 2-3% for maintenance (lower because I just rehabbed the property) and 5% for vacancy.
Also, you have more wiggle room in your estimates if you are using a 15-20 year loan versus a 30 year loan. If you under estimate on cap ex with a 15 year loan, you will have paid down the loan enough to refi out some money for a roof or heating system or whatever should the need arise.
Equity sitting in a house is a blessing and a curse. Its a curse because its a liability if you get sued, because you can't immediately use it if needed, and because it can disappear in an eye-blink if the market goes south. However, it is a blessing when you access it and use it.

1 Reply
Kyle Spearin
OP
Real Estate Agent · Boston, MA · Member since 2016 · 451 posts · 214 votes
4y
That's super insightful! I'll keep in mind what you said about loan options. I'm primarily looking at cosmetic rehab properties, so it's definitely worth paying attention to the age of all the big ticket items rather than the actual age of the property. Would love to learn more about how you factor in rehab costs when analyzing the properties you target!
0 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
You have to do the math.
If the roof has 20 years of estimated life remaining, determine replacement cost and divide by 20. That's how much needs to be set aside each year. Repeat for all other capital expenditures and you'll have a good idea of what you need.
It's much easier to just set aside 10% and call it a day.
The DIY Landlord Book4.7245 Reviews
Website View Page
2 Reply

Join the conversationCreate a free account to reply, vote on answers and follow this thread.