Good afternoon BP!
I'm curious to hear other philosophies on capital expenditures on units they hold. Are you proactive, reactive, or somewhere in between?
I have a unit that will need a new roof, it is only a matter of time. The current roof does not leak, and there aren't any missing shingles. However, it is a combination roof on a house that had an addition - the original roof is metal shingled, the addition is asphalt shingles. I plan on holding the unit for a very long time, as it was cheap to purchase and I own it outright. The shingled part is 90 years old (really!) and doesn't leak, and is nailed to stringers. The asphalt part is nailed overtop metal shingles that were laid on solid sheathing (2x4) when the addition was put on, probably in the 40's. It also does not leak. The entire attic is a walkup, so the entire roofing undersurface can be inspected at any time.
My own personal philosophy has always been to be proactive, i.e. replace the roof *before* it starts leaking. However, I have read a lot of comments on BP that have owners waiting until something actually starts failing before committing the funds to replacement. I can see the logic in this from a current cash commitment point of view, but it goes against my sense of taking care of problems before they actually become problems. The other part of it, to me, says that you are only delaying the inevitable, and the additional labor/material costs down the road will make you wish you had replaced the roof before the tenant calls and states that there is a leak in the roof. On the other hand, a roof is a big expenditure, whether you pay cash or monetize it over time.
So what do you do in terms of capital expenditures?
Bueller? Bueller? :)
For a roof, I prefer to replace immediately if it is visible from the street (generally a new roof will go a long way for curb appeal). If it is not visible or if it is visible but looks okay as-is then I generally try to leave it until there's a need.
This is generally how I treat most CapEx. I've got furnaces in some units that are older than I am, but I won't get a dime of extra rent or attract a new tenant more quickly if I replace them and they are still cranking out heat. Yes they will go out some day, and that's when I'll shell out the $ to replace them instead of a $100 service call plus another $200-500 in some hard to find part.
Roofs are a tough call because if it fails, it can end up costing you double or more than just the cost to replace. If you end up having $5K in water damage inside the building from a bad storm, then you'll really wish you replaced the roof before it failed.
You may think about getting bids on the roof now and seeing how cheaply you can get it done. If you wait until it's an emergency, you're likely to pay a higher price for the exact same job. Ask the contractors when they are slow and if they'd do it for a discount if you scheduled it for a part of the year when they don't have as much business.
Hahaha. JD That's funny man. I followed this topic because I was really curious too. Me personally, I prefer to stay ahead of maintenance. I recently purchased 5 properties from an absent owner. I can tell you that chasing failing systems is not a good way to run your business. With 5 properties in various conditions. There are times when I think I'll never get them right.
When it comes to major CapEx expenditures (roofs, retaining walls, windows, plumbing) we prefer to undertake them on our timeline rather than Murphy's. Occaisionally we do get caught out - had a retaining wall collapse last year which was 3-years ahead of our plans to replace it.
When it comes to smaller items such as fixtures and appliances, we will typically replace them as they fail unless we are carrying out a significant renovation on the unit.
Thanks for the replies so far! That is a good strategy, Michael, waiting for a slower time of year. That might be a strategy that I'll look into. I'm curious to see what others say..