CapEx - Reactive or proactive?

7 Replies

Just curious how everyone approaches CapEx. Do you take proactive actions or do you wait until signs of problems?

I have a few properties where roofs and furnaces are getting towards their end of life (17-19 years). They seem to be still functioning but I was wondering whether I should start replacing them or wait longer. I don't plan to sell these properties in the foreseeable future.

Any advice or general thoughts on the subject?

Had to Google CapEx - Capital expenditures?

I think your two items of concern are very different.  If I overextend a roof, I risk doing some extensive damage to the dwelling and I may not know it's happening until after it's been happening for some time and a lot of damage has occurred.  Also, if the roof is that old and leaks and causes damage, is it insured?  It might not be.  If the roof is 8K to replace, should last 20 years, that's 33.33 a month over 20 years or $400 a year.  Is it worth it to delay?  If you do delay, I would certainly be inspecting the attics on a regular basis.  Also, if you have to fix a roof quickly, it can take some time to get permits.  Best have a large tarp ready to go in case.  

If I extend an HVAC system, it can get more and more inefficient which is going to cost your tenant more and if you let it go and the utilities cost too much, they will move.  But unlike a roof, you are not creating an opportunity for further property damage.  So you have to balance that out.  If it stops working and air conditioning or heating is critical, then an emergency repair is more expensive.  Do you have a heating company that has the units you need in stock?  If the houses are similar in size, maybe you at least buy a unit and store it so if an emergency happens, you can respond.  I would still rather look for a heating company that can replace immediately and not tie up funds.   

The advantage you have not having an emergency situation for either repair is that you can talk to your roofing and hvac vendors and ask them when they are really slow.  You can get great prices, especially if you can give them more than one job.  Or, you just allow them to work you into their schedule, ie, we will get to yours the next time we have a job in that area.  You can get the roof permit and take quite a bit of time before you have to close it off.  In Florida, roofing is VERY slow in December and workers need to buy Christmas presents.  

Gerald Demers

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There's nothing better than "proactiveness" when it comes down to Real Estate; we all agree that prevention is much better than cure aka "an ounce of prevention is worth a pound of cure". So catching issues before they arise &/or worsen is the best approach.
That said, you need to weigh-in facts that only you know; such as, will you be able to amortize the CapEx with no major hardships? will insurance be covering any of it? Will you be able to file the entire dollar amount comes tax season? Do you got capital to spare for the enterprise? See, you don't wanna spend your last penny might an urgency arise...
I personally am both, proactive at times and reactive at other times all depending on the situational circumstances and the data I'm working with.
Good luck, and know that you're the only person that knows what to do and when to do it; choose carefully and only after you weigh in everything.

I'm proactive in the sense that I know when something is coming up I start doing due diligence, getting bids, materials, etc... Then find a good time to do the repair.

If you're not proactive then it will force you to be reactive and generally you won't be ready for the financial hit or more damage that was avoidable will have occured.

Going to give you an example and you can decide what is better. bought a SFH painted the whole house inside, new floors in kitchen, refinished floors in the rest of the house. the house had oil heat and i was converting over to Gas. new Furnace and Hot water heater sitting in the basement ready to go in. The Oil furnace was probably 30 years old, well think you know where this is going, the furnace dies before the new one was put in, about November, cold days, the pipes in the house freeze and break ( hot water baseboard heat ) i had to replace all baseboard, refinish floors again, fix ceiling in the kitchen and walls that i had to open and run new pipes, re-paint. so i think i am more for the proactive then reactive, even though i thought i was being proactive replacing all the mechanical, it just wasn't quick enough.

That's so sad!!

Proactive is definitely the best... especially when you're risking collateral damage.

From an investment perspective though... if you can extend the life of anything, you'll have huge savings... for example, I had carpets that were trashed, but I found tenants with dogs that didn't care because I waved the pet deposit... and I got another year of life out of the carpets.  This saved me at least $300, and got tenants into the building sooner since I didn't have to wait for carpet install.

Same with a roof.  If you can be 100% sure that the roof will make it through the season, I'd give it another season.  If you have doubts about a heating system, get it inspected before the cold hits.  Also... if it's a heating unit, and you have tenants there that will let you know if it starts to get cold... I think the unit can get changed before things freeze up... unlike Patrick's story where it was a new heating system that takes more time/plumbing, and it sounds like there were not tenants there to give him early warning.

NOTE: Extending the life of something that has cosmetic effect like paint, will cause the quality of tenants to waver... and it could be a downward spiral... so keep the place looking nice.  This expense will always be cost effective.