Cap Ex? What % of rent?

[Scott Graham]

Hi BP!

In the process of acquiring my first 4 family property. I am wondering what percent of the rent do you set aside for Cap Ex? Is 10% a reasonable amount?

Scott

[Jim D.]

10% is a good place to ballpark it, though it will vary with the following variables:

--condition of the property (if roof, HVAC, plumbing, electrical are newer, then it will be much less)
--age of the building
--quality of tenants in the area and how hard they'll be on the house

One other things that will affect it is how high the rent is. A new refrigerator costs the same to replace on a unit that rents for $500/month as it does for a unit that rents for $1500/month. That makes for a drastic difference in the % you set aside. The lower your rents are, the higher % you need to set aside for fixed costs like that. I can get away with lower rent-to-price ratios in my $400k rentals because of this.