Should I include maintenance and cap ex in an SFR?

3 Replies

The reason I am asking this question is because I've come acrossed quite a few videos now on youtube where people holding SFR's are only accounting for maintenance and not cap ex (this is after complete renovations though, so I'm assume big ticket items like the roof and driveway, etc should be set for the next 15-30 years). But, some of these same investors have stated that if they were buing a MF property, they would account for maintenance and cap ex even if a rehab had just been completed.

I feel that it is much safer to include both maintenance and cap ex no matter what the property type or rehab status, and I am not asking this question as a way to cut corners and add extra cash to my pocket each month. I am genuinely concerned with what successful investors are doing.

I currently do not own any rentals but would be very interested in hearing what those of you who do think about this matter. Thanks!

@Robert Ferrell , by accounting for cap ex, but then not needing to spend that amount, is a bonus.

By not accounting for cap ex, but then needing to spend a lot, in a hurry, can be panic stations!

Which scenario will you prefer to find yourself in?

But "accounting for" and "setting money aside for" are two different issues. The "accounting for" is what you do BEFORE even making an offer in the first place. The "setting money aside for" is what you may OR may not do, after you're up and running. Just know that when those cap expenses do attack, you'd better have accounted for it - somehow!...

Depending upon your market area, capex could come into play a lot sooner than 15-30 years.  Consider the lifespan of major systems.  Furnace is a solid 25-30 years typically, but an AC unit could last 10-12+.  Water heaters aren't built well anymore, so I typically account for them every 7-10 years.  At 7 years and $700, thats about $8 a month.  Roofs:  shingles are rated for 25, 30 and 50 years, but rarely does one last that long in a market with extreme temps or hail storms.  Age of the structure will play into it as well.  Even with a new renovation, and even ours are quite extensive, I account for at least some capex.

In estimating costs and income it is never based on yesterday or today. This is the major fallacy of new or renovated home investors. They do not save or plan and they base income on having zero expenses. The reality is that no investor ever can know their income, ROI, expenses, or for that matter appreciation, till the day they sell a property. Until then all numbers are purely imaginary.

Investors that do not include maintenance and cap expenses on a ongoing bases are only deluding themselves and should not be holding a property beyond 5 years.

The biggest joke of all is the investor that made $400/door one year and $200 the next (or vice versa) on the same unit. In the real world a rental property will have exactly the same monthly cash flow for the duration of ownership since it can only be accurately calculated at time of sale.