Figuring out how much to budget for capex

17 Replies

hey guys so I'm thinking about putting in an offer on a duplex in my area but am a little stumped on how much to figure in for capital expenditures. I'm using a 10% of rent number for vacancies and a 5% of rent for maintenance, however when it comes to capex I can't find any info on what that percentage should be. I know that it must depend on how old your house is (age of the roof, heater, etc) but is there a general percentage or a range that anyone uses? 

I budget $.67 per square foot per year.  On average.

Good Luck.

Bill

I use a minimum of $150/month/roof for SFH or 2-4 unit properties. Whatever method you use, I strongly recommend using some sort of minimum number.

the proper way to do it is create a reserve spreadsheet

Water heater $600 installed Lasts 6 years = $100/yr

Roof $4500 lasts 20 years = $225/yr

refrigerator  $400 lasts 8 years = $50/yr

Do this for appliances, windows, flooring, HVAC etc etc. you get the idea. If you are buying a used home then you need to figure the useable life left in the components.

A very long-term rental I own has had 16% overall for maintenance, repair and capex. It was built in 1910. 

@Ned Carey   do you depreciate literally everything in the house? Is there any resource that you use in order to know in general  how long an items life is?

@Aaron Montague  why use a minimum? 

@Bill Jacobsen   where did you come up with that number?

Thank you guys so much!!!

I did use a % of rent but realized that the number didn't depend on the amount of rent charged.  I budget a flat $1,000 per year for maintenance but felt that many of the bigger cost items depended on the size of the house.  Things like, roofs, gutters, residing or painting, replacing windows and the like.  Under my formula a 1,500 sq. ft. house would demand $1,000 per year.

I don't know whether there is one right answer but I hope this helps.

Bill

Originally posted by @Nate Boda:

@Ned Carey   do you depreciate literally everything in the house? Is there any resource that you use in order to know in general  how long an items life is?

@Aaron Montague  why use a minimum? 

@Bill Jacobsen   where did you come up with that number?

Thank you guys so much!!!

Nate, in the post I referenced above, you will find a link i made to yet another thread where @Chris Martin   and I posted how the bank will look at reserves for a loan, and how to get life expectancy for various systems.

@Ned Carey  I like the idea of the spreadsheet. It does make sense to me to budget for these things because they do not last forever and at some point, they will break.

But how do you figure out if a house that you just looked at will need a $4000 roof vs a $6000 roof? I'm sure with experience, you will just learn about these things. But how about newbies like us who are analyzing properties so we can do our first purchase. How do we know what amount to put for roofs and windows and floors when we are doing our CapEx?

@Christopher R. thats exactly my question as I am also a newb looking to buy my first property. Maybe having a general contractor on call would help? Take them to look at potential purchases? Seems to be a useful tool for flips. Interested in seeing what others think/say.

-Jake

Welcome to BP.

On average I use a minimum of $600 per unit per year for a multifamily property and a minimum of $800 per year. Sometimes 10% is a good reserve. 

These figures will fluctuate, if the property is 5 year old vs 50 years old. There is no "ON FIGURE FIT ALL" type of thing here.

Originally posted by @Nate Boda:

@Ned Carey  do you depreciate literally everything in the house? Is there any resource that you use in order to know in general  how long an items life is?

Thank you guys so much!!!

 Reserves for Capital expenses and depreciation are two different things. Yes I depreciate the property. I don not segregate items to take advantage e of shorter depreciation rates. 

Regarding the Capital Expense reserves I included everything I could think of. Since all my rentals are Row houses. I only needed to do it once to give me a general idea.

Regarding life expectancy just go to Lowes or Home Depot Etc or ask your network.

Originally posted by @Ned Carey:

the proper way to do it is create a reserve spreadsheet

Water heater $600 installed Lasts 6 years = $100/yr

Roof $4500 lasts 20 years = $225/yr

refrigerator  $400 lasts 8 years = $50/yr

Do this for appliances, windows, flooring, HVAC etc etc. you get the idea. If you are buying a used home then you need to figure the useable life left in the components.

 Man I want to know where your are getting your roofs :)

@Jacob Lair  , I'm a newbie, too.  Having a general contractor on call like they have on those flipping shows on t.v. sounds like a great idea, but I am getting the idea from reading on the forums that it is not easy for most people to find someone like that.  It seems that contractors come and they go.

Good thread!  I too would love to find a reserves spreadsheet to use. I didnt find one in the forms area when I looked unless someone has since uploaded one? Thanks in advance. 

Great, short article here that seems like the proper way to do it. Hard to mess up if you look at current life left, cost to replace, and break it down by the month. Of course it's also going to take longer to calculate out, but that's better than going broke.

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