How do I calculate CAPEX after a showing?

[Riley Iris]

I recently had a showing for a house and learned that most of the major capex items are new or like new. The roof is metal, the windows are vynyl, the water heater is near new, the kitchen was just redone, the floors are LVP, there is a new built in AC unit, etc. In short, the place looks great and I don't foresee any large capex items in near future. 

Originally I was estimating capex to be 10% of rent. The property does not cash flow enough at that number to justify an offer. I'd like to amend my calculation to reflect the state of the house, but I am not sure how to do so. I work for a property management company that recommends investors put 3% away for capex, is that a realistic number? Is there a way I can take the cost and condition of each item and use that to calculate a monthly capex budget? I could use some general guidance on how some of y'all go about this process. 

[Jimmy Lieu]

Quote from @Riley Iris:

I recently had a showing for a house and learned that most of the major capex items are new or like new. The roof is metal, the windows are vynyl, the water heater is near new, the kitchen was just redone, the floors are LVP, there is a new built in AC unit, etc. In short, the place looks great and I don't foresee any large capex items in near future. 

Originally I was estimating capex to be 10% of rent. The property does not cash flow enough at that number to justify an offer. I'd like to amend my calculation to reflect the state of the house, but I am not sure how to do so. I work for a property management company that recommends investors put 3% away for capex, is that a realistic number? Is there a way I can take the cost and condition of each item and use that to calculate a monthly capex budget? I could use some general guidance on how some of y'all go about this process. 

Hey Riley, what you’re running into is pretty common—when a property has a lot of major items already new or recently updated, the usual 10% of rent rule can definitely overstate your ongoing capex needs. A lot of investors adjust based on the actual condition of the property, often putting 2–5% of rent aside for ongoing maintenance and future replacements, and some use a weighted approach where they estimate the expected life of each major system and divide the replacement cost by the months until it would realistically need updating. For example, if the water heater cost $1,000 and has 10 years of life left, you’d set aside about $8–9 per month just for that item. Add similar calculations for the roof, AC, appliances, and so on, and you’ll get a much more tailored monthly capex number than a flat percentage. This method takes a bit more work upfront but gives you a much more accurate picture of the property’s cash flow potential.