How do I calculate CAPEX after a showing?
Riley IrisPro Member
New to Real Estate · Big Sky, MT · Member since 2026 · 7 posts · 9 votesHow do I calculate CAPEX after a showing?
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Jimmy LieuBusiness Member
Real Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesQuote 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.
Jimmy Lieu, Red 1 Realty4.9120 Reviews
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- Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes5mo
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.
Well, one way you can do it is just take your major cost items - HVAC, roof, etc - calculate the replacement cost divided by the remaining useful life and include an inflation factor, and you'll get close to what you should be setting aside.
Example (using real simple numbers): asphalt roof, brand new, 20 year useful life, $20k replacement cost today, 2% inflation factor. You should calculate (you don't necessarily need to set this aside but you do need to know how it affects your net profits) your annual cost on that item - $1k year one, $1,020 year two, $1,040 year three, $1061 year four, etc.
You can create a pretty simple Excel spreadsheet to figure up these costs. Then you can just add a fudge factor for the things that will wear out but you don't want to just be figuring up 10 thousand things in a rental - a vanity, for example.
OR you can use a planned obsolete model, where the property will be sold before any major capex comes due. I know owners that do just that and essentially ignore capex altogether.
Skyline Properties - 5moJimmy LieuBusiness MemberReal Estate Agent · Columbus, OH · Member since 2019 · 3k+ posts · 2k+ votesHey 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.
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.
Jimmy Lieu, Red 1 Realty4.9120 Reviews - 5moRyan SpathBusiness MemberReal Estate Agent · Boise, ID · Member since 2017 · 562 posts · 377 votes
Using a weighted average based on the life of the system and the replacement cost is the best way to go in my opinion. It is easy to buy newer properties and save a minimal amount and get used to this and not adjust when items age.
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