How do you categorize expenses for your Multifamily?

Question

Hello,

When reviewing expenses to my multifamily properties, there seems to be 2 types - maintenance/repair items and capital expenses. How do you guys track / categorize your expenses so when it comes time to sell, you can show the prospective buyer it costs X to keep the property up to par and y to improve it. Or is everything in 1 big expense number? Does it really matter where the money being spent is going?

Thank you!

Jonathan Towell · Answer

Capex is used to track capitalized expenses. These are items that are usually over $2k and follow a depreciation schedule. Capex is "below the line" and not used to calculate net operating income (NOI).

So, patching a floor is a maintenance expense and above the line (included in the valuation). Upgrading the floor is capex and below the line (not included in valuation).

I hope that helps!

Patrick M. · Answer

I would not be concerned with projecting capital expenses and I would never project any for a potential buyer. As a buyer, I "thought" I had a good idea after inspecting the property and units what I would need to do. I wanted to know Rents - (Utilities+ water/sewer + Taxes + Insurance) = positive cash flow. Then I figured my financing and, again made sure there was a positive cash flow.

Many capital expenses can be done on your time schedule, if not then they are glaring issues that a buyer will see.

Anya K. · Answer

I just got our taxes done. Capex is anything over $2500. It used to be $500 or more but they just changed to $2500.

Jonathan Towell · Answer

@Quy Huynh You might also ask your CPA. That $2k number comes from the IRS and sometimes changes or varies depending on the type of work. But it is a good rule of thumb.

Quy Huynh · Answer

@Jonathan Towell - thank you! It seems like you use $2k per item as your benchmark; below that amount is maintenance, above that amount is capex? I was trying to categorize types of work as either capex or maintenance, but your $2k method seems much easier to go with if what I'm interrupting is correct.

How do you categorize expenses for your Multifamily?

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