Light bulbs and refrigerator water filters as capex?

Question

Hi Everyone,

This probably seems silly to ask, but I am still curious about it. Do you budget things such as new light bulbs, faucets, toilet flappers and water filters in the fridge as capital expenditures? Or do you make your tenants pay for them?

Thanks again for your time!

Greg Scott · Answer

I would never have a line-item for small things like light bulbs in my budget, otherwise, the budget would be 100 pages long.

On the other hand, I would never expect a resident to change filters or toilet flappers, although they may change light bulbs.  It is often better to give the resident "free" preventative maintenance items such as new furnace filters because it prolongs the useful life of your major equipment.  It also gives you the opportunity to check on the property at least 2x per year and you can note any lease violations or other problems.

David M. · Answer

@Hendra Wijaya

It wouldn't be capex, but just repairs.  I wouldn't have them as individual line items, but just part of the lump sum of "misc repairs."  Its pretty low dollar value stuff, maybe with exception of faucets when you include a plumber to change it out.

Good luck.

Allan C. · Answer

@Hendra Wijaya firstly, it may make sense to factor small consumable items in your underwriting, but lump it all into one miscellaneous line item.

Secondly, they should all be under opex and not capex. The label doesn’t matter when you’re underwriting for acquisitions, but the fact that you’re mixing it up means you need to do more studying to understand the difference for tax purposes.

While you’re at it, it’ll be beneficial to learn about Safe Harbors that allow you to expense items that are normally capitalized - there are a few and these Safe Harbors are very powerful.

Hendra Wijaya · Answer

That's sensible! Moreover, some tenants might not take care of the properties as well as we do, and these "free" preventative maintenance help us to avoid paying for something much more costly in the future! Win-win scenario!

Thanks again @Gregg Scott !

Light bulbs and refrigerator water filters as capex?

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