Don’t Forget! Capital Expenses “Cap-Ex”

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Podcast Version

Capital Expenses (Cap-Ex) are the large items on your expense list that are not repairs or maintenance. I repeat, this is in addition (account another 10-20%) to your normal repairs/maintenance for minor components.  Cap-Ex is for example roof, water heater, HVAC, flooring, paint, cabinets, landscaping, windows, etc.

Here are three ways to calculate it:
1) Just use 1 months rent (this was what my unsophisticated 1st Property Manager said)
2) Use 10-15% of income (this is what I do now – although when I purchase a property I try to repair all these big components up front so I don’t have to worry about Cap-Ex for the first few years. Pro-Tip: I so this so I can finance the upfront improvements.
3) Spend a few minutes and build your own spreadsheet with the general Life Cycle estimates shown below (I think this is a bit waste of time but it proves the concept and allows you to learn and do your own sensitivity analysis):

cap ex normal life

Typical Life Expectancies of Home Components

cap ex chart

Sample spreadsheet that calculates expected costs per month to save for that inevitable day.

If you are lazy or don’t know how to build a Life-Cycle Cost Analysis spreadsheet email me because I am almost a Licenced (PE) Industrial Engineer.

Original BiggerPockets Post: Link

SPC GET ‘ER DONE PLAN:

  1. Figure out the way you like to calculate Cap-ex and ensure your property analysis spreadsheet accurately reflects it.
  2. If you overlooked Cap-Ex in your existing properties you might want to shuffle the portfolio. Check out the ROE article.
  3. Download this Cap-Ex Spreadsheet

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