CapEx %

[Kevin Branin]

I'm doing analysis on a few BH deals around 75-95K on the purchase price. What is a good CapEx % to use on these properties. I have been using 10%, but it seems to be eating into my cashflow.

Does anyone base their CapEx on sq. ft. of occupiable space?

[Joe Villeneuve]

@Kevin Branin @Ryan Gerding Taking money out of CF to cove CapEx is a "feel good" move that ruins the analysis of good deals, and doesn't accomplish what it is intended to do.

Take 10% out of a $1000 rent, and you collect $1200 after a year...that's after a full year.  Even if you can go through a year without a vacancy (need to cover tax, insur, mortgage, etc...3 months ~ $1500) or you don't have a major repair (roof $4000, HVAC $2000, etc...) or even a minor one or two (DW $250, etc...), the total yearly retention of $1200 won't put a dent in your costs.

It's not that I don't want to cover it, it's that CapEx retention doesn't work, and all it does is ruin the analysis of a good deal. You need to be proactive:

1 - Get a general business LOC that is in place for this purpose only, and can cover multiple properties should you run into multiple problems.
2 - Get an insurance plan in place to cover the roof, HVAC, etc...  My utility company has an Appliance Repair program, for less than $15 month (that's a lot less than $100), that covers the HVAC/HWH complete.
3 - If the roof, HVAC, etc...looks like it will need repair within the next 5 years, replace it now when you can burry it in your initial costs (financed) and have it under warranty.  Added cost of about $25 on the mortgage...and, negotiate the Offer down to compensate for it.