What CapEx numbers to factor in rental deal?

[Craig S.]

Hi All,

I am trying to work the numbers on a deal that I am interested in and am curious as to what Capital Expenses I should average into my long-term costs? For example: if the roof is already in good shape, should I still set aside money in a reserve fund for future replacement of a roof? Say a new roof is $5k and lasts for 20yrs...should I set aside in my "reserve funds" about $250 per year or $20.85 /month?

1) Should I also try to do the same thing (set aside reserve funds) for about everything: water heater, windows, furnace, etc? Or does this seem overkill assuming the items are in good shape already? If I add up all possible expenses for a reserve fund, it seems that my cashflow will be very low.

2) I understand it is important to account for vacancy, maintenance, etc. but when it comes to setting aside money for major future repairs, I am not sure how much money I should be setting aside. I don't want to set aside too little, but I also don't want to estimate too high expenses for every little thing and never keep any cashflow on the deal.

3) Also, should I be setting aside a management allowance, even if I plan on managing the property myself? If I set aside a 10% management allowance, this also kills cashflow. This is a duplex and I would doubt most people who purchase a duplex would hire a management company anyways?

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Below is a summary of my deal and expenses:

Duplex - Gross Monthly Rents $1,300.00

Monthly P&I Only $485.00
Monthly PMI Insurance (If Applicable) $107.00

Total Debt Service & PMI $592.00

Cashflow Using 50% Rule
Monthly Operating Expenses (50% Rule) $650.00
Monthly Cashflow (NOI - P&I and PMI) $58.00
Annual Cashflow $696.00

Cashflow Using Actual Numbers
Monthly Operating Expenses $559.85
Monthly NOI (Gross Rents - OpEx) $740.15
Annual NOI $8,881.80
Monthly Cashflow (NOI - P&I and PMI) $148.15
Annual Cashflow $1,777.80

Monthly Operating Expenses
Monthly Insurance
Homeowner/Hazard Insurance $69.00

Monthly Property Taxes $155.00

Monthly HOA Fees (If Applicable) $-

Monthly Management
Management Allowance 10% of Gross Rents $-

Monthly Utilities (If Owner Paid)
Electric $-
Water $-
Sewer $-
Gas $-
Garbage Pickup $-
Water & Sewer & Trash $143.00

Other Costs (Averaged Monthly)
Vacancy (7% of Gross Rents) $91.00
Advertising $-
Snow Removal $-
Landscaping $15.00
Maintenance $25.00
Office Supplies $-
Accounting $9.00
Legal Fees & Court Costs $10.00

Capital Expenses (Averaged Monthy)
Roofing ($5k / 20yrs) $20.85
Furnace & A/C ($4k @ 15yrs) $22.00
Water Heater(s) $-
Windows $-
Siding $-

Total Operating Expenses $559.85

Total Expenses Overall Including PITI & PMI = $1,151.85
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Please answer my first 3 questions at top first and possibly analyze my numbers if you wish. Thanks!