Estimating Capital Expenditures

[Jacob P.]

I'm new to Bigger Pockets, and recently started playing with the investment calculator. 

Previously, I had used another online calculator which had a "maintenance" field that was pre-populated with an estimate of 10% of monthly rent. There was no field for capital expenditures. On the BP calculator, I see that there is a "capital expenditure" AND a "repairs" field. I guess I hadn't really considered saving for capital expenditures as part of the investment, but while doing some research, I see some people on the forums suggest budgeting as much as 10 percent for repairs, AND 10 percent for capital expenditure.

Obviously that 10 percent has the potential to be a big chunk of potential cash flow. I would love to hear what numbers others are plugging in for these fields. 

[Andrew Karpman]

Originally posted by @Brandon Hall:

@Matt Gehrls I think you may be confusing cap ex with regular business expenses. Cap ex (capital expenditures) are big ticket items that you will need to replace, such as a roof, HVAC, etc. This type of expenditure does not include maintenance, property taxes, insurance, etc. However you alluded to that fact later on in your post so I think you knew what you were saying, just using the term in the wrong place.

@Jacob P. I have found that cap ex should be calculated on a house-by-house basis. People harp on stowing away 10% of monthly gross rents, which generally will cover you. But if you estimate that you need to make a major repair within one year that will cost you $2,400 and your monthly gross rents are $1,000, you should really be putting away 20% into a cap ex fund each month ($200/mo x 12 = $2,400). You can use the general 10% rule, but you may find yourself struggling to come up with money when the time comes to make a big repair.

On the other side of the equation, you may find that you are putting money into a cap ex fund that you haven't used in years because major repairs simply haven't occurred yet.

Brandon, 

What confuses me about the 10% rule of CapEx is the fact that it's a percentage of the gross rent. To be more clear, I'll give you an example. I live in Lancaster, CA, which is a town about 70 miles north of Los Angeles. Both, Los Angeles and Lancaster are located in the LA county. However, since rent in Los Angeles is about twice the rent in Lancaster, according to the 10% rule, I'm supposed to allocate twice as much for my CapEx. This doesn't make sense to me because a roof is a roof, a parking lot is a parking lot, and HVAC is HVAC no matter whether I'm in Los Angeles or in Lancaster. Is it wrong for me to assume that all of these grand expenditures would cost about the same whether I'm in Los Angeles or Lancaster? If this argument makes sense to you, then is the 10% CapEx allocation really a good number to use universally, i.e. for all properties in all the different sates?