How much to set aside for CAPEX for KC C-class properties?

[Taylor Chiu]

Hey Bigger Pockets! So I'm looking into investing out of state in Kansas City. For C-class properties, what percentage of gross income would you budget for CAPEX?

Obviously this is pretty subjective, but so are a lot of things in real estate :)

[William Robison]

There are a lot of compelling and valid points made in this post, but one that hasnt gotten much attention is the difference in property class.  There are two factors to keep in mind first when determining a capex number.  First, one has to identify that a C class property in KC will likely have rents in the 500-750 a month range.  This, compared to a property in the A class category will likely yield $1250 and up.  So, respectively, $7500 a year in gross rents vs $15000.  Both houses may be similar in size, but for the argument, lets say that they are.  A new roof will be in the range of $3000 on a 1000 sq ft house.  So, $3000 will impact the gross rents of the C class property at double the rate of an A class.  Typically, but not always, C class properties are older than an A, and therefore, capex would be higher for older elements of the property.

As someone else mentioned, I would recommend recognizing more property and tenant risks than I would capex.  While its certainly something to calculate, I believe that these other property risks should be recognized.  We have an analysis sheet that we share that shows the risk of tenants in a C class property vs an A class property in terms of eviction risks over the course of time, as well as higher vandalism risk, tenant quality risks (take less care of the property), etc.  Finally, you should consider the lack of potential appreciation in a C class area versus an A class area.

All the best with your investments....keep the community abreast of your thoughts and decisions.