Capital expenditures

[Jonathan Brown]

So I am wondering what are the steps in being prepared for capital expenditures with your first property? Is having in between 6 and 8 thousand saved along with a certain percentage saved from rent each month a sufficient to be safe from unexpected expenditures?

Thanks 

Jonathan

[Matt Leavell]

Hey Jonathan,

From the question you are asking, you are at least starting out with the right mindset.  Too many "investors" think that they are going to buy a house and everything will go great.  They generally over-pay for the house, then have repairs and bad renters or non-paying renters that they are not prepared for.

The previous post offers good advise that I would certainly follow.  Other aspects that I would think about are the following:

1) Age of the house- the older the house, the higher your repair costs are going to be.  Simple as that. (1960's and newer generally have upgraded electrical and were solidly built; older most likely does not have as good of bones).

2) Previous repair work- was it done by a licensed vendor? If not, it still may be just fine, but you may want to ask for a list of the work done in the previous year so that you can build in a fudge factor on if some of it was done poorly and needs to be completed again.

3) Watch out for TREES!  Many people never think about that, but a large tree that is dead or leaning over the home may warrant removal which is never cheap.

4) $6-$8k is a good starting point IF most of the major systems of the home are newer.  If they are all towards the end of their lifespan, that should be accounted for in your offering price and you should keep more on hand.

5) Do not forget that when the tenant moves out, there will be rehab cost associated with getting the home rent ready again.

If I come up with anything else, I would be happy to let you know.