I know the title is awesome. I would like to hear from all of you, the professionals! Though I am a newbie, please don't assume that I haven't done my due dilligence. I have been studying real estate for a few years. But you guys are in the field, and I ALWAYS want to learn. SO HERE WE GO! I am about to sound like an amateur, prepare to laugh at me.... For the first time, I am thinking about not including CapEx in my Cash Flow Analysis. I do not think it makes sense to put away 30% (Vacancy, Repair, CapEx) For "What If" scenarios. Here is what I got.... 1. I do understand that it is a bad idea to invest in real estate without being aware of these expenses. A couple experienced investors have said that these expenses are so you don't "Get caught with your pants down" Right? Well... that makes sense! BUT, you are going to pay out of pocket regardless. Because it is deducted from your Cash Flow, so regardless of where the money is, or when it is there, it is being taken out of your pocket. 2. Vacancy and Repairs are a controllable factor. If you screen tenants correctly and find GREAT long term tenants, vacancy and repairs should be minimal. But let's put aside 10% to be safe! I am ok with that! 3. Isn't that what reserves are for? If i have say, 5k in reserves for a small SFR, (50-90k) then I shouldn't have to save half of my "would-be profit" for these repairs. 4. "BUT NEWBIE, IN 5 YEARS A NEW ROOF COULD COST YOU ALL OF THE CASH FLOW YOU HAVE MADE THUS FAR.." Think about that.... so will you? Say I have a duplex renting for $1000/mo. My PITI is $500. If i don't include CapEx, let's just say I take home $500, for the sake of simplicity. **I AM NOT SAYING IT IS OK TO SPEND ALL OF THIS, IT WILL ALL GO INTO THE BANK TO REINVEST/RESERVES** Say you also have a duplex for $1000/mo PITI $500. CapEx+Vacancy+Repairs leaves you with $200 cash flow, but you have $300 going in the bank for "What If's" ( I am making these numbers up. ) SO. 5 years later both of our roofs need replaced. I pay out of pocket. You fix the roof with your CapEx money! If you claim, I just lost all of my cash flow for the past 5 years, ($500/mo) Then you definately lost your $200. Even though you had $300/mo to fix this, it is stil $500/mo either way. 5. "Brandon Turner's book tells you to..." I believe that his CapEx chart was a little high.. great reference tool! But $5,000 for windows... what are the chances they break all at once? And a roof on a small home shouldn't cost $20,000.. 6. $500/mo Profit vs. $200/mo Profit. Your cash flow is simply what YOU say it is. You could put $300/mo into an account... or you could consider that $300-Income. I understand why people deduct it but do I really have to? I am not trying to sound smart... and I am not under-estimating anybody's intelligence. I just really want to learn! "Explain it Like I'm 5!" Right? Thanks, Guys! Please excuse my horrible grammar.

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