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Updated almost 7 years ago on . Most recent reply

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Derek Luttrell
  • Chicago, IL
124
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231
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Why is CapEx viewed as a percentage?

Derek Luttrell
  • Chicago, IL
Posted

Hi Everyone, 

On the hunt for my third property, I've been running dozens of properties through our beloved BP calculator. What I've been wondering is, why would CapEx be seen as a percentage of any given rent? Whether a property rents for $800 or $2,000, a water heater is a water heater, a furnace is a furnace, a roof obviously varies by size, but cost is pretty predictable, etc.

Anyway, my thinking is that....just because you stock away a certain percentage towards CapEx or repairs each month doesn't mean that you'll be safe when the unexpected (or even the expected) happens. Isn't it more about having reserves in general? Is there a widely accepted dollar amount people keep in reserves for each property they have?

Feel free to reroute my train of thought, but it just doesn't make sense to me to view these costs as a percentage of an arbitrary number (rent). How do you guys view it? 

Most Popular Reply

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Russell Brazil
Agent
  • Real Estate Agent
  • Washington, D.C.
30,059
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Russell Brazil
Agent
  • Real Estate Agent
  • Washington, D.C.
ModeratorReplied

Ive often pointed out that cheaper properties will have a much higher percentage of the rent going to repairs and capex, and more expensive properties which I prefer have a much lower percentage of the rents going to these items because of the fixed costs of many items.

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