CapEx and Maitenance for 2 4-plexs

[Daniel J.]

I am looking at a deal just north of Houston that is 2 4-plexs on 1 lot, and I wanted to double check on cap ex and maintainence numbers.

All city utilities, flat roofs, built in 1966, updates have been done, some new ac’s. My plan would be to replace any large capital items upon purchase.

I am using $6000 annually for cap ex, and $3000 for maitenance. Rents are $6000 a month. 

Does that sound reasonable? More? I’m not entirely sure of all the parts to consider with cost for this size of building. 

Thanks!

[John Leavelle]

Howdy @Daniel J.

Why are you planning to replace all large capital items upon purchase?  Are they all in poor condition?  What are you considering large capital items?

Have the property inspected before you commit to that line of thought. You need to know what the current condition and life expectancy of all major components and appliances are. Do this before you decide what must be included in a Rehab budget and what can be deferred as part of your CapEx reserves requirement. Arbitrarily replacing something is not a sound financial move.

8% - 10% for CapEx is generally a good start point. After having the property inspected you should be able to project a more accurate estimate.

I would increase the amount for Maintenance for now. Maintenance costs, like CapEx, depend on a number of things. Age and condition of the property, quality of tenants, and frequency of turnover all influence this cost. The older the property the more Maintenance is required. Remember you will have 8 sets of appliances, water heaters, a/c systems, plumbing and electrical systems to deal with. Do you really think $31.25 per unit/month is going to cover that? I staying somewhere between $50 - $75 per unit. Until you know the norms for each property I like staying more conservative. If you need it then you have it. If you don't need it then you have a bonus for Cash Flow.