Analysis Question on Multi-Family

[Amber Koontz]

Hello BP Community

I'm currently learning everything I can on apartment acquisitions and proper analysis. My question is, when running the numbers do you include the CapEx and or Reserves as part of the operating expense portion? I know to always account for these, but I can account for them outside of the expense realm and sometimes it can be the difference in a good deal and one that will require more value adds. I also notice Repairs, Reserves, CapEx and Maintenance are interchangeable at times when viewing data on listings. I'll see Maintenance or Repairs, or Reserves for example. Most recently, I've seen CapEx included in Escrow. I'm a bit confused.

[Omar Khan]

@Amber Koontz Reserves, maintenance are included in your NOI calculations. CapEx is not included in the NOI calculations as it is not an operating expenditure. The reason being that it provides a benefit over multiple periods and hence, should not be expensed completely in the year of purchase.

Apart from analytical reasons, the market is very hot right now. Therefore, many deals that could have been attractive are marginally or not attractive. Maintain your discipline and do not stretch your analysis to meet the #s - as painful as it is in the short-term. 

It's easy to get into a deal but hard to get out of one.