A way to calculate big item-cap ex (multifamily)

[Deniz Camlik]

Good morning dear BiggerPockets-Community,

this is Deniz from Germany. I have a question concerning the often discussed topic "CapEx savings for big ticket-items replacements". However, I haven't found an answer so far, therefore I'm counting on your help;)

When building up capex-reserves there might be 2 problems:

• - It may blow up your available cashflow, as the remaining lifetime of some parts are relatively short and the replacement costs are high. 
• - When you hold it totally in cash from the beginning for the next 15 years, there is a lot of dead-capital sitting in your bank account and the pace of growing your portfolio is reduced.

The way inbetween, that makes sense imo, is the following:

• 1. Estimating the remaining lifetime of the big-ticket items and put it in ratio to the total lifetime (%)
• 2. Multiply that percentage-number with the cost to replace the item.
• 3. Divide that number by the remaining month.
• 4. This is the amount you have to put aside every month.
• 5. The difference between the saved amount and the replacement costs in total must be available in cash at the time buying the house.

Remaining lifetime -> saved by the cashflow

Expired lifetime -> Must be available as a cash reserve

My expected holding time is appr. 5 years. However, when there is a market-dip, I might be unable to sell. For this case I add another then years to my calculation (so 15years in total) to be on the safe side. I do this calculation for all big ticket-items that have to be replaced within the next 15 years.

Is this a common approach?

Thanks a lot. I really do appreciate your help.

All the best

Deniz