Estimating Repair Costs and Capex

[Victoria Coleman]

I’m having a hard time figuring out how to calculate repairs. I have a few of questions.

1. How do you figure out what percentage you should set aside from your rental income per month for repair costs?

2. In "The Book on Rental Property Investing" Brandon provides a Capex estimation process table, but how do you accurately calculate your capex? Do you ask the previous owner when was the last time each item was repaired and then ask contractors how long each item will last and how much it will cost to repair?

3. Should repair costs and capex be separate? Or can you just factor them in together?

I appreciate any feedback in advance!

[Bill B.]

That’s true, at least until you have 5+ properties (that’s when I stopped having reserves as my rental income exceeded any possible repair.) Most repairs should fit on a credit card. But here are my two examples to show how they may not relate to you and your properties...

I have a townhome I paid $450k for on lake Minnetonka in MN, it rents for $2700 and in 5 years I've bought a microwave and a garage door opener. So my repairs are $600 on $162k in rent. Probably doesn't mean you should allocate 0.004% for repairs, but the HOA takes care of everything outside the studs.

My other 12 properties are in Las Vegas, less than 20 years old, with stucco siding, sloped tile roofs, no grass, no snow, no frost, no state income taxes, very low property taxes, no fences, no tornadoes or hurricanes, etc etc...

I MIGHT buy 1-2 water heaters per year, 2-3 appliances (since each house has 6) and an air conditioner every 4-5 years (they all have 2) I don't spend a dollar on exterior painting, roofs, windows, or doors (except a garage door once). That's 20 years of history on my kind of properties. But if you want to rent out SFR in the upper Midwest or in a historic district, or near the salty ocean, these numbers don't mean anything.

I thought of another option besides the seller and a property manager. Do you or your friends/co-workers live in the type of housing you plan to rent out? If so, ask them, and yourself to figure out how much you’ve spent on repairs for the last two years and average it out. 

good luck.