Real Estate Broker · West Bloomfield, MI · Member since 2018 · 152 posts · 77 votes
I Would like people's thoughts on how YOU calculate cash flow on a rental property, specifically expenses for repairs & maintenance and CapEx.
The way I do it is I have a cost I've developed that I use for monthly R&M and ALSO I use a property specific CapEx calculation using a spreadsheet that takes into consideration of each CapEx item's cost new, how old it currently is and how much per month you would need to set aside to replace that item. For example: If you have a roof that is 15 years old and has an effective life of 30 years. It cost $4,000 to replace that roof new, I know I would need to set aside $22.22 per month ($4,000/(15 years*12months) or $4,000/180) to recoup the cost to replace that roof when it's effective life is up.
Thats exactly how I do it as well. I also add another $5 per mo to each major expense reserve to account for inflation, project going sideways etc.
Another option is to lower your capex rate and accelerate the hold period on your rental, say you hold for 5-8 instead of 10-15 years then you still leave the home in good shape to the new owner and now you can 1031 into new larger properties.
Thats exactly how I do it as well. I also add another $5 per mo to each major expense reserve to account for inflation, project going sideways etc.
Another option is to lower your capex rate and accelerate the hold period on your rental, say you hold for 5-8 instead of 10-15 years then you still leave the home in good shape to the new owner and now you can 1031 into new larger properties.