Yet another Cap Ex post

[Justin Pumpr]

Hey all,

I'm trying to work out a good Cap Ex amount for my rental properties. I was previously using percentages of monthly income i.e. 10% Cap Ex, 5% repairs and 5% vacancy. However, after calculating the cost to replace these items I realised that my Cap Ex is about half of what is required. The image below shows the expenses for Cap Ex with almost everything being new. The average monthly amount for Cap Ex is $262. On my property which is brining in $975/month that is more than 25% of the gross rent. Add 10% management, 5% repairs, 5% vacancy, taxes, insurance and P&I onto that and it brings my cashflow down to ~$50. However at 10% for Cap Ex it cash flows at my target. 

This property is meeting the 1% rule (I'm all in for $89,000 and renting for $975), so all the numbers on paper make sense and it should be cash flowing well. However, as mentioned, if I use actual calculations for Cap Ex then it doesn't. The numbers I'm using are what I actually paid for most of the replacements, so I know they are accurate costs. 

I've been thinking of moving into other markets where the rents aren't as high, but using these numbers for Cap Ex I don't see how they could ever be profitable; if I'm only getting $700-800 per property in rent and I have to put aside ~$250/month for Cap Ex then it's a non-starter. 

Am I missing something here?