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?

[Jay Hinrichs]

I ran into this with my rentals I bought that were new construction and the values literrally did not go up in 14 years and these were nice homes in the deep south in great neighborhoods A class.

so you own them 10 to 15 years there was no real cap ex during ownership.. but now you have 10 to 20k per house to get them ready to sell on the open market.. bye bye cash flow.. it would have been better to exit at year 7 or so. 

I made the money when i bought them for accelerated depreciation with the go zone tax benefits  had I not got those this would have been a very poor investment.