San Diego capital expenses

[Dan H.]

I recently read on Bigger Pockets a post on Capital expenditures that included some generic numbers. 

http://www.biggerpockets.com/renewsblog/2015/10/13/real-estate-capex-estimate-capital-expenditures/

The numbers did not take into account size, number of bathrooms, etc. of the property.  In other words it was a very rough estimate of the capital expenditures.  Even noting that it was a rough estimate of the cost some of the numbers seemed to be way off for the San Diego market.  For example I cannot get any HVAC (even a split) replaced for $3K.  My foundation/structure repairs are significantly higher than the numbers he used.  My windows from the late 70s are done so I think 40 years would be a better estimate on lifespan (even though I had some casement windows from the 50s that did last 50 years).  Also he seemed to be missing may smaller items that can add up (primarily garbage disposals and ceiling fans).  Also where I own a majority of my units the city has recently mandated backflow valves (fairly expensive installation) with yearly inspections (close to $50 per valve); who could have seen that one coming?. 

So I was wondering what you use as a rough cap expense costs and will provide my rough estimates per unit realizing that my longest owned rental property is from 2003 (I have not needed to replace a roof, furnace, or water heater yet).  I have tried to incorporate the expenses that I have yet to encounter into my rough estimate.

SFH: $400/month with average size of 3/2, 1200'.

Multiplex attached (single roof, foundation, etc.): $300/month with average size of 2/1.5, 800'. The cost difference from SFH is both the result of the smaller size as well as shared structure.

A SFH larger than my estimate will typically have higher capital expenditures and vice versus for smaller. Ditto for joined units.

Any opinion on my numbers?  Too high, too low, close? 

Using my estimate of capital expenses I have one property (duplex) that is not positive cash flow (not including equity gain) but there are a couple of extenuating circumstances on that one (we have a 2-car garage that we use both to store stuff for our rental properties as well as a few personal items (Christmas and Halloween decorations) and one unit of the duplex is rented to my handyman at a discount).

[Justin R.]

@Dan H. Awesome post and well thought out content.  Sorry it's not getting more action - it's been on my list to respond to for the past day, but it's a meaty subject.

We have a handful of small MFRs (2-4) in central SD.  In the proformas and operationally, I'm using 5% of gross rental income to our capex fund monthly.  That number was not based on any itemized budgeting of any sort, just a general observation that in our portfolio, higher rents mean more sqft and usually more bathrooms.

Although I'd like to sit down and itemize, each property has its own unique things to it and I feel like I'd be more-or-less guessing anyways.  At the end of the day, if a building needs a new roof, it's going to get one whether we pay for it out of the capex reserves, current operating income, or an owner contribution.  Getting the exact right capex budget numbers is an exercise that doesn't impact our reality.

In our case, almost all our properties were rehabbed extensively after purchase.  Our maintenance costs are averaging about 2% of gross rent and our capex is averaging around 0.5% over the past 5 years.  That's DEFINITELY not going to last forever, but I'll find out soon enough whether 5% was the right target or not.  :) 

It sounds like you've got an operating history with your units.  How are you budgeting for capex?  Have you been itemizing?