Capital Expenditure Costs: A Case Study on SFR & 4plex - What do you use?

[J. Martin]

I was surprised by the amount of long-term costs I calculated and even more surprised by what my biggest costs were going to be!!!! I also learned about better ways to estimate long-term expenses. Flooring and interior paint, over a long period, were going to KILL me! (actually, I'll be OK - but I was almost shocked by how high they were relative to roof, etc.

How do you estimate long-term costs? % of rents? $/unit/yr? $/sq ft? An estimate based on the specific property? (I kind of like them in reverse order..)

You can download the full presentation & excel file here:

http://www.meetup.com/REmeetup/files/

Some takeaways, then more info..

•Use a Cap Ex estimate that makes sense for your circumstances

•Some average costs can be estimated over a long period if the time is taken to get realistic cost information for individual property.

•Don’t confuse a good method of comparison (like % of rents) with a good method of estimation (like $/sqft or per/unit costs)

•Floors, Interior Painting, & Kitchens can cost more than Roofs, exterior paint, & appliances over the long term!

•Consider ways to mitigate these costs, such as durable flooring; durable, easy-to-clean & hard-to-notice-errors paint & color; tenant wear & deposits;

•Surprised there weren't more savings for 4plex vs SFR!

After a discussion with @Anja Brey about long-term capital expenditure costs, I decided to make an estimate for my property over the long term. And these were the results. I shared them with my meetup group in San Francisco last Thursday.

4plex:

SFH:

•Helped me understand long-term costs (& more precise costs for props)

•& ACTION STEPS TO IMPROVE!!

•Evaluate more durable flooring

•Vinyl?

•Hardwood?

•Evaluate better paint (lasts better, longer); colors (hard to notice dirt, smudges, but stylish); sheen (something that cleans easily but looks good)

•Negotiate bulk discounts on replacement of major items & coordinate

•Evaluate more durable items vs cost across the board

•Consider day labor for easier job

- Consider selling if people are overpaying for old systems?

Biggest Impact on cost for my buildings:

•Size of units (3k sqft SFH vs 900 sqft house)

•I found my largest long-term costs were driven by size: interior paint, flooring, water damage, roof. The more “stuff” there is to take care of, the more it costs to replace

•What type of Labor you use (GC? Handyman? Yourself? *not free!)

•This can easily double the cost in my area from GC to handyman. That is huge. #1?

•Cost of Labor in your area (SF labor costs more than Ohio)

•I estimate this could vary by 25-100%+ from Ohio to SF

•Quality of finishes & finish work – (high end or low end?)

•This can increase the cost of finish materials by 30-300%+ & some higher labor

•Type & # of units w/ shared systems –

•e.g., Large MF w/ shared costs

•I used to think this was a bigger impact, but how much does increased interior replacements in large MF offset savings from shared systems? (not 50%+ cost difference like earlier items, especially after utilities..)

•Durability of finishes – (e.g., pressed-board cabinets? Or real wood?)

•Weather – (e.g., TX investor said 10yr for new roof b/c hail & wind!)

•Wear from tenants – (2 tenants who treat like home; or 5 like renters?)

How do your estimates differ if you are in New York, verses San Jose, or Los Angeles? Or Kansas City?