How to calculate CapEx

[Eric Stugart]

Hey all, I read the chapter on calculating CapEx in the BiggerPockets investing in rental properties book by Brandon Turner and it had CapEx at $182 and change per month. But I saw on a recent deal that someone had their CapEx at $45 a month and I am wondering how they got that calculation since it is so much cheaper than the one in the book which I am kind of using as a guide or rule of thumb. Can anybody please tell me how they calculate their CapEx for their rental properties? Any and all help or advice is appreciated, thank you.

[Marcus Auerbach]

@Nick D. using a % of income does not make sense gross or actual. You have to estimate capex for let's say the next ten years (new roof + new HVAC + XYZ) and then divide that by 120 months.

My market Milwaukee has an old housing stock, mostly 60 to 120 years old. So you can buy a property that has the capex clock reset recently or you can buy one where everything is towards the end of it's useful life. We usually spend about 60-80k on a total reset, then you know capex for the next 30 years is close to zero.

I often see people use 5% of rental income, which comes out to $75 per month or $9,000 over ten years, that won't even pay for a roof. But that does not mean that you have to fund all capex out of cash flow long term. Beyond 10 years IMO it is fair to consider equity as a potential source of capex.

Experiment: If you buy a brand new house (close to zero capex needed) and hold it for 30 years, at the time when it needs a major update, you will own it free and clear, so you take out 25% of its then value and rehab it to reset the capex clock to zero.