Quote from @Jordan Fujan:
I'm working on my investment spreadsheet and have been doing some reading on the topic of Cap Ex. Some people use a number like 10% of the income, but many suggest itemizing your expenses over their lifespan is the most accurate. I've seen some logical points made that under estimating Cap Ex may not be realized until many years later when a few larger than expected expenses eat up years of "cash flow".
Below is my Cap Ex estimate. I've taken the lifespan and current age of the item (many do not add current age but I don't understand how you can be accurate without it) into account to estimate the remaining years until replacement is needed. For a SFH that rents for $1800 that would be 17% Cap Ex. I understand that Cap Ex is location and age of home dependent, but is it possible for this to be ballpark accurate for these times? I wonder if 10% is so commonly used because people are looking at 10 yr time frames and not 30+? Am figuring these numbers right? Any other variables I'm not looking at?
Your input is appreciated!
I've also been interested in this and can't seem to find a clear answer from these forums. I've read some people do only 5% of the rent for their CapEx, some say 7%, and some say 10%. For some investors, doing a flat % isn't logical because a roof for a 1000 Sq ft SFR in a D class neighborhood will cost just about the same as a roof for the exact same house in an A class neighborhood, but the A class rent will be 2-3 times more than the D class rent. To me, it doesn't make sense to do a flat percentage as a result.
Thus, I, too, created a spreadsheet similar to yours, but with a column that accounts for 3% inflation. For example, using the roof analogy, a 1000 sq ft roof in my area (Milwaukee, WI) would cost about $8500. But my SFR won't need it replaced for about 10 more years. I doubt that roof will only be $8500 10 years from now. Accounting for 3% inflation, that same roof will cost about $11,423, thus if I saved only $8500, I would be about $3k short. Therefore, in my spreadhseet, I have a Present Value column and a Future Value column, and a column for monthly CapEx amounts based off both the PV and the FV. What I found is the monthly CapEx PV column is about 11% of my SFR rent. The problem I have is that my monthly CapEx FV column is about 22%. Ugg. It's huge and it wipes out my cash flow to the point where I am barely CF positive.
Note: I ended up not accounting for siding costs since the siding is newish and most likely I will have sold the property or have retired by the time it needs updating. Same for driveway, foundation, and window costs. Had I included those, my CapEx PV % would be higher, and for my CapEx FV %, I would be cash flow negative.
To the point, I don't know how others do it, nor if when someone says they only save, say, 7%, is that good enough. If someone says 5 or 7%, they may or may not have decades of experience behind them to qualify such lower numbers. Nothing against them as I don't even have 1 full year behind my experience, but I question what is the most accurate route. To fall in the middle, I will probably use a blend of the PV and FV values so that my CapEx percentage set aside is closer to 15%. I will then place that in a money market or something that earns 3-5% interest to account for the inflation mentioned above. I hope to get my cash flow back in subsequent rent increases...
